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INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8540
►ai��a,�a November 11, 2003
T To the Mayor and Members of the City Council
Page 1 of 2
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1417 SUBJECT: Tax Freeze for Citizens who are Disabled or Over 65
Council member Clyde Picht recently asked the impact of new legislation that would allow cities, at their
option, to freeze the property tax liability for homeowners who qualify for the Over 65 or Disabled
exemptions. This report provides an analysis of that potential impact.
In September, Texas citizens approved a constitutional amendment that allows cities to freeze the property
taxes owed by homeowners who have a qualified disability, are 65 years or older, or are 55 or older and the
surviving spouse of someone who qualified for the over-65 category. The taxpayer also must qualify for the
Homestead exemption to be eligible for this freeze. Once a homeowner qualifies for the tax freeze, the City
may not increase the taxes owed by the homeowner as long as they remain qualified for the tax freeze.
Taxes may be increased to the extent that improvements other than repairs or required city imposed
improvements are made to the homestead. This property tax freeze can be implemented by City Council
approval or by a successful citizen election triggered by a petition of 5% of the registered voters of Fort
Worth.
The 2003 certified values from the Tarrant Appraisal District (TAD) show that homeowners age 65 and over
(who were eligible for the $40,000 Over 65 exemption) own property with an appraised property value of
$2.2 billion (before any exemptions are applied). After exemptions, that $2.2 billion in appraised value
Translates into revenues of approximately $8.2 million to the City.
TAD reports also show that homeowners who qualify for the Disabled exemption (also valued at$40,000)
own property with an appraised value of $142 million. That translates into revenues of approximately
$402,998. Thus, these two groups account for approximately $8.6 million in property tax revenue in the
FY2003-04 budget,
Property tax revenue due to valuation increases grew by an estimated 3% this year. If it can be assumed
that the 3% growth can be applied to these two categories of homes and the tax freeze is implemented, then
the City will fail to realize $265,408 in new revenue in FY2005-06. The losses increase in size each year as
the true market value of the homes continues to increase while City revenue does not. Over five years, the
estimated revenue loss from this policy would be almost$4.4 million. The table below shows the details of
the estimated losses.
m' Revenue: F`f04-05 FY05-06 FY06-07 FY07-08 FY08-09 T
Without the policy $8,427,801 $8,680,635 '$8,941,054 $9,209,285 $9,485,564 $ ;770, 31'J,
O Loss due to policy $252,834 $513,253 $781,485 $1,057,763 fi` ,M2 $$,947, 5
w Revenue: FY04-05 FYOS-06 FY06-07 FY07-08 FY08-09 --*i���.........
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m Without the policy $419,118 $431,692 $444,643 $457,982 $471,721 $485,873
Loss due to policy $12,574 $25,524 $38,864 $52,603 $66,755 $411,026
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TOTAL LOSS $265,408 $538,777 $820,348 $1,110,366 $1,409,085 $4,358,691
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS NO. 8540
To the Mayor and Members of the City Council November 11, 2003
5 Page 2 of 2
SUBJECT: Tax Freeze for Citizens who are Disabled or Over 65
This analysis assumes that, in any given year, the number of properties that newly qualify for the Over 65 or
Disabled status approximately equals the number of properties that no longer are eligible. To the extent that
some additional homes will be added to the Fort Worth market that qualify for one of these two exemptions,
revenue will growth in the first year that such homes are added to the tax rolls, but will not grow in
subsequent years due to their addition.
It should be noted that in the last three years, the net taxable value of properties that qualified for the Over
65 exemption has increased by about 9% a year. That 9% is broken out between growth in the value of
existing properties that were qualified for the exemption in the past, and additions to the exemption group. It
is conceivable that—because of the aging of the baby-boom generation—that the short term trend could
continue. For example, if homes that qualify for the Over 65 category continue to grow in value by
approximately 9% per year while the overall growth in property values continues at a more modest 6%, then
within 20 years, the percentage of the total assessed value in Fort Worth qualifying for the Over 65
exemption and the tax freeze could double—from 3% to 6%. -
Before taking this step, it is important to recognize the impact of exemptions already offered by the City. In
Fort Worth, all owner-occupied homes are allowed a 20% reduction in the assessed value (the Homestead
exemption), In addition, the Over 65 exemption allows an additional $40,000 reduction of the assessed
value. In the current year, the average home that qualified for the Over 65 exemption was valued by TAD at
$86,844. After the 20% Homestead exemption and the $40,000 Over 65 exemption, the average taxable
value was $29,476. This taxable value leads to an average tax payment of$255 this year, compared to the
average property tax bill for all residents who qualify only for the Homestead exemption of$628. Similarly,
the average home value for those qualified for the Disabled exemption is $62,899. After the Homestead and
Disabled exemptions, the average annual tax payment made by a Disabled homeowner is $89.
It is also important to recognize that the tax freeze, as proposed, is not based on the taxpayer's ability to pay
.taxes. The tax freeze does not consider income or wealth in determining who is eligible — it only considers
age or disability. Finally, it is important to note that any revenue loss associated with such a policy would
need to be offset through tax rate increases on other residents or through service-level reductions.
The above is submitted for informational purposes. The enabling legislation does not take effect until
January 1, 2004. If action were taken during calendar year 2004, the tax freeze would apply to assessments
made in January 2005, and the first losses (in terms of unrealized revenue) wou -occuf4n or
FY2005-06. It is recommended, should the City Council wish to consider this p id y''that Lion
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be made during the budget process. Should the City Council desire additional i formation' p'jdap n e q,go act
Charles Boswell, Assistant City Manager, or me.
jaly W/Jac on,
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS