Early on, Texas Attorney General said that property owners couldn’t use disaster exemptions to lower their assessed values. And now, the same is being told to localities: don’t use the disaster clause in Texas SB2 to raise tax rates.
As the country continues to adjust to the economic fallout of the COVID-19 pandemic, we are seeing restructuring and regrouping on every level. From statewide deadline extensions to businesses taking second looks at their yearly budgets, no company or municipality is exempt from the changes that the virus has necessitated. Counties and cities are scrambling to find additional revenue to balance their budgets. But this raises the question of whether the pandemic is so unique that it should permit municipalities to sidestep limits on how much they can raise taxes.
WHAT IS SB2?
In 2019, the state of Texas passed the landmark Texas Property Tax Reform and Transparency Act (SB2). Under this legislation, if cities or counties wanted to levy a property tax hike of 3.5% or more over the previous year, they would be required to seek voter approval. It also established a database that allows property owners to track potential rate changes, view how they would impact their bills, and access information about any upcoming public hearings.
SB2 DISASTER LOOPHOLE
As COVID puts a strain on revenue streams, many cities and counties have been eyeing larger property tax rates as a possible means of filling the gap. Texas SB2 does allow for municipalities to exceed the 3.5% cap if a state of disaster is declared. But what exactly qualifies as a disaster?
Some entities, such as the Texas Municipal League (TML), believe that the pandemic qualifies. Since the governor declared a state of emergency due to COVID-19, TML argues that all cities and counties should be able to raise tax rates up to 8% with no need for a referendum.
But some state leaders—including Governor Abbott himself—argue that the disaster exemption only applies to cases of physical disaster, such as a hurricane or flood. Economic disasters like the pandemic don’t count.
HOW ARE MUNICIPALITIES RESPONDING?
While cities and counties are in the process of setting their tax rate for this year, the tension of the SB2 “loophole” will continue to play out for the next few years. Some cities like Dallas have already voted down a rate increase of up to 8%. Others, like Waxahachie, are waiting and watching for a bit longer.
And for municipalities who do decide to take advantage of this loophole, there may be longer-term ramifications: Rep. Dustin Burrows and Sen. Paul Bettencourt have discussed establishing a penalty for utilizing the loophole. Nothing has been officially proposed yet, but Rep. Burrows says the penalty would likely take the form of an enforced like-kind tax rate decrease next year.
LEARN MORE ABOUT COVID-19’S IMPACT
The question of tax rate increases in Texas is just one example of how the COVID-19 pandemic has impacted (and will continue to impact) the property tax process in our country.
Watch our free, on-demand webinar as we discuss the impact of COVID on property tax—and what steps you can start taking to prepare!