No matter what the 86th Texas Legislature decides this session, property taxes will be a “Catch-22” for all of Ellis County, said Waxahachie Mayor Kevin Strength.
Property owners in Ellis County paid $89 million more in taxes last year than they did just five years ago, according to a 2018 Ellis Appraisal District annual report. To slow that growth, District 7 State Senator Paul Bettencourt proposed a tax bill that would require an election if local taxing entities wanted to increase its revenue by more than the rollback revenue.
“I’ve been arguing this for a year,” Bettencourt stated in a previous Daily Light article. “Texans are getting taxed out of their homes and businesses by ever-rising property taxes.”
Under the current law, the rollback rate is at eight percent and voters would have to petition for an election. Senate Bill 2 would lower the rollback rate to 2.5 percent and automatically trigger an election as opposed to having voters petition for one.
It would also issue property appraisal notices electronically and allow after-hours protests and appeals from taxpayers.
Its House equivalent was recently published out of the Ways & Means Committee by a 7-to-2 vote last Tuesday and is currently waiting on a vote by the House.
Proponents of the bill say it gives more power to the voters in the tax rate-adoption process. Pct. 3 county commissioner Paul Perry himself is in support of the bill and the intention behind it.
“We don’t need to be in a panic over Senate Bill 2,” Perry remarked. “For counties like us with our growth level, I don’t think it’s going to make that much difference. And if we ever ran into a situation that required us to go to the public, it’s the public’s right to weigh in.”
However, many elected officials are concerned about how the bill might limit their growth — and impact their budgets.
EFFECT ON THE COUNTY
Out of the 42 taxing entities in Ellis County, the county itself has one of the lowest tax rates. According to the Ellis Appraisal District, the county adopted a tax rate of .338984 per $100 valuation for 2018. The only taxing entities to adopt a lower tax rate was the Emergency Services District and the cities of Alma, Oak Leaf and Pecan Hill.
County Judge Todd Little stated that many of the county’s expenses are increasing at a rate higher than 2.5 percent, and if a 2.5 rollback cap is set in place, that could impact some of the services the county is legally required to fund.
“There’s a bunch of moving parts when you talk about property tax reform,” Little stated. “We as the county set the tax rate, but we don’t control what the values of those rates are charged on. The nature of the economy is what’s controlling these fair-market values.”
Little explained that there are several unfunded mandates that the county is legally required to fund by the government. He stated, however, that they do not collect additional revenue for those items, so they all come out of pocket.
Those mandates, he explained, included juvenile-justice alternative education, indigent healthcare, the county jail and the county courts, among other things.
“Those are additional things we have to fund if they’re used,” Little stated. “We don’t get additional taxes for those things. We have to appropriate certain amounts of money in our budget for those items.”
If SB 2 were approved, and a rollback election would be required above the 2.5 percent rollback cap, Little stated that the county’s options would be limited.
“There are two options,” he stated. “Services either get cut when we can’t afford them, or we put it to the voters in an election to allow them to be funded. Those services would require to be cut. That’s the only way it can work.”
Those services, he stated, would include maintenance, road and bridge repair. And while the county has not risen beyond the proposed rollback rate for the past several years, that doesn’t mean they won’t need to soon.
Having that safety net taken away feels like a penalty to a growing county, Little remarked.
“We’ll be capped when things are good,” he expressed. “Are we going to be capped when things are bad?”
EFFECT ON THE CITY
Out of the 20 city taxing entities within the Ellis Appraisal District, Waxahachie’s tax rate averages around the median at 0.68 cents per $100 valuation in 2018, according to the District.
Mayor Strength said the city has not raised the tax rate for the past several years, but they’ve only been able to do that because of the freedom they’ve been allowed with the eight percent rollback rate. If the rollback rate gets brought down to a 2.5 percent rate, it will be harder to fund the amenities the city needs.
“We’re a growing city, and we’re going to require more,” Strength expressed. “It’s going to become harder and harder to fund that if it goes to 2.5 percent.”
Strength remarked that the city has been able to fund the parks and recreation budget for the past two years. But if the city were restricted to the 2.5 percent cap, Strength said that is the first budget that would get cut.
“We’re a service organization, and we’re putting out services for the citizens,” Strength stated. “What would be cut would be the cream – the reason why people moved to this city. The quality of life is what gets cut.”
Strength expressed that a 2.5 percent rollback cap was too low, and offered an alternative of a five percent cap to meet residents and lawmakers in the middle. He said going from an eight percent to 2.5 percent rollback rate is too steep of a leap for the city to make.
“It’s a knee-jerk reaction,” Strength expressed. “I feel like sometimes the state complains about D.C. telling them what to do. Yet, they don’t have any problem telling us what to do?”
EFFECT ON THE SCHOOLS
The taxing entities with the highest rates within the Ellis Appraisal District are the Independent School Districts, with all 11 school districts rates being upwards of $1. The Waxahachie Independent School District has one of the highest rates at $1.5539 per $100 valuation.
Ryan Kahlden, Waxahachie ISD Assistant Superintendent for Business and Finance, said one of the biggest reasons why ISD’s tax rates are higher is because their financial structure is different from the city and the county.
“From a city and county standpoint, they get sales tax,” he explained. “That’s one of their big revenue drivers. The more commercial industry you have in those areas, the lower the property tax rate needs to be to provide the same services.”
But the only revenue sources school districts have is student attendance and property taxes, which is why there is a greater reliance on those two resources.
“As property values go up, state revenue goes down on the same number of kids that you’re serving,” Kahlden explained. “The only way you can provide additional resources for the students that you’re serving would be to raise the local property tax rate because the state money you’re receiving on those same kids is going down.”
Kahlden said the last time they held a tax ratification election was in 2014. The district has stayed within the rollback rate since that election, but bringing the rollback cap from eight percent to 2.5 percent could prove problematic to the district’s growth.
If they were restricted to that percentage, Kahlden stated that the first cuts would be to support functions such as bus service, grounds, facility maintenance — even in the business office.
“I don’t see that bill requiring that at this point,” Kahlden remarked. “I don’t even see it requiring that going forward. But it is definitely something to look at.”
Kahlden added that a revenue cap would also restrict the district’s ability to provide a meaningful salary increase to staff – especially with the substantial increases in other costs related to health insurance, utilities and goods and services.
Little expressed that it’s too soon to tell how SB 2 might impact Ellis County’s finances. But he expressed that the intent behind it was to force local taxing entities to “cut the fat” in their expenses.
“Constraining city, county and special district tax rates is a critical component of providing broad tax relief,” wrote Dale Craymer, Texas Taxpayers and Research Association president. “In 2006, when the legislature reduced school property tax rates, that tax relief was quickly lost as city, county and special district property taxes increased by double digits in each of the next two years. The tax constraint in HB2 is a necessary element of a comprehensive package of long-term property tax relief.”
Little said he appreciates that intention, even if he isn’t sure if this is the best way to go about it.
“I favor property tax reform,” Little expressed. “I don’t know if I favor a property tax cap.”