Tax rate election looks likely for Austin this year

Under state law, Austin is only allowed to raise its tax rate by 3.5 percent without asking voters for permission. That law has been on the books since 2019 without the city scheduling a regular tax rate election. But it looks like this is the year.

As a reader pointed out, Austin did have a tax rate election in 2020 to authorize funds for Project Connect.  Voters approved an 8.75-cent increase in order to fund the project.

As Mayor Kirk Watson noted at the Audit & Finance Committee meeting on Wednesday, it is time for City Council to start looking at the framework for deciding whether the city should go to the voters to raise the city’s tax rate. He then turned to city staff, asking them “to provide us with some thoughts” about how to go about setting such an election.

Budget Director Kerri Lang said that although such an election would not happen until November, it is time for staff to work on the policy recommendations that Council would consider before deciding whether to have an election. The law dictates that Council must decide on the election at least 78 days before the election date. This fall’s election date is Nov. 4.

Lang told the committee that money generated by the tax rate election would be available to fund all lawful municipal purposes. The budget staff projects that without additional revenues the city will have a $2 million deficit in the 2025-26 base budget. That deficit increases to $6 million by Fiscal Year 2028-29.

She noted that the city had lost $160.8 million in property tax revenue capacity for the current fiscal year as a result of the 3.5 percent cap. Watson asked whether she actually was referring to one year’s lost revenues, and Lang confirmed that she was.

Council must decide what types of expenditures should be funded by the tax rate election. Lang emphasized that staff would not want the city to hold such an election more than once every four years. That would allow for a more thorough and thoughtful planning cycle and reduce “voter fatigue,” she said, noting that there could be an exception when the city is faced with an emergency.

The Legislature approved the 3.5 percent growth cap in 2019. Council Member Chito Vela asked Lang how much property tax had grown in the years prior to the Legislature’s action. In the five years before the cap, growth was 7.3 percent, and in the previous 10 years it was 6.5 percent. She said in the previous 20 years it was 5.9 percent.

“So, the 3.5 percent cap is really cutting our property tax revenue growth in half,” Vela concluded. He asked whether current funding for round-the-clock mental health services would fit into the category of things that could be funded by the additional taxes. The city has recently started that program and it is funded for six months. Lang confirmed that it would fit into the items that could be funded. Vela said he wanted to avoid “voter fatigue” and agreed that the city should not have such an election more than once every four years.

Mayor Pro Tem Vanessa Fuentes said she was very concerned about keeping up with the city’s needs, especially knowing that past budget cycles included 6 or 7 percent growth per year. She expressed particular concern about programs to help the homeless.

Fuentes noted that the city had used ARPA (American Rescue Plan Act) dollars to provide services for unhoused people at the Marshalling Yard. Lang confirmed that the project was not in the plans for next year’s budget.

Starting in 2021, Council approved spending $188 million over five years in federal ARPA funds. Lang said all those funds were expended or encumbered by Dec. 31, 2024. Staff is currently preparing a memo on programs and services that have been funded with the federal money and any ongoing costs.

Lang told the Austin Monitor, “Our first goal is to get to the policy.” She said staff would probably come back in April to present policy recommendations. If City Council directs the city manager to move forward, “we’ll go back and work on the language” for the ultimate recommendations.

However, it will probably be mid-July before staff lays out the specifics on the election. Council will be working on that and will finally give approval for the election in mid-August at the same time they approve the budget, she said. Of course, the Legislature could change the rules in the meantime, but Lang did not point to any specific changes related to a tax rate election.

Photo made available through a Creative Commons license.

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