The Re-education of Historic Tax Breaks

What is a historic property? When it comes to providing tax breaks for old buildings, the city of Austin and Austin ISD run separate programs but work from the same city-generated list of buildings. When questions were raised about abuses of the application system, City Council's response was to keep the list but introduce a $2,500 cap per property. When AISD trustees voted on Aug. 22 to end a one-year moratorium on its program and reinstitute it unchanged, they were really voting for a wholesale reform next year.

While AISD board Vice President Vince Torres voted to reinstate AISD's tax breaks, he said that when it comes back for approval next year, "I will not support this program as it is implemented." He wants to stop it from being a home-improvement subsidy for private property owners when there is, "in most cases, minimal benefit for the district." Yet if he believes the program is so flawed, why did he vote to end the moratorium? Torres said, "Last year, upon reflection of the vote to do away with it, I felt we did not provide enough notice to the people who presumed we would be paying for it."

District 2 trustee Sam Guzmán put his own reversal down to public input. A year ago, opponents of the program were the most vocal: This year, he said, the beneficiaries of the program were better at stating their case. He said, "There were a lot of people, and they were well-intended in their testimony, and that's why we approved it." However, like Torres, he wants reforms that will add something "didactic and educational" to the program.

However, more pressing reforms may be required. On Aug. 24, attorney Jim George sent a letter to AISD general counsel Mel Waxler arguing that the system may not live up to Texas tax rules. George recently represented several local residents in a lawsuit against the city's historical property tax breaks: He told Waxler that because AISD simply adopts the city's property list rather than setting its own criteria, the program may violate terms of the Texas Constitution granting local taxing authorities the right to grant historic abatements. He wrote, "AISD cannot simply grant tax relief to properties because the City of Austin grants that relief." Moreover, while AISD uses Austin's lists, the district includes a large number of properties well beyond city boundaries. That means central city houses can get a tax break unavailable to Hill Country properties. "They've just been going through life, giving people tax breaks without ever paying attention to the limitations that Texas law applies," George said.

Waxler argues that the district is in compliance with the law but that he is working on an interlocal agreement with the city to formalize their relationship. When tax break applications are made, he said, "The board would be making these decisions, even though we may be relying on the city staff to do the leg work."

There is little argument that Austin – like any city – needs a historic preservation program, and the thinking has been that a tax break to private property owners is the most effective way to ensure preservation and upkeep. However, critics argue it has just become a loophole for the wealthy, with little historic or architectural benefit for the city or AISD. Trustee Robert Schneider, whose southwestern Travis County District 7 includes many properties outside of the city and therefore ineligible for the program, voted against bringing the program back and argues that its sheer scale is out of control. Austin has 490 historic properties on its books, compared to 346 for Dallas and Houston combined. "We are three-quarters of all the total property tax exemptions of all districts in the state," he said.

When asking trustees to end the moratorium, Superintendent Meria Carstarphen's staff argued that the tax break was of minimal inconvenience to the district. Out of the nearly $2 million collected, it only netted an additional $373,000, with more than $1 million going to the state education coffers under the Robin Hood school finance recapture system. But that cuts little ice with George, who noted that under the same Robin Hood system, the state just ends up backfilling the hole created by the program. He said, "There is a million-plus dollars in tax breaks, and that money is coming out of some school district's pockets."

Torres, Schneider, and Guzmán agreed that the only fair program would be one that recognized the additional costs of maintaining a genuinely historic property while requiring a real partnership between schools and property owners. Torres said he wants a "graduated system" where properties that open their doors to educators get the greatest gain. He said, "This approach that we give everybody the same break regardless of what they do and how they do it has got to stop."