Item 6CFY 2018 Property Tax Relief Initiative
Good evening,
A couple of months ago during an April meeting, City Manager provided a very detail presentation with an overview of the property valuation and taxation process so I
have a shorter presentation and will only touch on a few key points.
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Adoption of the 20% homestead exemption for FY 2018 will provide residential property tax relief for the seventh time since 2009.
The recommended rate will provide additional relief
that is the equivalent of an additional 1.85 cent property tax reduction for residential taxpayers but the overall 20% exemption provides a 9.25 tax rate reduction from .462 for the
residents, while allowing the City to continue to successfully meet its responsibilities for good financial management practices.
BASED ON MAY ESTIMATED VALUES
20% revenue reduction=$5,761,142
Addi
tional 4% revenue reduction=$1,152,230
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Summary
Adoption of the 20% homestead exemption for FY 2018 will provide residential property tax relief for the seventh time since 2009.
The recommended rate will provide additional relief
that is the equivalent of an additional 1.85 cent property tax reduction for residential taxpayers but the overall 20% exemption provides a 9.25 tax rate reduction from .462 for the
residents, while allowing the City to continue to successfully meet its responsibilities for good financial management practices.
BASED ON MAY ESTIMATED VALUES
20% revenue reduction=$5,761,142
Addi
tional 4% revenue reduction=$1,152,230
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Questions?
Staff is happy to answer any question you may have…
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Financial Principles
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The City manages its finances in conformance with a set of well-established financial guidelines. These guidelines are meant to ensure the long-term financial viability for the City.
As you can see, tax relief is one of the guidelines considered as well as the multi-year sustainability and the balance of cash funding/strategic debt management—these are, of course,
balanced with other important considerations.
Our goals have always been to develop and manage a world-class city, using strong financial management principles, aiming for a high value
approach.
Homestead Exemption
This slide shows Southlake’s history of providing tax relief through homestead exemptions, an approach we have settled on as commercial values have increased creating an opportunity
for us to move toward the goal of achieving the full 20% exemption.
The City has implemented a general homestead exemption six times as we have worked our way towards the maximum percentage
exemption of 20%. FY 2018 will constitute the seventh tax relief initiative since ‘09…and staff is recommending to increase the homestead exemption to 20% which is the maximum homestead
allowed per the Texas Tax Code.
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Financial Analysis
*Proposed based on May preliminary values from appraisal districts
Sharen
FY 2009= $110,606,060 value….approximately 7,373 homes out of 8,954 residential properties
FY 2013= $124,292,323 (3%) estimated value
FY 2014= $130,874,986 (3%) estimated
value
FY 2015= $139,698,703 (3%) and $325,963,639 (7%) estimated value total exemption value $465,662,342 (tax rev $2,151,360)
FY 2016= $147,988,847 (3%) and $443,966,541 (9%) estimated
value total exemption value $591,955,387
FY 2017= $169,350,267 (3%) and $733,851,158 (14%) estimated value total exemption value $903,201,426
FY 2018= $187,050,056 (3%) and $1,059,950,318
(17%) estimated value total exemption value $1,247,000,374 (estimated revenue $5.76 m) average appraised value $671,311 per TAD May estimates
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Financial Analysis
Sharen J.
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Property Valuation & Cap
EXAMPLE: Mr. Jones' home appraised value for 2015 was $100,000. Mr. Jones has made no changes to his home. In 2016, the appraisal district determines the market value of Mr. Jones' home
to be $140,000. Mr. Jones' value for property tax purposes will be the lesser of:
$140,000 (the market value of the home); or
The 2015 appraised value of $100,000 Plus 10%
Mr. Jones'
appraised value for 2016 will be $110,000 = ($100,000 x 10%) + $100,000.
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Sharen J.
Thank you, Ben.
When thinking about how to move forward in 2017, it’s helpful to understand how taxable value is established under the property tax system.
CLICKFirst,
the Tarrant Appraisal District determines the appraised value of all properties and establishes a property’s market value as of January 1 of every tax year. Notices are sent showing
the appraised and market value.
CLICKPrices of new and used homes can increase substantially year-to-year as shown on the slide a 40% increase when compared to 2015. In order to prevent
sharp increases in home property taxes from year to year, CLICKTexas voters in 1997 approved a constitutional amendment to limit increases in the appraised/taxable value of a qualified
residence homestead.
CLICKThe 10% cap is applied by the appraisal district and can be seen on THE FINAL tax notices MAILED IN OCTOBER
General information if needed
To qualify, property
must be a residence homestead, and the property owner must have received a homestead exemption in his/her name in both the current and previous years.
Under this law, the value for
tax purposes (appraised value) of a qualified residence homestead will be the LESSER of:
the market value (what the property would sell for on the open market); or
the preceding year's
appraised value
+ 10%
+ the value of any improvements added since the last re-appraisal.
Note: The calculated value is often referred to as a "capped" value.
Applying Exemptions
Taxable Value
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Sharen J.
Existing exemptions are also applied so that the taxpayer can see the taxable value that will be used to determine their property tax responsibility.
CLICK Local-option caps,
which voters added to the state constitution in 2003, apply to residents age 65 and older. At least 244 cities have adopted the municipal tax caps since 2004, according to the state
comptroller. Southlake adopted the senior tax freeze in 2003 with a effective date of January 2004.
CLICK The general homestead exemption is another local option for providing tax
relief, especially when targeting relief for residential property taxpayers.
CLICK The City of Southlake also adopted a $75,000 exemption for over 65 and disabled taxpayers. CLICK
Valuation Reports & Protests
Sharen J.
The taxing entity (City) receives the first preliminary value report at the end of April. This report shows growth or decline for existing properties, as well as the new
growth that is contributing to the City’s overall values. It is reported by residential and commercial.
Property owners may protest the value assigned to their property. Generally,
the preliminary value received in April is considered “very” preliminary.
A second preliminary value report comes in late May/early June. Final, or certified values are received
by July 25. Very often the value of the Tax Increment Reinvestment Zone #1 is not provided until certified roll. Since most of the TIRZ value is separated out for use in the zone,
it is very difficult to project revenues without that data.
The point of this slide is to let you know that budgeting can be challenging in a growing community…the values can change
significantly and final numbers aren’t received until late July.
Nonetheless, a City’s exemption rate must be reported to TAD by June 1…well before the certified value is received.
For this reason, we take a conservative approach to our recommendation.
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Exemption Value
Sharen J.
Tax bills are mailed to property owners on October 1. These bills apply any new exemptions that have been adopted by the local government.
Because homestead exemptions are
a percentage of the property’s value, the benefit to the property owner usually changes – almost always increases in Southlake – each year.
Likewise, there is a corresponding City
budget revenue reduction as the percentage is applied to increased values, even without an adjustment to the exemption percentage.
This value reduction, PLUS any increases adopted by
City Council, provide the final exemption value for a property owner.
In FY 2016 (2015 values), the 12% homestead exemption was equivalent to a five and one half cent reduction on the
property tax rate for the owner of an average valued home in Southlake and reduced the taxable value by $66,900 and based on 2016 values reduces the value by $74,700
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Financial Analysis
Sharen J.
As mentioned previously, staff’s analysis to determine the recommended property exemption considers several factors, including:
being able to continue to maintain proper
fund balances,
pay cash for capital projects in order to reduce debt,
strong service delivery
timely capital project construction
and multi-year sustainability.
We also consider
the dollars that will need to be made available for reimbursements through City 380 Agreements or other incentives. The value of these projects is rebated when the projects meet performance
benchmarks, and must be available for the reimbursement.
The other factor that I will mention – although it is difficult to know how to factor it into the analysis – it the stated intention
of leadership in the Texas Legislature to address local government taxation in the coming session. It is an unknown, but potentially high impact consideration.
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Financial Analysis
Sharen J.
For the coming fiscal year, City staff continued to focus on the homestead exemption as the preferred method of granting tax relief. Because we are not yet at the 20% cap,
we have been working to grant residential property owners as much relief as prudently possible as the economy of the City has continued to diversify and improve.
This chart shows the
analysis. As you can see, each percentage increase in exemption reduces the City’s revenue by $269,274.
The annual savings to the property owner of an average valued home in Southlake
is also shown.
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Recommendation
Based on our analysis, we are recommending that the City adopt a residential homestead exemption of 16%.
This equates to an additional 1.85 slightly less than 2 cent tax rate reduction
for Southlake residential property owners, and returns the “organic” growth in existing property values to these taxpayers. Total tax reduction for the full 16% homestead exemption equals
just under 7.5 cent tax rate reduction
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Widescreen Test Pattern (16:9)
Aspect Ratio Test
(Should appear circular)
16x9
4x3
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