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The Committee on Local Government met on March 13th to hear invited testimony from individuals regarding MUDs and Tax relief. The notice for hearing can be found here. An archive of the hearing can be found here.

This report is intended to give you an overview and highlight the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Members introduce staff and adopt Committee rules
  • Bettencourt mentions the MUD and management district templates are being updated by ledge council to reflect changes made in general law last session and will be distributed to committee “very soon”
  • Bettencourt – All of the template bills will be move through the committee; template bills tend to fly out of committee the others don’t
  • West – The template bill will be the same one used in the house and the senate?
    • That’s the theory, let’s hope that continues

 

Invited Testimony

Trey Larry, Alan Boone Humphries Robinson

  • Remember when Sen. West was chairmen of this committee, under him we created MUD and Management District template
  • Big believer of the template
  • The Texas Miracle is alive and well, coming for many reasons; believe that reason is because low cost of living compared to other places
  • Most of that is driven by having supply of homes people can afford; to have those homes there must be an adequate supply
  • 90% of new homes in Huston area were built in MUDs according to Great Huston Builders Association
  • From 1990-2021 the number of people living MUDs in the Houston area went from 804K to 3M
  • Support the regulatory environment at the TCEQ, it’s an instance where strong regulation helps financing interest rates because it has their standard of approval
  • Bettencourt – the last meeting we had we passed over 100 bills so if we can get the MUD train started earlier that would be good

 

Bill Longley, Texas Municipal League (TML)

  • Here to talk about some of the issues the committee might see that impact cities
  • Explained what TML does and how many cities they represent (1,178 cities, over 950 with population of less than 10K)
  • Major issues of focus:
    • Property Tax, still doing education outreach to get training with new system under SB 2
    • Debt, support of transparency measures, want to make sure cities maintain flexibility with debt issuances
  • Other land use issues would be annexations, annexation landscape has changed dramatically over the last few sessions, had good cleanup bill last session, may need a few more bill to clean it up; ask that committee keeps in future growth and how to manage it regarding annexation and disannexation
  • ETJ goes along with annexations, given the history of ETJ and policy goals legislature has put forth there is some interest in making sure that people who live in and outside the city have adequate health and safety protections
  • Zoning issues may come up haven’t seen a lot of zoning reforms in recent session; TML will be interested in the zoning process
  • The other issue is related to housing developments, HB 3167, 86th legislature, places a shot clock on city plat and planned development approval; have been working with builders in finding common ground on fixes to that, that would streamline the process
  • West- What is TMLs position on reducing the state portion of the sales tax by .5₡?
    • We don’t have a position on the state portion of the sales tax
  • Bettencourt – You still have one on appraisal caps?
    • We do have a position on appraisal caps, yes
  • Springer – Believe there are several different methods that will come up on this issue, look forward to working with you on solutions for both the cities and the state
    • We like the idea of moving general law cities up closer to the level of home rule cities up closer to the level of home rule cities; we are not quite as keen on the other way around

 

James Quintero, Texas Public Policy Foundation (TPPF)

  • One of the challenges that exist at the local level is spending; found while looking at local government spending that 12/14 cites and counties were spending more than population growth plus inflation, signals that there is a significant appetite for tax dollars among larger cities and counties
  • On debt, The Texan found that local government debt had grown to 417B in total that is the equivalent to 14K owed for every man, women, and child in Texas; BRB has data that shows Texas local debt per capita ranks 3rd highest among 10 most populous states
  • Property taxes are dire for Texas taxpayers, the average Travis County homeowner will pay about $9200 in property taxes for all local governmental services, about $800 a month
  • The issue of housing has a lot of factors playing in to current affordability crisis, thinks the municipal government overregulation is impeding the building and development processes, there is a lot of work that needs to be done to allow supply to catchup with demand
  • Issue on property rights is ETJ reform, Foundation believes that the ETJ construct as it exists today is unconstitutional because it does not permit ETJ residents to participate in a republican case of government; case is up on appeal in the 5th state court; pressing to try and get some policy reform on ETJs
  • Believes the founders intended for the purpose of government to secure life, liberty, and property rights, where local control can aid in securing that
  • West – Has the foundation take a position on sales tax reduction?
    • “I support a tax cut at any time, for any reason, using any available means”

 

Invited Testimony

Jim Allison, County Judges and Commissioners Association of Texas

  • Council is 101 years old, served as council since 1983
  • Explained the services that the organization provides
  • Unlike cities counties don’t have general ordinance making powers, every authority implemented must be approved by legislature
  • County doesn’t receive significant funding from sales tax, most of the revenue comes solely from the property tax
  • Ask that if the legislature mandates counties to perform a service that the funding method comes with it; if not its unfunded mandate and the only place to fund it, comes from the taxpayer
  • There are a few areas where the state has been able to keep up with its responsibilities, and they have fallen on the local county tax payer; primarily TDCJ inmates are backup in county jails, mental health patients are backed up in county jails to the point where county jails are now the largest mental health facilities in the state, juveniles that have been committed to state facilities are now back up to county facilities
  • State has provided facilities but unable to staff them, have the same problem at the county level; hopefully this session the state will catchup and provide sufficient funding to move those backlogs out of the county facilities and off the back of the taxpayer, would be direct property tax relief
  • Springer – Agree with you especially on mental health aspect, filed a bill to give $150M to get 5K mental health professionals; Lt. Gov will be sending money with SB 22 to help with law enforcement and the DAs office
  • Eckhardt – Would you favor a bill, such as SB 1313 that would reimburse the counties for holding individuals beyond 45 days?
    • Absolutely, and there’s precedent for that from 1991-1995 the state compensated counties for holding prisoners

 

Dale Craymer, Texas Taxpayers and Research Association

  • Provided a document and overview of the organization
  • Texas does not have an income tax, however Texas has higher sales tax and property tax
  • Texas has the 6th highest property tax rate on industrial property, heavy reliance on property tax creates a barrier for homeownership and new investment in the state
  • Texas has the 14th highest sales tax in the county, its, and effective way to raise revenue but also provide relief as well
  • Texas has the 45th highest tax load on individuals, but 14th highest on business
  • In 2000 school M&O tax rate ranged from $1.40 creeped up to $1.50 at which point state ended up in court, the legislature implemented tax options and lowered the M&O to $1 by 2007; in 2019 the legislature passed HB 3 and SB 2 which took the rising value growth and dedicated it to tax rate compression, had the legislature not done anything property tax would have contributed to creep updated
  • Bettencourt ask a question about the document and if tax savings were cumulative or per year
    • Last year HB 3 saved property taxpayers $7.6B
  • Eckhardt – Because of the political discussions people believe that we are high tax burden state when we are not, would you agree?
    • Yes, especially for individuals; I will note the tax system on individuals does not fall evenly; on average we are a low tax state for wealthier individuals than we are for low income individuals
  • Eckhardt – For a household that’s making less than $36K its more like 17% of their income, does that sound out of line with you?
    • The problem with tax burden studies is that they take different approaches; the numbers I use assign a tax to an individual if they are the ones writing a check
  • Eckhardt – Good points with regard to the analysis but it sounds like there is broad agreement that the lower your income the higher your percentage is going to be
    • Generally, that’s what most studies show
  • Eckhardt – In Texas our business pay a larger share than our individuals do, to that point there will be discussion on appraisal caps, wont that put the percentage of tax burden on business higher?
    • It depends on what you cap, business faces a broader property tax base than individual; part of it comes down to how you structure the cap; the problem with caps is that any value you give up turns into a higher tax rate; I’m struggling to give you a general answer that will be consistent across all communities
  • Bettencourt – With that answer I would guess you registered a position on appraisal caps?
    • We did testify in opposition to caps earlier today
  • Bettencourt – If your estimate of $3-4B is correct for SB 2 that would be a combined total of $11B of property taxes that were not paid as combined effects of SB 2 and HB 3, which would be an astonishing achievement
    • We support a single uniform market value standard on the valuation of property, every one is on a level playing field, the same standard applies to all; the benefit of using value growth to buy down rates is ongoing and consistent; there’s a lot concerns that values are driving up tax bills, in fact tax bills are going up because budgets are going up: but I do think the state over the last several years has broken the direct link between a persons appraisal notice and their tax bill, the appraisal notice is not dictating the size of a persons tax bill any more

 

Adam Haynes, Conference of Urban Counties

  • Represent the 34 largest counties, represents 75% of the state’s population
  • Senator hall and springer both have great bills
  • When counties do state services we would like to get paid for those services
  • In provided handed out, counties have been providing mental health, jail, and juvenal justice services for the state
  • The state agencies you gave money to closed and we took on their burdens

 

Dick Lavine, Every Texan

  • Concerned about the adequacy and equity of the tax system, handed out 3 documents
  • Gave a slide explain all the taxes Texans pay, about 50% are property tax( half for schools and other for local governments) 30% state and local sales tax
  • Comptrollers study shows the impact the state pays for tax exemptions; slide shows a regressive tax system, those with the lowest income pay the highest percentage of their income to taxes
  • Explained a slide showing what would happen if the sate raised a billion dollars by sales tax or property tax and how it effects a certain group; the lower three groups do better by cutting sales tax, people on top gain more from property tax cut than a sales cut
  • Looked at 4 ways to cut property taxes:
    • Flat dollar exemption
    • Rate compression
    • Appraisal cap
    • Percentage exemption
  • Pattern holds for the lowest 3 groups up to families making $100K, the top group does much better with an appraisal cap exemption
  • Local governments can not give flat dollar exemption like school districts must give
  • Changes to approve the property tax system:
    • Flat dollar local homestead exemption, believe it would be beneficial for local municipalities to give percentage exemption and flat dollar exemption in addition
    • Local rental assistance programs; commonly when property tax reductions are discussed there is no way to get help to the renters
  • Final page was a presentation on Chapter 313, will be discussed in finance committee
  • Hall- Maybe we should offer all 4 and let individuals choose
    • I’m not sure how that would work out
  • Eckhardt – looking forward to flat dollar reduction, have 3 flat dollar homestead exemption local option bills, Sen. West, Sen. Blanco, and mine
  • Bettencourt thanks everyone for coming in an discussing the items