News Houston >> Houston Homeowner Tax Break

5/5/2006 Houston-- Houston homeowners could get a tax break as early as next year because of a revenue cap voters approved two years ago. In a twist of circumstances, however, the relief likely will come from a cap supported by Mayor Bill White rather than from a competing measure that supporters said would be more effective.

Tax activists thundered against White's Proposition 1 when he wrote it to counter their Proposition 2, saying he was trying to fool voters. Proposition 2 mandates that total city revenue collections - from property taxes, sales taxes and all other sources - cannot exceed the previous year's total plus the rate of inflation and population growth. If they do, taxpayers get a rebate.

Proposition 1 puts a loose cap on water rates and hones in on property taxes. Under its rules, City Council must set a property tax rate each year so that collections don't rise more than 4.5 percent or the rate of inflation plus population growth, whichever is lower. If property tax revenues do exceed that cap, the council must not include the extra collections in setting the following year's tax rate. It must be set to collect the previous year's cap target, plus inflation and population

With only two months left in the city's fiscal year, estimates show a 4.9 percent rise in property tax collections, busting Proposition 1's 4.5 percent cap. That means this fall, when Council sets a new tax rate, it will have to roll back its base collection number, and that could mean a mandated tax rate cut, White and City Controller Anise Parker said this week. Proposition 2 backer Jeff Daily relished the prospect." I'm happy. Mr. White will have some bragging points, but I'm more interested in saving taxpayers money," he said.

The mayor contends residents are most concerned about property taxes, and he criticized Proposition 2 for including all city revenue, such as airport rents and landing fees. Growth at the airport should not trigger reduction in basic city services like fire and police, he said. Proposition 2 backers said all sources of revenue had to be covered to prevent the government practice of stealthily raising fees instead of taxes.

Voters approved Propositions 1 and 2 in a citywide vote in November 2004, and the city now is operating under both. White wrote Proposition 1 as an alternative to Proposition 2, which was placed on the ballot through a petition drive. The mayor said that if both passed, and Proposition 1 received more votes, it would nullify Proposition 2. The vote turned out that way, but a state district judge ordered the city to enforce both propositions after Proposition 2 backers sued. The city is appealing that order. City officials aren't sure whether they will squeak under the Proposition 2 cap this year.

The key may lie in municipal utility districts, obscure jurisdictions that provide water and sewer service in unincorporated areas. While Proposition 2 generally includes all revenues in its cap, it makes an exception for "revenues received from other governmental entities." Tax cap backers said they only meant to exclude grant money from the state or federal government. But MUDs are state-chartered, tax-collecting governmental entities. And they buy water from Houston, which controls the region's largest reservoirs and treatment plants. MUDs and regional water authorities will buy $70 million worth of water this year, up 75 percent from five years ago. If that revenue is included in the cap formula, the city will bust the Proposition 2 cap and taxpayers could get a mandated refund. If MUD revenue isn't counted, the city probably will be under the Proposition 2 cap, Parker said.

THE PROPOSITIONS: A district court has ordered the city to operate under two revenue cap measures voters approved in November 2004:

  1. Proposition 1: Requires majority voter approval before property tax revenues or water and sewer rates can grow in any year by more than the combined rates of inflation and population, with a 4.5 percent cap on tax revenue increases.

  2. Proposition 2: Requires 60 percent voter approval before annual city revenues from all sources combined can increase by more than the combined rates of inflation and population.

(Contributed by Dan Feldstein, Houston Chronicle)