Point Austin: Color Me Exempt

The "homestead exemption" money flows uphill

Point Austin

Local political blogger Dylan Tynan (you can find voluminous documentation of what follows at www.electionaustin.com) has taken a close look at the effects of a 20% homestead exemption on property taxes, a hotly debated proposal in the City Council campaigns. Tynan crunched the numbers geographically, to determine cui bono – who would most benefit – citywide, in the 10 newly defined Council districts. The answers are striking, and provide a little lesson in what happens when you take money from city services – which benefit all Austinites – and transfer that funding to "tax relief" for homeowners only.

Reviewing appraisal district records, Tynan calculated the total amount of the exemption at $36.6 million (for the current fiscal year), then analyzed the number and total value of homestead properties in each district. Unsurprisingly, considering the location of the most expensive neighborhoods, the financial value increases from East to West. More surprising is the scale of the imbalance – nearly 25% of the $36.6 million would be allotted to District 10. That's considerably more than the combined value of the exemption (15.5%) for Districts 1 through 4.

Who Benefits?

At right are Tynan's calculated values, based on the number and value of homestead properties in each district, shown first as a percentage value (of $36.6 million), and then as an actual dollar total (rounded to nearest $1,000).

The total exemption calculated for each district depends both on the number of potentially exempt homesteads, as well as the combined value of those homes (so that the relatively smaller number of homesteads in D9, for example, represent much more wealth than the larger number of homes in D1). Looking at the overall list, it's hard to resist the notion that a 20% exemption effectively means a considerable transfer of wealth from East to West Austin (with D10 homeowners as a group getting the lion's share).

Homestead Exemption Benefits, by Council District

% of Total No. Eligible Properties Total Exemptions Avg. Savings Monthly
D1 5.4% 13,008 $1,977,000 $12.67
D2 3.4% 11,146 $1,244,000 $9.30
D3 3.6% 7,768 $1,318,000 $14.14
D4 3.1% 7,269 $1,135,000 $13.01
D5 11.6% 18,645 $4,246,000 $18.98
D6 10.4% 13,538 $3,806,000 $23.43
D7 10.0% 15,808 $3,660,000 $19.29
D8 16.7% 19,025 $6,112,000 $26.77
D9 11.2% 9,781 $4,099,000 $34.92
D10 24.8% 19,262 $9,077,000 $39.27

That effect is exaggerated when you consider that only those who own their homes (fewer than half the city population) would benefit from the exemption. Indeed, renters (larger majorities in Districts 1 through 4) would likely see rent increases commensurate with the consequent higher tax burden on commercial properties. Another way to put this: Why should any candidate running to represent Districts 1, 2, 3, or 4 support a policy that would mostly benefit wealthier western districts, at the expense of most residents in eastern districts?

The Rich Get Richer

Proponents respond that while the exemption is not a perfect solution, it's a step to reduce tax pressure on homeowners. "We need to use the tools we have," argues mayoral candidate Steve Adler, and he says residents have told him they're less concerned about benefits to the wealthy than receiving some form of tax relief. Yet the $36.6 million (which would increase annually, with rising property values) currently represents about 4% of the city's total annual operating budget – almost exactly the FY2015 budget for libraries, for example, or about half of Parks and Rec (that's among the reasons for Adler's proposal that the exemption be phased in over four years). Are we not getting more value spending that money in concert, than popping individually for an extra movie night (at least on the West side) once a month?

Supporters have acknowledged that most of the benefit will go to those who own the most expensive homes. Whether that's a problem depends to a degree on how one feels about property taxes, and perhaps on the belief that those who are paying the most should also receive the most in "tax relief." Yet even that benefit – averaging $9/month at the bottom (D2), $39/month at the top (D10) – is minimal, especially in the context of the "affordability" argument so common on the stump.

Tynan – who lives in the city's ETJ, by the way, so isn't currently subject to Austin property taxes – says he doubts this analysis will do much to undermine the popularity of the exemption, which most homeowners (and homeowners, especially Westside homeowners, do vote) seem to consider a lagniappe they deserve. At a minimum, he suggests, the exemption should be temporary – limited to a year or two in response to the city's current housing crunch. But he doubts that will happen, either: "So, we're really talking about a permanent change – another special carve-out for homeowners that excludes renters – that's on top of the school district homestead [exemption] and county homestead [exemption] and the federal income tax and who knows what else."

In sum, it looks like Austin is prepared to become slightly more "affordable" for homeowners, at the expense of the majority of its residents – and that shift in affordability will more greatly benefit the wealthier neighborhoods at the expense of the poorer ones. On the face of it, it doesn't sound like "keeping Austin values." It doesn't even sound fair.

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Mayoral & City Council, December 2014 Run-off, Dylan Tynan, property taxes, homestead exemption, Steve Adler

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