Hundreds of Lake Austin homes never paid city taxes, but that may change

Austin

AUSTIN (KXAN) — An exemption that’s more than a century old allows around 400 people who own property on Lake Austin to avoid paying city taxes entirely despite the fact that they live within city limits. Now, some city of Austin leaders say it’s time to scrap the old exemption and tax these properties to generate more money to tackle high-priority issues in the city.  

The properties receiving the exemption exist both north and south of the Colorado River and extend as far wast as Mary Quinlan Park and as far east as Tom Miller Dam.

At a press conference Monday morning, Council Members Greg Casar and Jimmy Flannigan explained the details of this tax exemption for certain Lake Austin properties, which was first reported Friday in the Austin-American Statesman. 

On Monday, Casar and Flannigan laid out the details of their plan to ensure that the property owners there pay their fair share in the future. They are proposing two ordinances, the first of which would repeal the 30-year-old ordinance keeping the exemption in place and the second of which would direct the city manager to find look into new ways to use the funding generated from placing these properties on city tax rolls. 

They explained that Council Members Natasha Harper-Madison and Kathie Tovo, as well as Mayor Pro Tem Delia Garza, also support these ordinances which will be up for a vote at the council’s June 20 meeting.

The homes getting a tax break are generally high-priced. Council members had city staff research these properties and found that the average market value of these properties was $2.5 million with some of these homes valued at more than $10 million.  

City staff also estimated that if these properties were on the city’s tax rolls in 2018, they would have generated $3 million in property tax revenue given the year’s tax rate. 

The exemption was put in place in 1891 when the property was annexed into the city. The exemption was cemented in city ordinance in 1986 after the city attempted to tax these properties.   

At the time the ordinance was written, the city said that these properties should not have to pay taxes because they weren’t receiving full city services and there was confusion about whether they could vote in council elections and bond elections.  

Now, the council members who spoke with KXAN say all that has changed.  They believe all of these properties now receive some type of city services and all of them are voting in council elections and bond elections. 

Analysis by city staff on these properties shows that while some of them may not be receiving Austin Energy or Austin Water, they are receiving the main services paid for by property taxes such as police, fire and EMS.

The analysis shows that of the first group of these properties that were annexed, they all receive Austin Police support, EMS support, public works, watershed protection, code enforcement, though not all those properties receive Austin Resource Recovery, Austin Water, Austin Energy and the Austin Fire Department.  For the second group of properties that were annexed, they all receive Austin Fire Department support, Austin Police Support, EMS support, Austin Energy, public works, watershed protection, and code enforcement — though not all the properties receive Austin Resource Recovery and Austin Water. 

The council members behind this ordinance say their goal is to use the tax dollars generated to fund two of the council’s top priorities: addressing homelessness and improving childcare/ early childhood education.

Council members say this extra stream of funding will be even more necessary now that the Texas legislature has approved a new revenue cap. The city of Austin budget office estimates that the new revenue cap will result in a $58 million deficit in five years without the addition of new city programs.

“This is also a good way for us to make sure that there is some more level of tax fairness,” said Casar on this effort to remove the exemption. 

“So that multi-million dollar houses in an area where you have multiple houses worth over 10 million dollars are contributing their fair share to services,” Casar added. “I hope that we’ll be able to provide the homeless services and early childhood services that people deserve and expect from us.”

Council members became aware of this exemption when they were sued by property owners in the area who wanted to get the same tax break their neighbors were getting. 

Braden Latham-Jones, the communications director for Casar’s office, explained that there is no mechanism to retroactively collect all the taxes these property owners have not paid over the years, these ordinances would only apply to future tax cycles. 

Council Member Flannigan noted that in his Northwest Austin district, there are some areas, like parts of Steiner Ranch and Comanche Trail which don’t pay city of Austin property taxes but do have the ability to vote for city council. He said the difference is these property owners do not receive Austin Police or Austin Fire Department first responders when they have an emergency, they pay into the taxes of local emergency service districts which respond to their neighborhood emergencies.  The properties on Lake Austin covered by the exemption are not paying towards an emergency service district or towards Austin first responders, Flannigan pointed out.

“Maybe this made sense a hundred years ago, but as the city has grown and evolved, as services have grown and evolved, and our ability to deliver services has grown and evolved,” Flannigan said. “These property owners are Austinites, they are in the city.”

“I am really excited to see we will return to a taxpayer fairness system where every person who is receiving services in the city is taxed fairly for them,” he added. 

Jack Holford, who has lived in one of these city tax-exempt properties on Westlake Drive for more than 50 years, has doubts about the council’s ability to repeal the exemption this time around. To his recollection, efforts in the 1980s to link the waterfront properties up to city services were stifled by the anticipated cost to the city of doing so with the varied topography along Lake Austin. 

Holford said the only city service he is aware that he receives is Austin Water. He can vote in city council elections, but he has not been able to vote in elections involving city bonds as far as he can remember. 

“I have to haul my own garabage,” he explained, adding that he draws his water out of Lake Austin and purchases it from LCRA, using a filtration system in his shed. 

“If they look at it again and provide services, that’s fine,”  Holford said of the council discussion about the tax exemption. “But we need water and wastewater, we need garbage, we need fire and police protection, so if they want to provide all those services, then taxation would be reasonable in that case, but right now, we don’t have those services.”

Another problem Holford sees is that the properties defined under this exemption are all housed within what’s known by the city as a “contour line.” Holford believes the contour line runs through his property, but he is not exactly sure where it is and he is not sure if the city knows what’s on the ground across the entire contour line. 

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