August 5, 2019

Common Misconceptions About the Proposed Budget and Tax Rate

The initial presentation of the proposed budget last month has prompted some community interest and concern about our tax rate.  Good.  It’s an important subject that ought to concern all of us.  Of course nobody’s ever happy about the prospect of a tax increase—your City Council included; we’re taxpayers, too—and we’ve got some difficult choices to make if we want to avoid or at least minimize one.

While it’s the City Council that’s ultimately charged with making the tough decisions, we look to you, our fellow taxpayers, for your input in adopting a budget and tax rate that’s representative of our community’s needs and desires.  So we’re looking forward to next Monday’s public hearing on the proposed budget, and appreciate the input you’ve provided thus far.  In my recent conversations and e-mails with several of you, I’ve addressed some common misconceptions about the proposed budget and tax rate that I’d now like to share with the broader audience and for the benefit of our ongoing community discussion.

Probably the most prevalent misconception I’ve encountered is the notion that we’re looking at a 25% tax hike over the next five (some are saying three) years.  Not so.  The only proposal on the table—or that even could be on the table since we budget one year at a time—is for just the upcoming year.  What does cover a five-year time period, likely the source of this misconception, is our fiscal forecast, which illustrates using conservative assumptions how the math simply doesn’t work over the next several years and that something’s gonna have to give.  To reverse that trend, the City Manager is recommending an 8% revenue increase next year to reestablish a healthy reserve going into a revenue-constrained future.  What happens beyond next year remains to be seen, a lot of variables could affect that, and the City Manager hasn’t proposed any future tax rates at this point.

Some have expressed concern that a city tax increase would represent a double whammy on top of expected HCAD valuation increases.  That after their HCAD appraisal goes up 10% (for capped accounts), they’re going to be hit by another 8% from the City.  However, that’s not really how it works; it’s inclusive, not additive.  A city tax increase refers to the total taxes collected by the City year over year from the same properties taxed in both years.  It does not necessarily mean that the tax rate itself increases, as the rate is a function of aggregate appraisals.  So in any year our total taxable value rises, the nominal tax rate necessary to generate a given amount of revenue actually falls.  It can be a bit complicated and hard to explain, but the basic point here is that increases in appraised values are already factored into the equation, and that also means the proposed 8% revenue increase does not simply translate to an 8% rate increase.

Occasionally, people’s reactions are somewhat skewed by confusion over orders of magnitude.  The suggestion in general of a tax increase to maintain service levels may not be so much the issue for some homeowners as is the sticker shock when applying it to the “tens of thousands” they pay in property taxes.  Keeping in mind the City of Bellaire is one of eight jurisdictions on our tax bills, the effect of any city tax increase would be on only the city portion of the total (which last year was about 18% on average for taxpayers with a homestead exemption; by comparison, HISD gets 50%).  Don’t get me wrong, an increase is still an increase, but I find it helps the discussion to keep it in the right perspective.

In my last blog post I summarized the proposed budget and the decisions we need to make in balancing service levels and cost.  Since property taxes are our primary source of revenue, as the cost of providing services continues to rise we need to either raise taxes or reduce services.  Even though next year’s budget isn’t the one in immediate jeopardy, we need to begin taking corrective action now to avoid even more significant impacts in the years following.  The city budget belongs to each and every one of us who pay to support it, so I mean it very sincerely in asking for public input as to what services we want reduced or eliminated to bring our tax rate down.  Please keep your suggestions coming, and with the foregoing clarifications in mind.