First Of Four Part Series: A Closer Look At Senate Bill 2: Lowering The Current Revenue Cap

The lower revenue cap does not address the growth in the demand for services that counties are either mandated to provide or that the public expects.

This will be four part series that that will published throughout this week.

by, Ender Reed
Legislative Liaison

In an effort to take a closer look at Senate Bill 2 (SB 2) by Sen. Paul Bettencourt (R-Houston), the revenue cap bill, Texas Association of Counties are highlighting and discussing specific sections of the bill as part of a series of four articles.

In this first article, they discuss the impact and unintended consequences of reducing the revenue cap from the current 8% level to 4%.

What is a Revenue Cap?

A revenue cap is a restriction on property taxes that counties collect to fund local services and state mandates.

Under SB 2, if a commissioners court adopts a tax rate that would increase property tax revenue by more than 4% compared to the previous year, then an election must be held on the November uniform election date to allow the voters to determine whether to approve the adopted tax rate.

If voters do not approve the adopted tax rate, then property taxes will be restricted to a 4% growth rate for that fiscal year. However, if a disaster has been declared by the President or the Governor in an area that includes the county, then the 4% cap reverts back to the current 8% cap for that tax year only.

The bill’s advocates claim that revenue caps will solve property tax issues by giving taxpayers a property tax cut.

However, in many counties, the property tax cut for the average homeowner may be negligible.

In one example, $12.21 was the average tax cut for homeowners following an election to stop a county from exceeding the revenue cap.

Additionally, the lower revenue cap does not address the growth in the demand for services that counties are either mandated to provide or that the public expects.

The Top 10 Problems with Lowering the Revenue Cap:

1. Texas is a local control state, and local control means delegating authority to local representatives who are best positioned to make decisions for local communities.
2. Counties continue to pay for new and existing unfunded and under-funded mandates passed down by the Legislature. These mandates are significant drivers of county budgets, the costs are outside a county’s ability to control, and they are paid for using property tax dollars.
3. Counties prepare for emergencies like floods and hurricanes by budgeting for fund reserves during times when there are no emergencies. Revenue caps mean that counties will not be able to develop these critical “rainy day” savings.
4. Budget flexibility and the ability to budget for “rainy day” savings are major factors for rating agencies when they determine a county’s bond rating. Revenue caps restrict this flexibility, forcing rating agencies to lower county bond ratings, making it more expensive for governments to borrow money, ultimately costing taxpayers money.
5. Because property tax collections lag behind the growth, revenue caps can affect high-growth communities more dramatically. Counties must provide services and build infrastructure before money is collected to pay for the services and infrastructure.
6. Fiscally conservative counties using pay-as-you-go budgeting would be hampered from doing so due to lack of budgetary flexibility. These counties may have to rely on raising funds using debt which would ultimately cost taxpayers more money.
7. Lower revenue caps hurt the ability of counties to provide important discretionary items such as new roads, law enforcement patrols, libraries, parks, hospitals and EMS. This type of infrastructure makes communities livable and attracts business development.
8. Lower revenue caps don’t help to fix the appraisal system which currently unfairly favors commercial properties at the expense of residential homeowners and small business owners.
9. The cost of holding a rollback election when a revenue cap is exceeded can actually cost more than the amount sought to be raised in many counties.
10. A county’s ability to provide financial incentives, like tax abatement’s, to spur economic development and attract businesses would be greatly restricted under a 4% revenue cap.
11. For more in-depth information, please review this document which discusses the Myths and Realities of revenue caps and this legislative brief.

Throughout this week, we will present a discussion by the Texas Association of Counties on the provisions in SB 2 that will require a county to automatically seek voter approval for any tax rate that would cause the 4% revenue cap to be exceeded.

This series originally published by Texas Association of Counties (TAC).