Are Texas cities planning to take away taxpayers’ homestead exemptions? One mayor says the threat is real, as cities respond to new limits on property tax increases put in place by the state legislature earlier this year.
“Texas legislative sessions these days are tough on cities,” McKinney Mayor George Fuller said on the June 23 episode of Lone Star Politics. Fuller said a lot of legislation got passed in 2019 that he thinks will have adverse effects on city governments, including property tax reform.
“A lot of this legislation is sound bites that look great on a bumper sticker,” he said, citing Senate Bill 2, the session’s top-priority measure to slow the growth of Texans’ skyrocketing property tax burdens and give local taxpayers more control.
SB 2 limits most cities’ annual increases in property tax revenue to 3.5 percent, unless city voters approve a larger tax hike in a November election. Previously, the limit was 8 percent. The calculations exclude taxes collected from new properties added to the tax rolls and taxes levied to pay off debt.
“How is a city going to mitigate that?” Fuller asked. “Maybe they’d remove homestead exemptions, which count against the cap.”
Fuller acknowledged cities will continue to collect more property tax revenue each year through growth and higher levies on existing taxpayers. “[People] won’t see lower property taxes,” he said, “especially in the city of McKinney that’s already below the cap.”
Yet Fuller and other mayors worry annual increases of 3.5 percent plus growth will not be enough to fund desired spending increases in their cities’ operating budgets, and they aren’t confident voters will approve every plan to raise spending and taxes beyond those limits.
“Since I’ve been mayor, we’ve been under that cap by 40 percent, so that’s not the issue,” he said. Fuller, a real estate developer who runs the custom-home business started by his father, was elected mayor of McKinney in 2017. “But there’s many other damaging parts of that bill that ultimately might affect cities like McKinney.”
Like many local government officials, Fuller vocally opposed SB 2’s passage. In February, Fuller spoke against the pro-taxpayer reform at a Collin County Commissioners Court meeting, saying the city’s homestead exemption, as well as fire and police services, would be “compromised and jeopardized” by limiting McKinney to the bill’s proposed tax increases unless voters approved more.
That same week, he told state lawmakers on the Senate Property Tax Committee he opposed “restricting” the city’s ability to raise tax revenue and claimed imposing a voter-approval trigger had “the potential to downgrade our bond rating.”
Fuller was among dozens of local officials who traveled to Austin to lobby against the popular legislation designed to protect their constituents from excessive property tax hikes. An overwhelming 77 percent of Texans supported requiring local governments to get voter approval to increase property taxes by more than 2.5 percent, the vote trigger rate initially proposed by the legislature.
Frisco Mayor Jeff Cheney also publicly opposed SB 2 and threatened his city homeowners’ exemptions. Cheney said in February that “unintended consequences” of the property tax reform could include eliminating “unsustainable” homestead and senior exemptions.
Property tax exemptions vary by city. Frisco currently offers a 10 percent homestead exemption ($5,000 minimum) and an $80,000 exemption for homeowners who are disabled or over 65. McKinney offers a $65,000 exemption to disabled and over-65 homeowners but no general homestead exemption.
McKinney’s 2020 budget process is already underway. As cities across Texas prepare their budgets and set property tax rates for the coming year, they must make spending choices that take the new reforms into account. Taxpayers who want fiscally responsible budgets that maintain homestead and other exemptions should contact their city officials.