PROPERTY TAX REVENUE LIMIT ADVANCES

A bill that would limit the authority of a city council to generate property tax revenue (S.B. 700 by Dan Patrick) was voted from the Senate Finance Committee on Monday, April 20.

As voted from the committee, the bill would require a city to automatically conduct a property tax rate ratification election any time the city wishes to adopt a tax rate that exceeds the rollback rate (current law requires a petition from citizens to trigger a rollback election).

For the following reasons, mandatory tax rate elections are harmful.

Mandatory elections are expensive. Taxpayers must pay for elections. The sole purpose of an election under S.B. 700 would be to approve a needed tax increase, and the election itself would be yet another expense in the city budget. Many cities will forego the needed tax increase rather than wasting money on an election. Which items won’t get funded as a result? Certainly capital improvements would be cut, and many other services such as police, fire, and EMS could be endangered.

Mandatory rollback elections aren’t held during municipal elections. Most cities hold May elections for members of the governing body. Mandatory rollback elections would most likely occur in November, following tax and budget season. Adding to the cost of the election, therefore, will be the fact that cities must call a true special election at a time when no other city election is taking place. Stand-alone special elections during November can cost $500,000 or more in some large cities.

Mandatory rollback elections will require that two budgets be developed. Whenever a city needs to exceed the rollback rate, budget officials and city councils will necessarily have to prepare two complete budgets. One budget would go into effect if the tax rate is ratified; the other budget would go into effect if the tax rate is overturned. Two budgets create more added expense.

Cities are at a disadvantage in the election sound bite game. Revenue cap proponents say that cities can simply “make their case” to the voters at each mandatory election. Doing so might land city officials in jail, however. Cities are prohibited by state law from using any city resources to urge voters to vote a particular way on a referendum measure. No matter how badly needed a tax rate may be, the city can’t advertise a position in favor of the proposed tax rate. Property tax opponents face no such restrictions.

All cities already have tax referendum elections—they’re called city council elections. Every year, city voters go to the polls and vote up or down on the collective actions of each councilmembers facing election. If voters are angry about city property taxes, they can quickly remove municipal elected officials. It happens all the time. And if waiting a year to “unelect” a councilmember is too long, many cities provide for recall elections as well. (Recall elections aren’t allowed for state legislators.)

The more necessary a tax increase (such as in time of disaster), the more pointless an election will be. Cities hit by disasters, such as hurricanes, often need to exceed the rollback rate to rebuild and/or provide shelter for evacuees. Yet under S.B. 700, an election would still be required. Revenue cap proponents respond that understanding voters will surely approve such a tax increase during a disaster, so where’s the problem? The problem is this: why spend the money for an election on such an easy question, when the money would be better spent completing the job of cleaning up debris or restoring services? A petition-triggered election scheme is far superior, as it allows pointless elections to get weeded out ahead of time.

The following excerpts from a letter written by TML to all Senators lay out more reasons to oppose S.B. 700.

The bill would do little to address the property tax burden in Texas, a problem that is largely related to school funding. All Texas cities combined collect less than 17 percent of the state’s total property tax revenue.

While S.B. 700 would do little to alleviate the property tax burden, it could do great harm, particularly to rapidly growing cities and especially when inflationary trends return.

When a city faces a tax rate that exceeds the rollback rate, it will most likely make cuts in expenditures rather than go through the time and expense of an election, just as the State of Texas would certainly not want to seek voter approval of the state’s general fund budget. And what will cities cut? Our research consistently tells us that they will most likely cut infrastructure spending, particularly on streets and highways. And it seems obvious that they will first cut contributions to the state highway system, contributions that now total million of dollars every year.

If more cuts are needed, cities will eventually turn to public safety, which makes up 54 percent of municipal general fund expenditures statewide. In the past three years, 55 percent of the growth in municipal spending came in the public safety area (police, fire, and EMS). Since that’s where the spending is, that’s where the cuts will come.

For these reasons and others, C.S.S.B. 700 is a risky undertaking. Texas cities are strong, healthy, and well-governed. Indeed, Forbes magazine recently identified five Texas cities as the five best metro areas for jobs in the United States. The city officials in those cities – and all others – are trustworthy stewards of public resources and do not need to be restricted in their decision-making.

While the cities of other states rely on state aid, Texas cities receive virtually no financial aid from the state. While many states exempt cities from the payment of state gasoline taxes, we pay that tax each time we refuel a police car or fire truck. If C.S.S.B. 700 were to pass, Texas would be the only state in the nation in which cities: (a) receive no general fund assistance from the state, (b) have no protection from unfunded mandates, (c) are required to transfer revenue to the state, and (d) face tax limitations.

We do not ask for your help in serving our citizens; we simply ask that you do no harm to our ability to do so.

City officials are urged to contact their senators immediately. Urge senators to vote no on S.B. 700.

TML member cities may use the material herein for any purpose.
No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the
Texas Municipal League.

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