The city of Waco may shave its proposed property tax rate slightly from its initial proposal and make up the lost revenue by increasing its projections for sales tax revenue and the rate of property tax collection, according to city officials.
The city’s proposed budget for fiscal year 2023 includes a property tax rate of 76.4782 cents per $100 of property value, a quarter-cent reduction from the current rate, and a general fund budget of about $177 million. During a Waco City Council meeting Tuesday, Budget Director Nick Sarpy proposed lowering the rate to an even 76 cents per $100.
“None of this would have any impact on projects proposed in the budget, and it wouldn’t have any impact on employees’ compensation or benefits,” Sarpy said.
With a 12% increase in property values, to $13.4 billion, the city’s no-new-revenue tax rate is about 68 cents per $100, according to a city budget document. It is roughly the rate at which properties on the rolls last year would generate the same total revenue for the coming year. The average taxable value of a residence in Waco increased 3.5% compared to a year ago, to $185,036. At the newly proposed rate of 76 cents per $100, the owner of an average-value home would owe the city $1,406.27, compared to $1,415.12 at the initially proposed 76.4782 cents per $100. With the previous year’s tax rate and average residence value, the bill was $1,372.38.
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Sarpy said every penny in the tax rate represents between $1.2 million and $1.3 million in revenue.
The historical collection rate for property taxes has remained between 98.4% and 99.7% annually since 2012. The proposed budget assumes a 98% collection rate, but raising the budgeted expectation to 99% would generate roughly $1 million more, Sarpy said in an interview after the meeting.
Sarpy also said the city has a history of budgeting for less sales tax revenue than it actually receives. In fiscal year 2022 the city expects to receive $52 million but had only budgeted to spend $43.6 million. The year before, it budgeted for $43 million but received $48.7 million. The proposed 2023 budget projects the city will receive about $47 million in sales tax revenue, but the actual total will likely be about $52 million.
“We understand our sales tax numbers are pretty conservative, based on where collections we’ve had this current year and where we project them to be,” Sarpy said. “There’s some margin in there.”
The boosted collection rate and sales tax will not make up all of the difference if the city adopts the lower tax rate, however. To bridge the rest of the gap, the city would also take money out of the fuel budget created in response to unusually high gas prices in June.
During the meeting Tuesday night, Council Member Jim Holmes said lowering the rate even a fraction would “send a nice signal to the community,” combined with the city’s recent increase in homestead exemptions. Heading into budget season, the city increased its general homestead exemption from 10% to 15%, increased its exemption for homeowners 65 or older from $5,000 to $50,000, and added a new $50,000 exemption for homeowners with disabilities. The exemptions reduce the taxable value of an owner’s primary residence compared to its appraised value, subtracting the relevant percentage or the $50,000 from the appraised value.
The exemptions shift tax burden away from homeowners and onto other property owners.
“I think another slight reduction in the tax rate helps the commercial property owners,” Holmes said. “Multibillion-dollar commercial real estate and industrial manufacturing folks as well have seen an increase in their real estate values year over year.”
Waco Mayor Dillon Meek said reducing the tax rate sounds good, but asked for the next budget cycle to include a comprehensive examination of what changing the rate will cost the city over time.
“If staff was OK with this for this year, then I certainly am. … But I think it’s important for me to know the long-term impact,” Meek said.
Council Member Alice Rodriguez said she felt cautious about changing the rate, because of ongoing capital projects around the city and the sudden repairs and expenses that might come up over the course of the year.
“I want to make sure we don’t hurt anything else, where we don’t have enough money left for you and your staff to help us during the year,” Rodriguez said to City Manager Bradley Ford. “That’s the only think I’m coming up with. Everything else the council members have said, I agree with, but that’s the thing I worry about.”
The discussion is slated to continue during a city budget and audit meeting Aug. 23.