San Marcos City Council Discuss Appraisal Process, Tax Exemptions And Ceilings

The San Marcos City Council received a presentation and held a discussion regarding the Hays Central Appraisal District’s appraisal process, tax ceilings and exemptions Tuesday afternoon.

According to the agenda, Tax Ceilings and Exemptions have been discussed during the past several budget cycles, and questions have been raised about how Hays CAD determines appraised values.

Laura Raven, Chief Appraiser, provided council members with an explanation of the process and methods used by the Hays CAD.

According to the Texas Tax Property Tax Code section 6.01, an appraisal district is responsible for appraising property in the district for ad valorem tax purposes of each taxing unit that imposes ad valorem taxes on property in the district and is a political subdivision of the state.

Appraisal districts are governed by the Texas property tax code, government code, tax law and rules set forth by the Comptroller Of the State of Texas.

Raven said Section 23.01 of the state tax code requires taxable property to be appraised at market value as of January 1.

“Some properties may not be completed on January 1,” Raven said. “It will still have a value but not a completed value. It will be valued at its partial completion status on Jan. 1. On the other side of that, if you have a home that is damaged in some way after Jan. 1, it is still valued for that property tax year at its January 1 status.”

Market value is the value the property would sell for in its current condition as estimated by the appraisal district under “prevailing conditions if”:

• “It is exposed for sale in the open market with a reasonable time for the seller to find a purchaser;”
• “Both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use; and”
• “Both the buyer and the seller seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.”

Raven said the appraisal district is charged with establishing a property’s market value whether the homeowner is in the market to sell their home or not.

According to Michael Page, Director of Appraisal for Hays CAD, an income approach is used for appraising apartment complexes.

“We estimate rents; we subscribe to several services that aggregate rents for us,” Page said. “We also call different complexes and look on their websites to get market rates for rents. And then we apply vacancy rates to the greatest complexes based on market and then deduct market expenses. And that leaves us with the net operating income. We capitalize that net operating income, and that gives us an overall market value for those different apartment complexes.”

Page said the appraisals for apartment complexes are done by Jan. 1 and utilize the number of leases signed to determine vacancy rates.

According to Raven, single-family residences and business properties are appraised using a process known as “mass appraisal.”

Mass appraisal determines values in where market areas, neighborhoods, subdivisions and large groupings of similar properties are appraised at the same time.

“Appraisal districts are unable to do a fee-appraisal* or an individual appraisal on all of our properties each year,” Raven said. “That would be an impossibility, so like properties are grouped together and appraised similarly.”

*“Fee-appraisals” are appraisals performed by licensed third-party appraisers for purposes such as Personal Mortgage Insurance (PMI). “An appraisal fee is a payment made to someone to evaluate how much a home is worth. It is essentially a fee to estimate the value of the property.”

Heather Hurlbert, Director of Finance, provided the council with an overview of tax ceilings and exemptions as well as a list of tax ceilings and exemptions the City of San Marcos currently offers to residents.

Tax ceilings and exemptions offered by the City of San Marcos currently are:

• Over 65 tax exemption
  • $25,000 Exemption
  • Homeowner is eligible when they turn 65 and file for the exemption
  • For FY 2020, $257,000 worth of taxes exempted
• Disabled homeowner tax exemption
  • $25,000 Exemption
  • Homeowner must meet the definition from US Dept. of Veterans Affairs
  • For FY 2020, $27,000 worth of taxes exempted
• 100 percent Disabled
  • 100% of value exempt
  • Homeowner must meet the definition of disabled for disability insurance benefits
  • For FY 2020, $149,000 worth of taxes exempted

The homestead tax ceiling limits dollar amount of taxes paid or places a ceiling on the taxes paid; the ceiling is set equal to the dollar amount of taxes paid the year the homeowner qualified for the ceiling.

A tax exemption removes part of a home’s value from taxation; the exemption cannot exceed 20 percent of the home’s taxable value.

The City of San Marcos does not currently offer a homestead exemption like Hays County or the school districts do.

Hurlbert said once a homestead tax exemption is implemented by the City of San Marcos, it cannot be undone, and it cannot be lowered; however, it can be raised to provide more relief to the homeowner. 

Hurlbert also provided the council with a case study of how a homestead tax exemption would impact the City of San Marcos.  

Tax-Exemptions-Case-Study

According to Hurlbert, if a ceiling had been in place for FY 2019, the budget would have been reduced by $513,000.

Hurlbert said there were several things the city had to consider when it came to implementing any additional tax exemptions or freeze.

• 3.5 percent revenue cap effective FY 2021. If Cap was in place in FY 2020, the rollback rate equals 59.45 and the General Fund would be reduced by $1.1 Million
• Faced challenges in prior fiscal years meeting and expanding core services
• Continue to face challenges funding infrastructure, facility and neighborhood CIP projects
• Kissing Tree is expected to add $100 Million annually in new home values. Many of these residents who are over 65 will be eligible to have their tax rates frozen.

During the 2021 Fiscal Year budget process, the City of San Marcos cannot adopt a tax rate that increases taxes more than 3.5 percent without voter approval. The revenue cap was passed via Senate Bill 2 during the last Texas legislative session.

Councilmember Ed Mihalkanin said he feared that implementing new tax exemptions would increase the burden on the homeowners who weren’t eligible for it as the exempted tax money would have to come from somewhere else.

Councilmember Maxfield Baker said he agreed with Mihalkanin on maintaining the current exemptions but improving awareness and helping eligible homeowners through the process.

Raven said the appraisal district sends out homestead exemption applications to those who are eligible and have not applied with their appraisals to homeowners every year whose mailing address matches their property address.

Councilmember Melissa Derrick said she wished the City of San Marcos could do more to provide tax relief to homeowners, but the city loses “billions and billions” of dollars from the tax rolls because of Texas State University’s tax exemptions.

Texas State University is a state institution and therefore owned by the State of Texas, who is exempt from paying property taxes.  

“I feel like this is something we will be able to do once we have the subdivisions built out like Whisper and everything,” Derrick said. “But I don’t think now is the time.”

The council had a general consensus on maintaining the current tax exemptions but keeping the exemptions on their minds for in the future.