Houston has the ability to raise its property tax rate by as much as 8 percent in the face of natural disasters and ratings downgrades, but city leaders so far aren’t pulling the trigger on that potential political death sentence.
City staff proposed increasing the rate after two major credit-rating agencies downgraded the city’s outlook from stable to negative — an alarming problem, particularly as Houston struggles to manage its budgetary shortfall, Bisnow and KTRK reported.
The city’s finance director, Melissa Bubowski, proposed increasing the city’s property tax rate by 3.2 cents per $100 of assessed property value. The city needs the additional revenue to cover costs tied to recent natural disasters like the May derecho and Hurricane Beryl, Bubowski told city council members.
The city is staring down a projected budget shortfall of $46 million.
A 2019 state law limited municipal property tax rate hikes to 3.5 percent, but that can be bypassed during declared disaster periods, allowing up to an 8 percent increase without voter approval.
However, Mayor John Whitmire, who served in the Texas Legislature for 50 years, isn’t going for that, saying he would rather cut the budget than raise taxes. The city has hired an external auditor to provide recommendations on how to manage the financial shortfall.
Houston has cut its tax rate for nine of the past 10 years. It was set at 52 cents per $100 of valuation last year, down from 63 cents in 2015, according to Houston Public Media. By comparison, Austin’s rate is about 44 cents, and Dallas’ is 73 cents per $100 of valuation.
The city’s credit problems began in July when S&P Global revised Houston’s outlook, signaling a 1 in 3 chance that its rating could be further reduced in the next two years. That was followed by a similar move from Fitch Ratings in September, just ahead of a $145 million tax and revenue anticipation note sale.
The downgrades are largely attributed to Houston’s $612 million settlement with the Houston Professional Fire Fighters Association, which includes raises and back pay.
City Comptroller Chris Hollins has urged the council to act quickly on its financial problems, emphasizing the potential long-term risks if the city continues to delay fiscal reforms.
“Continued inaction poses real risks to our future prosperity, and this is a real challenge that’s knocking on our door,” Hollins said. “All eyes are on Houston to see how we answer the call.”
Despite that call for action, no city council members have presented a tax hike, though some are open to it.
— Andrew Terrell
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