Law may require city to lower property tax rate

Lynn Walker
Wichita Falls Times Record News
Property tax sign with residential neighborhood.

Wichita Falls homeowners are bracing for a higher tax bite after property appraisals rose significantly this year -- but the tax rate from the City of Wichita Falls may go down.

“I think there’s a pretty good chance we will have to lower the tax rate,” City Manager Darron Leiker said.

That’s because of new laws on property taxes the Texas Legislature passed in 2019.

Under the old law, local governments could realize an increase in their annual property tax revenue of 8 percent over the previous year before residents could petition for a vote to roll back the tax rate.

Under the new law, a local government can gain an increase of just 3.5 percent before a rollback becomes mandatory and automatic the following November. Residents don’t have to ask for it.

City Manager Darron Leiker said Wichita Falls may have to lower its property tax rate to comply with state law.

Leiker said preliminary figures from the Wichita Appraisal District show about a 5 percent increase in property values. That means the city would have to lower its current tax rate to stay under the 3.5 percent revenue increase cap.

Revenue from new construction does not count against the cap until the following year.

There are exceptions to the 3.5 percent rule. If a city doesn’t take the full revenue it’s allowed, it can bank that amount to use up to three years later. Also, a local government can exceed the cap if it incurred expenses from certain disasters.

Leiker said he thinks the Legislature changed the law because cities experiencing explosive growth were using the 8 percent rule to take enormous sums of property tax revenue from their citizens.

“That’s what by design the state Legislature had in mind because they didn’t want it. A lot of the high growth cities were going all the way up to the 8 percent and raking in all that new growth and they (legislators) wanted to lower that figure,” Leiker said.

Although the 2021 property appraisals stunned many Wichita Falls homeowners, the 5 percent overall increase is modest compared to many other Texas cities. But it’s enough to discourage the city from raising its tax rate.

“I cannot see a scenario where our tax rate increases. We would bust that cap,” Leiker said.

The city has raised its tax rate from about 70 cents per $100 valuation on a property in 2017 to about 76 cents in the current 2021 fiscal year. It did not raise the rate over 2020.

Property tax makes up a large chunk of city revenue – but not the largest. That’s service fees, which includes everything from water and garbage pickup to tattoo parlor fees.

Sales tax revenue is another big piece of the pie and has remained strong even through COVID-19. Grants and other revenue streams also pour into the pot.

  • Here’s how it broke down for the current budget:
  • Service charges -- $83,264,202
  • Ad Valorem (Property) Tax -- $38,829,595
  • Sales Tax -- $23,097,309
  • Other taxes -- $11,079,486
  • Other Revenue -- $28,168,952

The city will also get a windfall from the federal government’s American Recovery Act, with the first installment on $31 million coming in this month. The money is designated for COVID-19 relief, but the feds allow broad latitude in how it’s spent. Leiker said the city will wait for better guidelines from the Treasury Department before spending it and risk having to pay part of it back.

Although the revenue picture is bright, City Councilors will have challenges to deal with. Leiker said costs are rising in the city’s self-insured health coverage for employees. The city also got results from a study that urged leaders to improve wages and salaries for underpaid workers.

“We’re still pretty early in the process,” Leiker said.

Staff and councilors will wrestle with the budget through the summer before voting on the final figures Sept. 21.

County and school district leaders will do the same thing.

For the moment, property owners can take some comfort in knowing their higher appraisals will not automatically equate to higher tax bills.