The City of San Antonio will likely reduce its property tax rate and increase its homestead exemption as part of its annual budget process, officials said Wednesday.
“There will be tax relief next year,” Mayor Ron Nirenberg said during the city’s first budget planning meeting for the 2023 fiscal year. And, he said, the city should work to “target that relief as best we can.”
The city projects 13.8% growth in property tax revenue in 2023, far exceeding the new 3.5% annual increase cap established in 2019 by the Texas Legislature. That means the tax rate will need to be reduced by 2-3 cents, said Troy Elliott, deputy chief financial officer. The city’s current tax rate, which accounts for about 22% of property tax bills, is nearly $0.56.
Alternatively, the city could exceed the revenue cap, but doing so would trigger an election asking voters’ permission to keep the additional tax revenue, per the new law. City officials have said they would rather avoid such an election.
Most homeowners have just received appraised value notices that reflect the region’s tight housing market; valuations for single-family houses are up an average of almost 28%, according to the Bexar Appraisal District.
But those valuations, and the city’s projected property tax revenue, are only preliminary, said Elliott; they don’t reflect the new homestead exemption adopted by Bexar County, proposed state changes to exemptions or the city’s pending adjusted tax rate and possible extended homestead exemption.
“So what that is doing is, it’s inflating your taxable value,” he said, adding that many homeowners are also expected to appeal their property appraisals.
San Antonio implemented its first homestead exemption, the minimum allowed by the state, in 2020. It shaves 0.01% — which amounts to the $5,000 minimum — off the appraised values of homes that are the primary residence of a property owner. The average homeowner will save an estimated $26 next year due to that exemption.
The city would have to increase its homestead exemption beyond 5% for homeowners with property worth $100,000 or more to see savings on their tax bills.
On average, a 5% homestead exemption would save homeowners $61 while the city would forego $13 million in revenue, Elliott said. A 10% exemption will save homeowners $97 on average, while the city would forego $26 million.
The higher the home value, the higher the tax savings for the owner.
While most council members expressed support for an expanded homestead exemption, some were concerned about the regressive benefit.
“This is not feeling equitable,” said Councilwoman Phyllis Viagran (D3). “There are homes on the West Side [and] on the East Side that don’t hit that $100,000 mark and they’re being left out. People who don’t have the homestead exemption but live in legacy homes are being left out. And my concern is that there is a message that could be sent that people who own homes over $100,000 or more are valued more than those that do not.”
Wednesday’s all-day meeting was City Council’s first opportunity to give City Manager Erik Walsh direction on the fiscal year 2023 budget. Property tax relief, affordable housing and public safety issues were among the most frequently cited as priorities.
Walsh said a trial budget, a kind of rough draft, will be presented to council in mid-May and will include several homestead exemption scenarios — the minimum being 5%. Community input on the budget will be collected via public meetings and online through SASpeakUp over the coming months. Council is slated to vote on the budget Sept. 15.
Other, more targeted approaches to property tax relief have largely stalled, because Texas law prohibits exemptions based on location or home value. Previous attempts by state lawmakers to change those rules have been unsuccessful, though two 2019 reforms in school finance and local government budgeting practices (the 3.5% cap) have slowed property tax bill increases, according to a report by the Texas Taxpayers and Research Association.
But those efforts haven’t slowed the increase in appraised values.
State Rep. Diego Bernal and Sen. José Menéndez (both D-San Antonio) proposed legislation in 2019 that would have let homeowners who have lived in their houses for at least 15 years and whose property tax payments have increased at least 120% over 15 years receive the same property tax freeze that seniors 65 and older claim on their houses. That measure failed, Assistant City Manager Jeff Coyle noted.
The city could push for another, similar bill, Coyle said.
“What leads you to believe that … a request for this legislative change might be successful?” Councilman Mario Bravo (D1) asked. “Because I have a low level of confidence in this being successful.”
“There’s no question that seeking a change to state law is not an easy task,” Coyle said, especially when the legislature is focused on other issues.
“We’d like to be able to come back and make the argument that we want to further provide relief by targeting it to those who need it most,” Coyle said. “Doesn’t mean it’s a slam dunk by any stretch. You’re right to question whether the legislature will do it. But I know that our [local delegation members] are very interested in doing it.”
While city officials were discussing property tax issues Wednesday, Bernal and Menéndez joined other state lawmakers for a Texas Tribune panel discussion in San Antonio to discuss priorities for the next legislative session.
“Without a doubt, property tax reform is going to be at the top of the agenda,” Menéndez said. “What we have to find out is how do we do it in a way that doesn’t hurt our school districts — that actually provides relief to … individual Texans.”
The majority of property taxes are collected by school districts — which historically raised taxes to make up for a lack of investment in education by the state, he said. “The more we raise the state’s involvement [in education], it will reduce the burden on the local tax base. And I think that might be the fairest way to do it.”
State Rep. John Lujan (R-San Antonio) agreed that property taxes are at the top of his list.
“We have to address it,” Lujan said.
