Change in City funding structure ‘risky, but worth it’



Ahead of a Senate bill that if passed could soon foreclose its possibility, City staff plan to submit to Council a “radical” change to the city’s revenue structure.

The move, which was presented by Assistant City Administrator Amber Lewis at last Thursday’s joint planning session, would redirect hundreds of thousands of dollars in the city’s property tax revenue toward vital services.

The proposal, Lewis said, would come with some risk.

Although citizens would not see an increase in the property tax rate — currently $0.50 per $100 value — the move would technically cross a legal threshold designed to contain rising property taxes, opening the door to a possible tax rollback election.

But with over half a million dollars at stake, Lewis argued that the risk is well worth the reward.

Currently, debt services for the city sewer take the lion’s share from property tax revenue, leaving only $0.09 to fund the city’s basic operations. Operations and Maintenance, or O&M, encompasses the police, street repairs, parks and more.

“$182,000 does not go very far when we’re trying to fund a police department and pay for parks and everything else,” Lewis said.

Income for O&M generated by the property tax currently goes entirely to the police, and other basic operations are paid for from fees the city collects from utility connections, permits and other one-time services.

The change Lewis and other staffers propose is to invert the terms of property tax revenue, which Lewis called “the most stable, reliable form of revenue.”

Under the plan, $0.41 would go toward O&M, and the $0.09 would go first toward paying the tax notes, and then any additional debt Lewis said they might “need to issue for rising valuations.”

The sewer debt no longer needs this kind of support from property taxes, she said, because the sewer has begun to return revenue on its own.
Officials emphasized that taxpaying citizens would see no change in the tax rates they pay, but on the city side, it would represent a crucial step.

“This might seem like a radical step,” Boatright said, “And in many ways, it is.”

Lewis said, “If I was asked what the biggest issue facing the city was, it’d be this.”

However, the proposal, Lewis explained, could put $25,000 at risk for the city, in addition to making such a change more difficult in the future.

An existing state law caps any yearly increases in property tax revenue — which, in Texas, is solely the domain of local governments. Because of a complication related to exemptions, it would technically count the nearly 300 percent increase in O&M funding as a rise in property taxes.

The law states that if a taxing entity will realize more than an 8 percent growth in the revenue it collects from property taxes, the taxed voters have the right to circulate a petition, which, if it collects enough signatures, can force an election to rollback the tax rate.

The situation is not without precedent in Liberty Hill. In 2013, former Mayor Jamie Williamson petitioned for such an election. However, the petition did not contain the required number of signatures after some signers removed their names claiming they did not understand what they were signing. Property tax rates that year were not raised, but the 8 percent threshold was still exceeded because the increased valuation of properties saw the city collect more revenue in total.

Because of a further complication, the move currently proposed by city staff would also exceed the existing 8 percent threshold, even though property valuations would not rise enough to trigger it otherwise, and no rate changes have been proposed. This is because the law does not count toward the threshold any payments made to debt services, and the proposed change would signal a sudden influx from that protected fund to O&M, which is not protected.

Lewis said that if council approves the proposal, and citizens were to petition successfully, it could cost the city $8,000-$15,000 to hold the election, and then an additional $10,000 to roll back the rates if the rollback was approved by voters.

Lewis went on to say, however, that the change would become harder to pass if Senate Bill 2 becomes law. Lewis said she believes legislative approval of that measure is likely.

If approved by state lawmakers, the bill would lower the property tax increase cap from 8 percent to 5 percent, and rather than allow a petition, it automatically triggers a required election.

“This is the year to do it,” Lewis said. “After this year, it could involve an election.”