DALLAS - A bill that would allow more property tax rollback elections in Texas threatens the flexibility of local governments, according to a report from Fitch Ratings.
Under current law, residents of a taxing district can seek a referendum to roll back tax collections if the tax rate increase compared to the previous year exceeds 8%. The increase could be caused by higher property values.
Under Senate Bill 182 by Sen. Paul Bettencourt, R-Houston, the rate at which rollback elections could be held for governments would fall to 4%.
The bill would require school districts and all other local taxing units to hold an automatic election to ratify a tax rate that exceeds the rollback rate, according to a fiscal note on the bill.
Currently, only school districts must hold the automatic election and other taxing units hold an election only if a specified percentage of registered voters petition for the election before the 90th day after the tax rate is adopted.
Texas law currently requires rollback elections only of school districts. Under SB 182, the rule would apply to all taxing agencies, according to Fitch analyst Steve Murray.
"We believe the tax ratification election requirement may discourage boards and councils from seeking to increase levies beyond the threshold, given the cost and risk of voter disapproval," Murray noted in a March 9 report.
"In our view, most local government entities will likely not feel constrained by the 4% cap in most years," he added. "However, population growth creates demands for additional services, which could result in tax rate pressures that eclipse the 4% cap in a given year."
According to the Census Bureau, seven of the fastest growing U.S. cities in 2013 were in Texas, Murray noted.
"Also, the 4% cap could seem insufficient if there were a notable increase in the rate of inflation," he said.
Bettencourt is a former tax-assessor-collector from Harris County.
SB 182 is part of a package of bills put forward by Republican lawmakers seeking $4.6 billion of tax relief in the current session.
Bettencourt is co-sponsor of Senate Bill 1 by Texas Senate Finance Chairwoman Jane Nelson, R-Flower Mound. That bill provides $2.5 billion in property tax relief by setting the homestead exemption to 25% of the state's home median market value.
In 2016, the median home market value is projected to be $134,500, resulting in an exemption of $33,625. In 2017, the projected value is $143,915, resulting in an exemption of $35,979. In future years, SB 1 provides that the exemption will rise or fall along with property values in the state.
Another bill, SB 7 by Nelson and co-sponsored by Bettencourt, provides $1.5 billion in business tax relief by reducing the business franchise tax rate by 15%.
