Board of Directors WED Meeting Agenda


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Meeting Date: 04/26/2017  

SUBJECT MATTER:
Receive and consider a presentation on a Residence Homestead Exemption (As requested by Director Boniface);
FISCAL IMPACT:
The impact of a homestead exemption on the 2018 budget and five-year plan is not known currently as the data necessary to complete such an analysis will not be available until the August budget workshop meetings.  Based on the adopted 2017 budget, the loss in tax revenue resulting from a residence homestead exemption would approximate the following: 
                                                       5% homestead exemption = $1.8 million annually
                                                     10% homestead exemption = $3.6 million annually
                                                     15% homestead exemption = $5.4 million annually
                                                     20% homestead exemption = $7.2 million annually
 
BACKGROUND:
The Woodlands Township Board of Directors has demonstrated a commitment to providing high-quality, cost-effective services and amenities desired by the taxpayers at a low property tax levy while maintaining a balanced budget and preserving the community’s excellent financial position.  Evidence of this commitment is presented in the attached document (see sections titled “Executive Summary” and “Property Taxation”), and highlights include:
 
  • Significant tax relief has been provided to taxpayers in the form of lower tax rates, resulting in $53.7 million less taxes paid since 2012 than if the rate had not been lowered.  The tax rate has been lowered by 29.2% over the past five years, from 32.5 cents to 23.0 cents per $100 of taxable value.
  • While an average priced home in the Township has increased 38% in taxable value since 2012, the Board of Directors has lowered the tax rate so that this homeowner is paying 4% less in Township property tax than five years ago.  By comparison, this same homeowner has experienced a 31.5% increase in Conroe IDS property taxes and a 27.8% increase in Montgomery County taxes.
  • Outstanding debt per capita has declined from $1,137 to $675 over the past five years, representing a 41% decrease.  Refinancing debt and early retirement of bonds have saved taxpayers approximately $6 million in interest expense.
  • The Township enjoys excellent credit ratings from Moody’s and Standard and Poor’s due to its prudent management of the Township’s financial resources.
  • The establishment and maintenance of a capital asset replacement reserve prevents the need to issue debt for the routine replacement of the Township’s extensive network of fire department and parks and recreation assets.
  • Conservative increases in expenditures have been in response to residents’ requests for enhanced services and amenities (particularly in the areas of public safety and community maintenance), to preserve the natural environment, to address matters related to the aging of the community, and to keep up with the rapid growth in the Township.
  • The Board’s budget priorities align closely with the needs and wants of the residents as evidenced by the recent community survey wherein services were rated highly and 89% of respondents were satisfied with the value of services for the taxes paid.
  • The Township is in excellent financial condition and is well positioned to respond to future challenges and opportunities as they arise. 

Although the Township has favored lower tax rates in lieu of property tax exemptions, state law provides that certain exemptions may be granted voluntarily by taxing entities.  These include:
  • Residence Homestead exemption in a percentage amount not to exceed 20%, with a minimum exemption amount of $5,000.
  • Age 65 or Older or Disabled Persons exemption in a minimum amount of $3,000.
  • Disabled Veterans exemption is determined according to percentage of service-connected disability.
 
Since 2011, the Township has granted an Age 65 or Older or Disabled Persons exemption of $25,000.  This exemption has resulted in $2.4 million of property tax savings to qualifying taxpayers since it was implemented.  For fiscal year (FY) 2017, the exemption totaled $392,645 based on $170.7 million of exempt property value.  Each additional $10,000 granted for this exemption would result in an approximate $159,200 decrease in annual revenue for the Township based on FY 2017 property values and tax rate.
 
Analysis has been prepared estimating the financial impacts on the Township’s revenue assuming a 5%, 10%, 15%, or 20% residence homestead exemption were to become effective for the 2018 fiscal year.  Please note that the numbers are only estimates as the 2018 budget and five-year plan have not been developed and property values have not been received by the Montgomery County or Harris County appraisal districts.  Detailed information regarding homestead exemptions can be found in the attached document (see sections titled “Residence Homestead and Other Exemptions” and “Appendix A: Homestead Exemption Analysis”).
 
To maintain a balanced budget, the loss in tax revenue resulting from a homestead exemption would need to be offset by a similar amount elsewhere in the Township’s budget.  Based on the adopted 2017 budget, the following budget adjustments would be necessary.
 
  •   5% homestead exemption = $1.8 million     ($9 million in five-year plan)
  • 10% homestead exemption = $3.6 million     ($18 million in five-year plan)
  • 15% homestead exemption = $5.4 million     ($27 million in five-year plan)
  • 20% homestead exemption = $7.2 million     ($36 million in five-year plan)
 
Although decisions regarding property taxation are a central component of the Township’s budget process, it is important to remember that the Board must make equally important decisions on other budget factors such as the availability of other revenue sources to lessen the need for property taxes, types and levels of services and amenities, debt management, and reserve allocations.  These sources and uses of funds must all be prioritized and allocated in a manner that produces a balanced budget which aligns with the needs and wants of the taxpayers.
 
One of the most important tools the Board uses to determine whether sources and uses of budget funds are being prioritized and allocated appropriately is the Community Survey.  The survey, which was completed three months ago in January 2017, indicated a strong positive correlation between the Board’s budget decisions and the residents’ needs and wants.  Not only were the quality of local government and services and amenities rated highly, but the value of services for taxes paid was also rated highly by a very significant 89% of the respondents.
 
To offset the financial impact of a homestead exemption, one or more of the following budget adjustments would be necessary to maintain a balanced budget.
  • Decrease operating and/or capital expenditures, which will impact the current level of services and amenities being provided.
  • Decrease allocations to reserves, which will impact funding available for the projects or purposes aligned with the designated reserves (capital asset replacements, economic development, potential incorporation).
  • Increase projections for sales and use tax revenue.  However, balancing the budget by assuming a higher level of sales and use tax may not be prudent at this time based on the recent flat trend of this volatile revenue source, particularly in retail sales which comprise over 50% of total sales and use tax revenues.
 
Also, the Board’s goals regarding property tax relief should be clearly defined before proceeding with a residence homestead exemption, which benefits only qualifying residential property owners.  Commercial, industrial and rental properties are not eligible for the exemption, thus having the effect of shifting some of the tax burden from one class of taxpayers to others.  In contrast, the Township’s approach to managing the property tax burden by lowering the tax rate benefits all property owners who are participating in the local economy.
 
Another consideration in the homestead exemption discussion is that the Texas legislature is currently considering potentially major changes to property taxation that may have an impact on the Township’s budget and tax rate in addition to the financial impact of a homestead exemption.
 
As outlined above and detailed in the attached document, consideration of a homestead exemption involves many decisions that should be based on detailed and accurate data due to the significant and long-term financial impacts of such an exemption.  Therefore, the Board may want to defer action on this item until the established budget cycle which takes place August – September 2017.  This option will allow the Board to fully analyze the effect of a homestead exemption on the short-term and long-term strategic goals of the Township and to prioritize the exemption along with the other important components of the 2018 budget and five-year plan.  Additionally, any financial impacts from property tax-related legislation will likely be known at this time. 
 
RECOMMENDATION:

Accept the presentation on residence homestead exemptions.

Attachments
Property Tax and Homestead Exemption Analysis


    

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