As most of you know, in 2004 Houstonians voted to limit the amount that City Council can raise property tax collections each year without voter approval. The limitation is the sum of population growth and inflation, but not greater than 4.5%. Notwithstanding this limitation, the City’s property tax collections since 2006 (the first year the limitation was effective) have averaged increasing by just under 5.5%. In eight of the twelve years the limitation has been in place, the City property tax collections have exceeded 4.5%. Since 2013 they have risen nearly 7%. Since 2006, the City has collected over a billion dollars in property taxes, more than had collections actually been limited to 4.5% per year.
So, you are probably asking yourself at this point, how is this possible? There are two principal reasons.
First, in 2007, voters approved a $90 million increase to the limitation calculation for “public safety.” (See here for previous discussion of lifting of cap for public safety.)
But more recently the increase has been the result of an exception that exempts the tax collections turned over to the tax increment reinvestment zones (TIRZ) from the cap. In the early years after the property tax cap went into effect, the amount that went to the TIRZs was relatively small. But the City has increasingly relied on the exception to exceed the limitation.
The financial information available on the TIRZs is spotty. The best source I have been able to find are the TIRZ budgets on the City’s website. [Click here to review TIRZs’ Budgets]As a side note, it is absurd that all of the TIRZs’ audits are not available online in a single location. The budgets only go back to 2013 and include an “estimate” of their tax collections for each year. Using those numbers, the TIRZ property tax collections since 2013 have increased at an average of 15% annually, arising from $85 million to $146 million. In 2006, about 3% of the City’s tax collections went to the TIRZs. Last year over 11% of collections went to the TIRZs. [Click chart below to review detailed information.]
The City has been able to effectively subvert the taxpayer-imposed cap by manipulating the TIRZ exception. It has accomplished this by creating five new TIRZs and approving 46 plan amendments, most of which increased the area covered by the TIRZ.
Of course, certain TIRZs have benefitted more than others. The Uptown TIRZ tax receipts from the City increased from $19 million to $36 million since 2013, a 93% increase.
The rationale behind the exception was that if the City does not have the benefit of the tax collections, it should not be charged with those collections. But the City has increasingly found ways to use the TIRZ funds. More to come on that subject.
According to Payscale Houston wages have risen at 2.4% annually since 2006.The City’s property tax collections have risen at over 2.5 times that rate. This is precisely what Houston taxpayers sought to prevent when they limited City Council’s ability to make them pay more in taxes than was needed to cover inflation and the City’s growth without asking them for their permission. Because of the TIRZ loophole, the taxpayers’ will, as expressed in the 2004 referendum, has been thwarted.