The summer season is the budget season for cities and other government entities around Texas and Galveston County.

After a legislative session in which state leaders, after years of attempts, passed a property tax reform bill, the reaction of local budget writers on what the changes will mean were uniform:

We’re still trying to figure it out.

Texas Gov. Greg Abbott signed Senate Bill 2 into law June 12. One of the legislature’s signature accomplishments, the bill aims to curb property taxes by adding a new hurdle cities must clear before they increase revenue from property tax by more than 3.5 percent in a year.

If a city or other government entity wants to raise its property tax revenue by more than 3.5 percent, the increase must be put to a vote. The bill does not count property tax revenue from new construction in calculating the cap amount.

There also is a provision that allows taxing entities to “bank” unused revenue growth, so in some years, entities might go beyond the cap without a vote.

Cities and counties had already been constrained by an 8 percent cap, though that requirement only allowed for the possibility of a vote, not a requirement on one.

The requirements of the bill don’t go into effect until Jan. 1, 2020, but local budget writers are already considering the implications of the bill as they begin preparing budgets for the coming fiscal year.

Local government entities generally begin their budget writing process in the summer, and approve budgets before the start of the new fiscal year in October.

While the new law doesn’t go into effect right away, the city of Galveston will work any expected changes from the bill into its five-year outlook, said Mike Loftin, Galveston’s finance director.

The 3.5 percent cap is near the revenue growth Galveston has experienced in recent years, Loftin said. If that stays consistent, the city wouldn’t have to change much about its budgeting plans, Loftin says.

If revenue projections fall short, the city would probably start with cuts to “soft services” in the city’s administrative divisions, like its parks and planning departments, he said. The city might also need to consider changing its charter, which promises to fund the Rosenberg Library with a fixed rate from the general fund every year, Loftin said.

Loftin did have one prediction about how most cities would handle the new law.

“You’ll never have a tax increase election in November, period,” he said.

If a government proposes a 3.5 percent revenue increase or higher, it would need to hold a vote in an election month after the start of the fiscal year, Loftin said. Risk averse city leaders will likely rather opt to approve an increase below that mark, rather than risk losing an election for more revenue, he said.

Leaders from the county’s other large cities weren’t ready to predict major changes to their budgets.

League City City Manager John Baumgartner, through a spokeswoman, said it was too early to say what the effect of the bill would be on his city’s budget and that the city was still analyzing its effect on the city.

Texas City Mayor Matt Doyle criticized legislators for passing a bill he thought would burden some cities, but said he thought the effect of the bill on Texas City, and its substantial tax base created by industrial plants, would be limited.

“Take a $5 billion tax base, and give you 3.5 percent on that taxable value, that’s an awful big number,” Doyle said.

On Tuesday, Galveston County Judge Mark Henry, a Republican, said he had no concerns over the bill, noting that the county had decreased its tax rates every year since he’d been judge.

The effects of those tax cuts on overall revenue varies from year to year, but in last year’s approved budget the county did plan to bring in $827,607 less than it did the year before.

“It’s got nothing to do with Galveston County,” Henry said. “The growth in Galveston County shows no signs of slowing down, so I don’t know how it would ever come to impact us.”

John Wayne Ferguson: 409-683-5226; or on Twitter @johnwferguson.

(6) comments

Jack Cross

There is no mystery here to the small change made by our state legislators. There is NO cut in city property taxes. There is no cap on the revenue a city can raise as the newspaper stated. The Cap is a 3.5 percent cap on the Tax Rate. That would be a significant Tax increase. And if the appraisal value increased it would increase your tax bill even more. This has zero impact on cities budget planning, it doesn't take effect until 2020 year budget cycle and cities have no idea what the property value would be even if their was no change in the tax cap. Even this year, the cities won't get the revenue values from the CAD until after July 20. Some cities start earlier planning based on estimated given to them by the cad. But a 2020 budget would be for year 2021, a hurricane or another flood would blow a hole in any budget and it would be foolish to make solid plans. One thing for sure is that taxpayers are likely guaranteed to get city property tax increases because if this new legislation. Because cities are capped at 3.5 percent, some cities may fear an economic downturn or a disaster. To be prepared for such a case, they may be inclined to raise the tax rate up to the Max 3.5 percent to bank the money in case bad things happen. Bottom line, no tax cut and not really a problem for city governments. The legislators had to do something because they have been running on cutting taxes for years.

Charles Wiley

My man Jack! If he says its so, it must be so! Thanks for the clarifications.

David Floyd

Well said, Jack! You have studied this situation longer and more thoroughly than anyone around.

City Manager

Would never argue with Jack, he is one of the smartest guys I know but in this case it is a total of 3.5% of ad valorem tax revenue growth excluding new construction. It is not just 3.5% change in the tax rate. The tax rate could actually drop and you still exceed 3.5% in total excluding new construction. It is really more about the effective tax rate and then 3.5% on top of it, so Jack is partially correct. Also just to comment, the City of Galveston has since I have been here done 5 year budgeting, with projections for growth, collections and sales tax. We actually have well developed models that are very accurate in predicting such things. I agree that this will not be a problem for this year for any city, and most likely will not be for several years, as long as impacted governments work on long term budgeting and understand that you have to look at long term ramifications of all financial decisions and not just base things budget to budget. Brian

Jack Cross

Thanks Bryan, I agree but it still is not a tax cut, it all centers around the appraisal value increases. It may slow things down but appraisal creep will eat away any gain. The Cap was never intended to be a tax cap. Any savings centers around the school taxes. There was some movement there, but things are tied up in the formulas and even the school districts is no ready to have a cheering squad. The state has been taking local property values and using it for other purposes. They left a little more local property taxes on the plate so that school districts can lower the tax rate, but the state has to find a stable revenue source for schools other than taking the local property values. That question is not settled.

City Manager

Totally agree Jack. Good to hear from you and hope you are doing well!

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