Conversations are ramping up over changing the tax exemptions for residents of Fair Oaks Ranch who are 65 years old or over. An over-65 tax freeze seems unlikely after a meeting last week.
FOR Assistant City Manager Scott Huizenga recently presented on the impacts of a tax freeze or a 5 percent taxable value exemption for residents over the age of 65 in the city. While a tax freeze seemed to fall out of favor, the city council seemed to support some exemption percentage on taxable values.
Place 2 Councilmember Roy Elizondo did suggest the council and city staff remain cognizant of any burden that will be shifted to residents under age 65 by this change.
“I think we need to be totally transparent on the impact on all our taxpayers,” Elizondo said. “I look at the charts and it looks like percentage wise, we have a lot of 65 (and older). They own a fair share of the property valuation. So, I think we just need to understand that shift before making that decision.”
FOR currently has a $20,000 property value exemption for residents over age 65, which was put in place in 1988. However, Place 6 Councilmember Chesley Muenchow noted that same exemption in today’s dollars would equate to just under $50,000 – something she said she would like to see represented in the changes made to the city’s tax exemptions.
Muenchow said to translate that exemption from 1988 to 2022 dollars, to respect the city’s “founding fathers’” wishes, the city would need to implement a roughly 10 percent taxable value exemption for the over 65 homestead crowd.
Huizenga’s numbers showed a 5 percent exemption would result in a $19 savings in 2023 for residents over 65 and a roughly $50 savings by 2032. However, due to the city’s relatively small amount of commercial real estate, this reduction for one tax base would burden the under 65 residents, resulting in a bill increase to the average home of about $11 in 2023 and reach roughly $30 by 2032.
The increase in the average tax bill of residents under 65 would be implemented to offset the estimated $1.4 million tax revenue loss over 10 years caused by the over 65 exemption.
Place 4 Councilmember Laura Koerner pointed out all of Huizenga’s bill impacts were contingent on the city approving a 3.5 percent tax revenue increase year over year. Something she said the city has never done consecutively or all too frequently.
“I don’t think we’ve ever done that,” Koerner said, addressing a continuous 3.5 percent tax revenue increase. “So, this would be the worst-case scenario, correct? Because I don’t know how many times in the history of Fair Oaks we’ve actually increased it to 3.5 percent. It’s a handful, but it certainly hasn’t been every year.”
This shift of tax burden would be significantly increased if a tax freeze were implemented for the older residents. Huizenga projected the median household resident over 65 would see a savings of $58 in 2024 under a freeze, but the number rockets to a $600 savings by 2032 under a permanent¬¬ freeze.
This would result in a net loss of $5 million in tax revenue to the city over 10 years, leaving the under 65 residents to foot the bill. Huizenga projected a freeze would cause the average under 65 household to see a bill increase of $34 in 2024 and $350 in 2032.
This disparity would continue to rise as time went on, according to information from FOR, as such a freeze would be permanent unless two-thirds of the state legislature approved reversing the decision, something the council acknowledged was unheard of.
“Implementing a forever freeze or any other change now that can’t be changed in the future if the assumption’s too great or if they’re not correct is a terrible idea,” one resident said during the meeting. “No matter what. Secondly, a 65-and-over freeze sounds very kind and caring because often people’s income drops when they retire, but not all retirees are financially strapped.”
The resident went on to note the reason the city has retained fairly low property tax rates is because the tax burden is shared evenly with few exemptions, saying “enabling someone with limited financial means to stay in a home they can no longer afford to maintain is not doing them any favors.”
While many cities and counties around FOR implement significant property tax breaks for disabled and over 65 residents, this particular city has a disproportionate amount of its tax revenue on the line compared to peer cities when tinkering with its property tax revenue, according to Huizenga’s presentation.
The presentation states FOR’s peer cities total annual revenue is comprised of about 36 percent property taxes. FOR relies on 69 percent of its property taxes to make up its annual budget, according to city information. The city’s sales tax revenue makes up 13 percent of its annual budget compared to its peers where sales taxes pull in 30 percent overall, indicating how little commercial movement is happening in FOR.
While much remains up in the air about what percentage the city will move forward with, a 5 percent minimum seemed to be the jumping off point with a $20,000 minimum exemption. City staff is expected to provide a draft resolution and further data for the council to analyze, and a resolution may be passed during the city council’s May 19 regular meeting.
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