Tax cap alarm grows louder at City Hall

Before the Austin City Council voted on any agenda items two weeks ago, Mayor Steve Adler was deep into a passionate monologue about a subject not on the agenda: the dangers to Austin of a Legislature-proposed tax increase cap.

Segueing from talk about a homelessness initiative, Adler said there was something he wanted to mention “while there is a room full of people — a real important something that impacts our ability to put something like this on the agenda.” At the time, a Texas House committee had passed a measure that would require voter approval for cities to increase their tax revenue more than 2.5% — a cap that would drop steeply from the current 8% figure. An identical bill was filed in the Senate.

This Thursday, the House is expected to consider the bill, as Austin leaders amp up their opposition with the expected passage of a resolution panning the proposal.

“If that (2.5%) were ever able to be something that was passed by the Legislature, it would have a profound and significantly prejudicial and horrible impact on our city and how we operate,” Adler said of a quickly growing city that raises taxes the maximum amount most years.

Even if Austin added no new city spending, a 2.5% bump in tax revenue would not cover the rising costs of health insurance and salary increases for existing employees, Adler said. It would mean continual cuts to city services, he said. Moreover, while property taxes make up only about half of the city’s revenue, other sources are less stable and growing less quickly.

“If this Legislature actually follows through with a 2.5% tax cap, then we’re in trouble,” the mayor said. “We’re going to have to start cutting things that are core to our values. … It would fundamentally impact how we preserve the quality of life and our economy.”

Mayors and other local leaders statewide have raised the same warnings, in speeches and opinion editorials.

This week, Adler will go a step beyond a soliloquy and join with other council colleagues to consider a resolution formally opposing the bill in its current form. The resolution, from Council Members Delia Garza, Greg Casar, Jimmy Flannigan and Ann Kitchen, along with Adler, says the tax cap would save the average Austin taxpayer only about $5 per month, but cause the city to lose money needed to pay 549 police officers or cover half of its yearly budget for parks.

The proposed cap “represents an impending crisis by limiting the City’s ability to provide for public safety and other essential services,” the draft resolution reads.

Austin leaders have spoken out against measures similar to the proposed cap in the past, and they made opposing a lower tax cap their top priority on the city’s legislative agenda this year. But their growing criticism of the idea reflects an increasing alarm as the bill progresses at the Capitol.

“Right now, bills are actually coming on the floor,” said Cynthia Van Maanen, a policy adviser for Garza. “It’s at this point that we need to really step up and make constituents aware of what would happen if this passed.”

Van Maanen noted that in previous sessions, lawmakers have sought to lower the cap to 4% or 6% and not found success. With votes moving the bill further along, the window is narrowing for lawmakers to adjust it.

Local officials had hoped the 2.5% cap would simply be a starting point in legislative negotiations. They also suggested that the bill include a carve-out exempting public safety costs from its provisions. Public safety makes up nearly 70% of Austin’s budget, and public safety funding is also a priority for state leaders.

Adler has consistently argued that the real reason Austinites feel taxes are spiking is because school district taxes are so high — since much of the Austin district's tax revenue goes back to the state to be redistributed to less property-wealthy districts. Critics have called this existing school tax “recapture” system broken, and the Legislature has started a move toward some school district tax relief.

Meanwhile, Gov. Greg Abbott, House Speaker Dennis Bonnen and Lt. Gov. Dan Patrick, who leads the Senate, announced Wednesday that they had agreed on a plan to increase the state sales tax 1% and use the revenue to buy down property tax rates.

Some conservatives immediately cheered the plan as a good tax swap, but some Democrats derided it as a tax on the poor, because lower income residents must spend a higher proportion of their incomes.