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2021-033 Disabled or Over 65 Property Tax FreezeDate: May 28, 2021 Report No. 2021-033 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: The purpose of this Informal Staff report is to provide a response to a Councilmember’s request for a summary of the options available to repeal the 65 years of age or older property tax freeze and increase the homestead exemption for City of Denton property owners. BACKGROUND: In 2017, City of Denton voters approved a property tax freeze for property owners who are disabled or 65 years of age or older. The freeze only applies to homestead properties and is administered and approved by the Denton Central Appraisal (DCAD) each year as part of the appraisal process. The freeze establishes a tax ceiling for qualified property owners. The ceiling represents the maximum amount a qualified property owner will pay in City taxes annually, ultimately protecting the homeowner from an increase in their property tax bill. For example, if a property owner qualifies for the exemption in 2020, their tax ceiling moving forward will be equal to the 2020 tax amount. Currently, the City has approximately 7,872 properties with the freeze which represents $1.58 billion in taxable value. Since eligible homeowners pay a frozen amount, the loss of taxable value represents a loss of revenue to the City in the following annual amounts: In addition to the disabled or over 65 property tax freeze, qualifying homeowners over 65 years of age or with a disability can apply for a homestead exemption equal to $50,000. The City also has a homestead exemption that equals 0.5% of the taxable value or a $5,000 minimum, whichever is greater. There are currently 20,226 properties in the City with a homestead exemption. Similar to the other exemptions, these exemptions are administered and approved by the DCAD. It is important to note that the City’s portion of an average total tax bill represents approximately 26%. The following sections summarize the option for City Council to repeal the over 65 tax freeze and an alternative option for increasing the homestead exemption. APPEAL TO THE STATE LEGISLATURE Once a city adopts the over 65 tax freeze, it may not be repealed or rescinded. Texas Constitution Article VIII, section 1-b(h). In order for the City to repeal the exemption, the Texas Constitution would need to be amended to allow cities to repeal the exemption. The Texas Constitution is amended by a joint resolution being approved by a 2/3 vote of the entire membership of each house of the Texas Legislature and subsequently approved by the voters at a duly called election. If approved, additional legislation may be required to enact the change. Fiscal Year*Accounts Projected Loss in Revenue Tax Rate Loss of Value 2020 7,486 $968,872 $0.590450 $1,420,000,000 2021 7,872 $980,178 $0.590450 $1,580,000,000 * FY 2019 was the first year of the over 65/Disabled tax limitation (freeze) City of Denton Disabled or Over 65 Freeze Summary Date: May 28, 2021 Report No. 2021-033 INCREASING THE HOMESTEAD EXEMPTION The City’s homestead exemption allows homeowners living in their principal residence a reduction in assessed value used to calculate City of Denton property taxes. The City’s current homestead exemption rate is 0.5% or a minimum or $5,000 whichever is greater. Currently, the City has approximately 20,226 homes with this exemption, representing 63% of all single-family homes in Denton. According to the DCAD website, a homeowner may file for a homestead exemption between January 1 and April 30 for the year for which the exemption is requested. The City Council may increase the homestead exemption to 20% of a property’s appraised value. A change to the homestead exemption rate in the future would have an impact to both homes receiving the exemption and to the City in lost revenue from exempted values. To maintain the same level of property tax revenue, an increase in offered exemptions would require an increase in the property tax rate. The deadline for City Council to make a change to the homestead exemption is July 1. If City Council desires to pursue this option, staff will present the full financial impacts of any change for Council consideration. STAFF CONTACT: Cassey Ogden Finance Director Cassandra.ogden@cityofdenton.com REQUESTER: Council Member Armintor PARTICIPATING DEPARTMENTS: Finance STAFF TIME TO COMPLETE REPORT: Two hours