Could Tax Swap Address Spiking Property Taxes?

Austin ISD's projected "recapture" payments ($537 million in property tax collections sent to the state for redistribution to other districts) are estimated for FY 2018 to considerably exceed all of the city of Austin's property tax revenues (estimated at $454 million), and to continue to rise rapidly, reaching more than $800 million in FY 2021.

In a Wednesday morning work session, city budget staff presented to City Council a potential "tax swap" with Austin ISD, as a means to address spiking local property taxes as well as maintaining education-related programs that the school district finds increasingly unaffordable, because of the scale of "recapture" payments to the state. In order to continue considering the idea while debating the proposed budget, Council voted to set the theoretical "maximum" property tax rate at 46.51 cents per $100 of taxable value (2 cents higher than the current rollback rate of 44.51 cents).

At this point, the swap is still only a proposal under discussion prior to adoption of the FY 2018 city budget. As described by staff, the city would raise its property tax rate a certain amount – the figure offered for consideration is 2 cents – allowing AISD to lower its rate a corresponding amount, thereby mitigating the amount marked for recapture. Any such levy would almost certainly trigger a "rollback election," and city officials would have to persuade the voters that the increase by the city would in fact result in an overall reduction of property tax payments from city residents.

The proposal was laid out at Wednesday's Council work session because state deadlines require Council to determine and announce the potential "maximum" property tax rate weeks in advance of the formal Sept­ember budget adoption. In a Tuesday briefing for reporters prior to the work session, Mayor Steve Adler acknowledged "there are a lot of moving parts" to a tax swap, and that he has "no position" on the proposal pending staff layout of the details and further Council discussion. He said state law does contemplate tax swaps among jurisdictions, as long as the services contemplated overlap in some way – for example, the city's previous underwriting of parent support specialists and afterschool programs that also benefit AISD. Council has previously directed staff to explore the possibilities, and the legal and financial implications, and this proposal now becomes part of the budget preparation discussions.

"I don't know what the potential dollar amounts are," said the mayor, "and I don't yet have an opinion on whether we should take this step. But we are a creative and innovative city, and we need to consider every strategy to decrease the burden of property taxes."

Adler reiterated that the increasing burden of the "state property tax" is not sustainable, and called again for the Legislature to address public school finance. "The only thing everybody in the state agrees we should do is fix public school finance," he said. "And that's the one thing this Legislature is not doing."