Why the City of Austin Wants Voters to Hike Their Property Taxes

It’s a tough time to be an Austin property taxpayer. Nothing seems to make sense. 

Maybe you figured high taxes were a fair price to pay for the tremendous increase in the value of your home over the years. But in the past couple years home prices have actually plummeted, and yet your taxes are still increasing. 

Worse, you’re probably not feeling great about what you’re getting in return. The transformative light rail system that you voted to fund with a tax hike in 2020 has since been whittled down to a fraction of the original plan and won’t get built until the early 2030s, if ever. Last year you voted for a hefty tax hike to support Austin’s struggling local schools, but the school district just announced plans to shutter 13 schools, perhaps including your own. 

So this is probably not the best time for the City of Austin to come to you with its hand out, telling you it needs you to vote for an additional (on average) $200 a year. How could they possibly not have enough money? If Austin is so rich, and taxes are so high, why is the state of public services so bleak? 

On November 4, Austin voters will decide whether to approve a tax hike on their homes. If Proposition Q passes, it will generate roughly $110 million of additional revenue that City Council members say is necessary to prevent devastating cuts to city services.  

Property taxes are very high in Austin, but the city itself is not the chief culprit. 

About half of your tax bill in Austin goes to the school district, whose tax rate is effectively set by the state. Worse, half of your school district taxes don’t even go to the local schools, but are being seized by the State of Texas through “recapture.” The state could fund rural education with the hundreds of billions of dollars a year it raises in sales, business, and excise taxes, but the GOP leadership would simply prefer to pummel urban (Austin, Dallas, Houston, Fort Worth) property taxpayers instead. 

This is the cruel irony of politics in Texas: the party of “small government” has figured out a way to tax the hell out of its city dwellers without getting any of the blame. Instead voters are more likely to blame local government––the school board, the county, the city. 

Now, when it comes to city taxes, it’s probably fair to say the City of Austin’s are higher than average, but the difference is not enormous. 

If you own the median value home in Austin ($503,000), you will pay $2,108 in city property taxes this year if the tax rate election fails—out of a total property tax bill of $7,960. If the TRE passes, your total tax will rise by roughly $200 to $8,161. 

How does that compare to other cities? Frankly, it’s hard to say. While every city is required to report its tax rate, many don’t report median home values. Or some focus on the “average” home value, which is a little different. 

One comparison that exists is Dallas, where the median homeowner will pay $2,138 in city property taxes this year. In Fort Worth, the median homeowner will pay less—about $1,640. In San Antonio, it’s even lower—$1,266—largely thanks to the half-a-billion dollars a year the city takes from its extremely profitable municipal utility. 

The suburban communities around Austin where people often move for more affordable housing don’t appear to charge significantly lower taxes compared to those who live in suburbs like Buda, Manor, or Georgetown. 

The upshot is that Austinites are likely paying a few hundred dollars more a year in city taxes than most other Texans, but that’s somewhat predictable given the higher cost of living and the fact that Austin has big city problems. 

Perhaps most importantly, Austin voters are more liberal and tend to support more services, from parks to public transit to housing for the homeless. Over the past decade, Austin voters have approved every single bond or tax election put before them by the city, county and school district.

But what even some liberal Austinites are now saying is they don’t feel local government has held up its end of the bargain. Again, in many cases their frustration is due to things beyond the city’s control (school taxes, school closures), but you can’t blame a voter for becoming somewhat jaded about City Hall when they read that the city manager, who makes close to half-a-million a year, is putting his lunches on the city credit card, or that the city spent over $1.1 million for a new logo. Plus, the city is now facing a $33 million shortfall. It’s natural in that instance to conclude that what the city lacks is not money, but judgment.  

Until relatively recently, Texas cities and counties were allowed considerable discretion on property taxes. Specifically, they were allowed to collect up to 8 percent more in property tax each year to fund the government’s operating budget, the great majority of which goes to paying municipal employees.

In 2019, however, Governor Greg Abbott signed a law capping the annual tax increase at a meager 3.5 percent. If a local government wants to collect more, it needs to get voter approval. 

A 3.5 percent limit is hard enough to make work even if all you want to do is maintain existing services. If you want to attract and retain employees, from police officers to transportation engineers, you have to spend more money each year just so their wages and benefits keep pace with inflation.

But if you’re a local government that has decided that it should be doing more—then 3.5 percent is nearly impossible. Last year, for instance, the Austin City Council decided to do much more for police officers: it approved a five-year contract with the police association giving officers an 8 percent wage hike in the first year, followed by incrementally smaller increases in the remaining years. Setting aside the merits of the police deal, it’s not hard to see how giving your largest employee group raises that far outpace your budget’s allowable growth will lead to problems. 

At the same time, Austin leaders believe that the city is making progress on homelessness and could be on the cusp of dramatic improvement. Thanks to $100 million in federal pandemic relief funds and tens of millions from voter-approved bonds, the city is funding a variety of housing projects to get people off the street. But this system is expensive to operate and takes time to see pay off.

It has been clear ever since the 3.5 percent limit was introduced that the city would eventually have to go to the voters for more money. The post-pandemic boom in sales tax revenue—the other principal source of city funds—allowed the city to keep the budget balanced for longer than expected. But sales tax revenue has come back down to earth, forcing council to either make service cuts or hold a tax rate election (TRE). All but one city council member decided the TRE was necessary. 

You could be forgiven if you’re confused by conflicting messages about Prop Q from its supporters. In some cases they describe it as an emergency measure to preserve existing services threatened by state and federal austerity. In other cases they describe it as a bold investment. So which is it? 

It’s a mixed bag. In the approved budget, some of the $110 million in new revenue would simply go to continue existing services. For instance, there is $8 million just to maintain the fire department’s overtime budget. There is also $12 million to restore cuts to low-income housing assistance programs that the city manager made in order to balance the budget and another $12 million will allow the continuation of social service contracts with local nonprofits. Finally, some of the money will simply go into the city’s reserves.

But the TRE definitely also funds new stuff. For instance: over $5 million for increased mental health treatment, $6 million for increased parks maintenance, and more than $1 million for wildfire prevention.

Most notably, Prop Q will result in more than a doubling of the budget of the Homeless Strategy Office, from $36 million to $75 million. This heap of new money would go to increase the availability of a variety of different housing interventions, from emergency shelters to “permanent supportive housing.” 

Investments in homeless services are already working in the sense that they are getting people off the street and into housing. But whether they are perceived as working is a very different question—one that will be, in part, answered at the ballot box.

So far, no major city in Texas besides Austin has held a TRE since the state enacted the tax cap. And this will actually be Austin’s second––the first was the 2020 measure voters approved to fund Project Connect, the embattled mass transit plan. But the pressure the state has put on local governments will eventually lead to tax rate elections in communities of all political stripes.

Last year, voters in Cibolo approved a TRE that was framed as a “public safety” investment and Mesquite and Copperas Cove also have TREs on the ballot this year. In many cases, local governments will not be making a bold case for increased investment, but simply asking voters to authorize money to maintain existing services. 

Long-term, it could be an interesting case study in what exactly Texas voters want from their local governments. What services are they willing to pay for—and how much? 

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