HomeMy WebLinkAboutIR 9223 INFORMAL REPORT TO CITY COUNCIL MEMBERS No.9223
To the Mayor and Members of the City Council April 6, 2010
Page 1 of 6
SUBJECT: HOMESTEAD EXEMPTION
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This purpose of this Informal Report is to provide additional information regarding the
purpose and history of the General Homestead Exemption.
A high rate of home ownership is a desirable goal, and there are many programs at both the
local and national levels intended to encourage home ownership. The current homestead
exemption is not one of them. The original intent of the homestead exemption was to blunt
the impact of dramatic increases in assessed home values. It was later extended to remedy
inequities in the tax payments of residential property owners versus commercial property
owners.
Legal Requirements
During the March 23rd, Pre Council meeting, Jeff Law, the Executive Director from the
Tarrant Appraisal District (TAD) indicated they would need to know the City's intention
regarding the Homestead Exemption in April. The urgency for this request is predicated on
the legal requirement to include the current exemptions on the preliminary appraisal notices
that are distributed to property owners. If the City elects to modify the exemption, TAD
would be required to provide valuations based on the modified exemption. While it's
expedient and transparent for residents if this disclosure occurred with the May preliminary
values, by state law, the City has until July 1St to make the change. If the City chooses to
modify the exemption, TAD and the other appraisal districts must be notified by July, before
the certified appraisal notices are distributed. This late notice could surprise many residents
resulting in a significant amount of complaints for the City and other governmental entities.
Homestead Exemption History
Prior to 1984, the City handled all assessment duties in-house. That year the Tarrant
Appraisal District (TAD) assumed responsibility for tax assessments for the City and other
taxing districts within Tarrant County. Before TAD was formed, each taxing entity (such as
the City, the school district, and Tarrant County College) handled their own appraisals.
According to the Texas A&M Real Estate Center, having multiple appraisers led to property
owners facing several different assessments of value. When TAD was formed they
undertook a county-wide reassessment of tax valuations to provide a single assessed value
for each property. The outcome of this reassessment was a dramatic increase in assessed
values. The total tax roll in Fort Worth increased from $5.5 billion in FY1984 to $9.6 billion
in FY1985—an increase of almost 75% in a single year.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No.9223
To the Mayor and Members of the City Council April 6, 2010
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Page 2 of 6
SUBJECT: HOMESTEAD EXEMPTION
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This dramatic increase hit many homeowners hard. The chart below illustrates the change
in assessed values in Fort Worth neighborhoods.
Change in Assessed Values from FY1984 to FY1985
FY1984 FY1985 Valuation Percent
Neighborhood Valuation Valuation Change Change
Mid-South $7,201 $20,917 $13,716 190%
Rosen Heights $13,490 $34,250 $20,760 154%
Mornin side $10,255 $23,127 $12,872 126%
Summerfields $33,621 $60,654 $27,033 80%
Poly $15,447 $27,107 $11,660 75%
South Poly $24,270 $41,605 $17,335 71%
Wedgwood $43,401 $72,040 $28,639 66%
Meadowbrook $22,732 $36,280 $13,548 60%
Westcliff $126,270 $199,404 $73,134 58%
Handley $37,608 $56,669 $19,061 51%
Woodhaven $109,108 $163,935 $54,827 50%
Camelot $53,465 $72,952 $19,487 36%
Candlerid a $51,652 $62,7691 $11,117 22%
Source: 1984-85 adopted budget.
To offset the impact of these increased valuations on taxpayers, Council made two
significant changes in the City's tax policy. First, the tax rate was decreased from $0.925
per hundred dollars to $0.6765 per hundred dollars. Secondarily, Council adopted a
general homestead at 15% of assessed values. Again these actions were intended to
mitigate the alarming increase in property values. Even with these changes, the tax bill for
the average Fort Worth homeowner increased by 13.3%. Actual collections for FY1984
were $66.9 million; actual collections for FY1985 increased to $78.1 million.
The homestead exemption remained at 15% for two years. The FY1987 budget
documentation indicates that "commercial property appears significantly undervalued, thus
causing residential property to carry more than its fair share of the load." Consequently, the
exemption was adjusted to 20%. The perceived inequity between residential and
commercial values was attributed to the different valuation methodologies employed by the
appraisal district. TAD later addressed this inequity by using "market values" for both
residential and commercial properties. Although TAD's efforts addressed the inequity in
valuations, the benefit afforded to residential property owners remained in place. A
summary of the homestead exemption rate is depicted below.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No.9223
To the Mayor and Members of the City Council April 6, 2010
Page 3 of 6
• SUBJECT: HOMESTEAD EXEMPTION
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Fort Worth Homestead Exemption Rate
1980-
25% _ _ - - - - - - — - - - - --------
20% -- - - -
First established at
15%In 1984
Set at 20%In 1986
15%--- -- - ___ _
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10% - — -- __ - 4
No exemption
prior to 1984
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O O O T T T 01 T O O O O O O 01 O O O O O N O N N N N N N N N N
Fiscal Year
This extended benefit afforded to residential property owners has placed a larger property
tax revenue burden on commercial property owners. As you can see below, residential
property owners represent 48% of the City's appraised value; however, those same property
owners contribute only 45% of the City's property tax revenue. This is attributable to the
various exemptions currently offered. These will be discussed in more detail later. While
there is room for a philosophical discussion on the appropriate balance of the property tax
burden, current figures indicate a larger burden resides with commercial property owners.
Lowering the exemption allows for a more balanced approach.
Property Tax Revenue Contribution
as of 3/2/2010
Percent of Percent of Percent of
Appraised Taxable Property Tax
Property Type Value Value Revenue Variance
Commercial 52% 55% 55% 3%
Residential 48% 45% 45% -3%
Total 100% 100% 100% 0%
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No.9223
To the Mayor and Members of the City Council April 6, 2010
Page 4 of 6
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• SUBJECT: HOMESTEAD EXEMPTION
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The current 20% homestead exemption costs the City $30,800,000 per year in lost
revenues. The following table shows the exemptions are varying levels with the resulting
revenue and tax rate impact. For example, lowering the exemption to 10% would generate
$15.4M in additionally revenue. Correspondingly, it would require an across the board tax
rate increase of 3.8 cents to have an equivalent impact. Alternatively, the exemption could
be phased out over a period of time and that impact is represented by the 1% amount.
Exemption Revenue Tax Rate
Amount Impact Equivalent
20% $30,800,000 7.5 cents
10% $15,400,000 3.8 cents
1% $1,540,000 0.38 cents
Below is also a familiar chart comparing our current homestead exemption to other cities in
the state of Texas.
25%
zo%
20% 20% 20%
v%
5% 4%
0% 0%
0% — - -- — —-- -- --
Austin SanArtDrio EIPaSo Dallas FortWorttl HD(b=
Other Tax Exemptions
In addition to the homestead exemption, the City of Fort Worth offers a wide variety of tax
exemptions to commercial, residential and other property owners. These exemptions serve
a variety of purposes, including attracting new businesses, encouraging historic
preservation, and protecting seniors and the disabled from tax increases. Some
exemptions, such as the historic property exemption, are available on both commercial and
residential properties. The exemptions available are listed in the table below.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No.9223
To the Mayor and Members of the City Council April 6, 2010
Page 5 of 6
SUBJECT: HOMESTEAD EXEMPTION
Residential Commercial Other
General Homestead Tax Increment Financing Religious Organization
Exemption (TIF) Exemption
Over 65 Exemption 380 Agreements Charitable Organization
Exemption
Over 65 Ceiling Freeport Exemption Historic Property
Exemption
Surviving Spouse Foreign Trade Zone Agricultural Exemption
Exemption Exemption
Disabled Person Solar/Wind Exemption
Exemption
Disabled Veteran Pollution Control
Exemption Exemption
Fort Worth Tax Exemptions by Property Type
Home Ownership Programs
Through the Department of Housing and Economic Development, the City currently has
several programs that promote home ownership. These programs include:
1. Down Payment Assistance Program: This program provides financial assistance to
qualified homebuyers to purchase lender-foreclosed homes within targeted areas of
the City. The program offers $25,000 of assistance. Up to $15,000 can be used for
the down payment, $5,000 for closing costs, and $5,000 for minor repairs.
2. Homebuyer Assistance Program for first-time homebuyers: In target areas, the
maximum amount is $14,999. In non-target areas, assistance is provided up to
$8,500.
3. Housing Counseling Programs: The City of Fort Worth offers home ownership
training and counseling to teach renters and first-time homebuyers how to better their
chances of becoming homeowners. As a federally certified housing counseling
agency, the Housing and Economic Development Department helps citizens who
want to become homeowners create and follow a budget, consolidate and pay off
loans, eliminate debts and apply for a mortgage. Classes and counseling include:
a. Home ownership classes for new buyers
b. Foreclosure counseling to assist homeowners facing difficulties to resolve their
delinquencies and remain in their homes
C. Credit counseling and personal budget development for individuals to prepare
to buy a home
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No.9223
To the Mayor and Members of the City Council April 6, 2010
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Page 6 of 6
SUBJECT: HOMESTEAD EXEMPTION
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4. Homeowner Loan Program: This program assists homeowners with minor and
substantial repairs up to $40,000, and is offered city-wide to eligible borrowers
through the Housing Trust Fund. Loan amounts and terms are based on the property
location and household income.
5. Housing Developer Fund: Through the Fort Worth Housing Finance Corporation, the
City encourages the private sector to develop affordable housing within the Central
City.
These programs are all administered by the City of Fort Worth, but include federal funding.
In addition to these targeted programs, the federal government also promotes home
ownership through tax incentives. Local property tax payments are tax deductible, as are
mortgage interest payments. The Congressional Joint Committee on Taxation (JCT)
estimates that the property tax deduction saved 40 million households an average of $600
in federal taxes in 2006. The JCT estimates that the mortgage interest deduction saved 35
million households an average of $1,850 that year. Whether the homestead exemption is
changed or not, Fort Worth homeowners will continue to benefit from these federal tax
exemptions, and the targeted programs will continue assisting individuals to purchase and
keep their homes.
Recommendation
Staff reconfirms its recommendation to lower the homestead exemption to 10%. This option
1. assists in funding more of Council's priorities
2. allows for a larger investment in infrastructure through increased debt capacity
3. does not disproportionately affect residential property owners.
If you have any questions, please call Horatio Porter, Budget Officer at 817.392.2379.
Dale A. Fisseler, P.E.
City Manager
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ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS