Higher home and property values in San Antonio could trigger a state law that requires cities in Texas to roll back the property tax rate if they generate too much money.
Legislators in 2019 passed Senate Bill 2, which mandates a property tax rate rollback if property tax revenues go about 3.5% over the previous year. The cap used to be 8% before SB2 went into effect. Although it’s too soon to be certain, current projections show the City of San Antonio could reduce its tax rate in 2023.
It will take several months before city leaders determine what rollback would be needed, or if one is even needed at all. The current property tax revenue for the city is $410 million in the city’s general fund.
San Antonio has seen higher home values pushed by higher home sales at a time when the housing market is red hot for sellers with many buyers offering thousands of dollars above the asking price.
Troy Elliott, San Antonio’s deputy chief financial officer, said home sales would push values higher.
“Those sales values are going to increase the valuation overall in the residential side and then as you appraise those surrounding houses then they’ll have the benefit of that,” he said.
In turn, that could push the city above its revenue cap.
“I think we’re gonna see increases again like we did in the prior year, I think we’re gonna see recovering on the hotel industry in the restaurant industry so I think it’s likely that we could be heading that 3.5% or exceeding so I think it’s within the realm of possibilities that we would have a rollback,” he said.
The revenue cap only applies to existing homes and properties that were built in the previous year. Revenue from new construction is not considered in the cap and can go above the limit.
San Antonio makes up about 22% of the average property tax bill. The rest is divided between other entities like Bexar County, University Health, the San Antonio River Authority, and the school district in which a home is located, with school districts making up about half of a total tax bill. Any rollback to the rate would only affect the city’s portion of the tax bill.
Additional tax relief could come in the form of a higher homestead exemption for homeowners. The city currently offers a homestead exception of 0.01%, however under state law the minimum exception allowed must be at least $5,000. Under the $5,000 exemption, most homeowners save about $28 per year.
The exemption has been heavily pushed by District 10 Councilman Clayton Perry who said he felt like the city could offer more.
“Some cities are doing 20%, the max giving back to their homeowners, this is all very complicated but to me I think with our increase in property values and taxes every year this city can afford to give back to our homeowners in this town through a property homestead exemption,” he said.
Houston, Dallas and Fort Worth all offer 20% homestead exemptions. If the City of San Antonio were to offer 5% it would save most homeowners between $28 and $167 per year depending on home value. But city revenue would decrease by $14 million.
District 3 Councilmember Phyllis Viagran appeared reluctant to support a larger homestead exemption due to that potential loss.
“That’s how much a fire station costs that we’re looking for in the bond,” she said, referencing the $14 million revenue loss. “What we’re looking for is to give a tax break at 5%, we are then giving up a fire station.”
District 2 Councilman Jalen McKee-Rodriguez said he would support a homestead exemption if there was an equity component that doesn’t exacerbate existing economic disparity.
“For example, would homeowners with a modest home receive less economic relief than a resident with a more expensive home and is it possible to implement a homestead exemption that would be equitable?” he asked city staff.
Elliott said there is not an option other than a flat percentage at the moment. Assistant City Manager Jeff Coyle said State Senator José Menéndez had a proposed bill that would have allowed such an issue during the 2021 Legislative Session but it did not pass; however, the city would support a similar measure if one were to be introduced during the 2023 session.
The city’s $3.1 billion budget for 2022 was approved in September and began in October 2021.
Overall, in the first three months of its fiscal year, the city has generated more revenue for its general fund than previously expected. From October through December last year, the city generated about $26 million in additional revenue. About half came from sales tax and $8 million from CPS Energy. The rest of the higher revenue came from miscellaneous sources such as EMS transport, river barges and vehicle auctions.
