County invokes “special taxing unit” rule of new State Tax Code

As the preliminary 2020-2021 Orange County proposed budget was being distributed to each of the Orange County Commissioners for their first look at next year’s proposed budget, the Commissioners’ Court was asked to consider directing that the voter-approval tax rate be calculated at 8% in the manner provided for a special taxing unit in Senate Bill 2 that was passed by the Texas Legislature last summer.

This will allow Orange County to increase their property taxes by an amount up to 8% of the current year’s tax rate without a mandatory referendum.

To explain how the new law passed by the Texas Legislature last year is supposed to limit property tax increases by local government entities, we spoke with Texas State Representative for District 21, Dade Phelan.

“If the tax rate set by a taxing entity, whatever they set that rate at, if it brings in more revenue than it effectively would in the previous year, and if that increase is over three-and-a-half percent, then it would automatically goes to an election of the people to decide whether or not they approve that increase,” said Mr. Phelan.

“Another part of this is the empowerment of the taxpayer,” said Representative Phelan. “You now have kind of a one stop shop for local protest. You are going to get a piece of mail that is going to give you each entity’s current effective tax rate, their new proposed rate, and their “no-new-revenue” rate. People will go there and might see that that entity is lowering their tax rate but is receiving more revenue because their home appraisal went up. So maybe they need to lower it even more to be revenue neutral or only increase their revenue up two or three percent. This gives taxpayers the opportunity to see, of all of their taxing entities, who is actually adopting a rate that is going to increase their taxes, and who is not, and give that taxpayer a method to protest that propose tax rate.”

Phelan seemed to think that voters would approve an increase in property taxes over three-and-a-half-percent if it were for a good cause; like hurricane repairs. He didn’t believe that voters would deny a reasonable reason for a larger than three-and-a-half-percent tax increase.

However, there is an exemption in Senate Bill 2 that allows taxing entities to utilize declared disasters to claim the special taxing unit voter approval tax rate of up to 8% without the mandatory referendum.

This is the exemption that the Orange County Commissioners’ Court approved unanimously on Tuesday, July 28, 2020.

“What that basically means is that the Legislature last year set the new revenue cap rate at three-and-a-half percent,” said Orange County Judge John Gothia during last Tuesday’s Commissioners’ Court meeting, “unless there is a natural disaster. If there is a natural disaster we can actually do a waiver to be able to go back FOR A to using the old rate of up to eight percent if necessary. We are hoping that is not going to be necessary for working on our budget right now. We are going to try to be sure that is not necessary, but we don’t want to close ourselves off, either. So until we get through our budgets, this will allow us to still use the eight percent we have been using for the last several years without an election. In our case, we are filing under the pandemic, but we could have filed under Tropical Storm Imelda, as well, because there were forty-something counties that could have applied under that. But all two-hundred-and-fifty-four counties in the state were declared disaster under the pandemic, so that is the one we are using.”

Precinct #3 Commissioner Kirk Roccaforte suggested to the Court that Orange County use Tropical Storm Imelda as the special taxing unit exemption rather than the pandemic since it was more of natural disaster that qualifies for the exemption.

“I just don’t want to cross over to anything that is not going to be allowed,” said Roccaforte. “Hopefully we are not going to need it anyway, but where we are going, given the situation, that we’ve got the right disaster.”

Judge Gothia explained that the order providing that the voter approved tax rate be calculated in the manner provided for a special taxing unit that the court would be voting on does not require the disaster be named.

Judge Gothia emphasized that this order allowing the county to use the special taxing unit tax rate of 8% does not set Orange County’s new tax rate at 8% higher than last year. In fact, this order does not set any tax rate at all. It merely allows the county to exceed the three-and-a-half-percent tax rate cap when the Court finishes its work on the new budget and is ready to set a tax rate for 2020.

After the meeting Judge Gothia said that Governor Greg Abbott signed an order allowing counties to utilize the special taxing unit voter-approval rate of eight percent under a disaster declaration.

“It was written into Senate Bill 2 that counties that had disasters could have the ability to utilize the special taxing unit tax rate,” said Judge Gothia. “We could have actually have done it with just Imelda, because we were a disaster declared county under Imelda.

The Judge explained that when the county set the county property tax rate last year as identical to the previous year’s tax rate, the county saw about a four percent increase in revenues based upon new properties in the county. He explained that if, as he hopes, he can bring in a new budget without any tax rate increase, this exemption will cover any increase over the three-and-a-half-percent increase in revenues that setting the tax rate at the identical rate as last year might generate.

The Judge said that county expenses related to COVID-19 would likely all be paid by special Coronavirus funding that the county has received of about $2.4 million. He further explained that where the county has gone into the hole in the last year were the expenses for Tropical Storm Imelda cleanup that came to nearly $900,000 without any Presidential Disaster Declaration. He explained that even though Governor Abbott made a disaster declaration, without the Presidential Disaster declaration, Orange County did not receive PRINTI any FEMA disaster reimbursements for storm debris cleanup.

“That was $900,000 that we took out of fund balance and we didn’t get any public assistance on that,” said Judge Gothia. “And that going to really hurt us this year because we have no money to put back in our reserve. I don’t think we will have any money left to build our reserve back up, which is not a good thing.”

But Judge Gothia still insisted that his goal is to set the Orange County 2020 Ad Valorem tax rate at the same rate it has been for the past several years at a tax rate of $0.54200 per $100 valuation. He said that if the county was held to a revenue increase of three-and-a-half-percent, it might mean cutting county services.