That pesky rollback tax thing: “Would that it were so simple”

The rollback tax rate was instituted, I’m guessing (I researched the "why" of the rate and came up with nothing) to prevent taxing authorities from raising taxes exorbitantly high every time a new budget was due. If the taxing authority raises the rate above the rollback amount, the citizens could petition for an election during which voters could decide to "roll back the tax rate" to the rollback limit amount. The maximum allowable municipal tax rate increase in Texas right now is 8 percent per year (although a bunch of right wingnuts in the Texas Legislature tried to reduce that to 5 percent three years ago). On the face of it, the rollback rule would seem to limit the City of Kyle, for example, to raise the tax rate no higher than 8 percent over the previous year.

Would that it were so simple.

This year, for example, the maximum tax rate (or, as it is currently referred to, the "proposed tax rate") for Kyle this upcoming fiscal year is $.5848 per $100 valuation. The current tax rate us also $.5848. The rollback rate, however, is $.5797. How is that possible?

First, you have to realize the city’s tax rate is divided into two parts. The first is the so-called M&O (Maintenance and Operation) part which is that percentage of the total property taxes that will be collected that will go to actually paying for city services (salaries, utilities, day-to-day operations). This year that amount was $.2306 or 39 percent of the total tax rate. The second is the I&S (Interest and Sinking) which is that percentage that will be used to pay off the city’s bonded indebtedness. That 8 percent maximum allowable increase applies only to the M&O side of the tax rate equation, which means the city can increase the M&O rate no higher than 8 percent over the rate required to generate the same amount of revenue as the current year. The I&S component is figured out by determining how much will be necessary to pay the city’s debt payments during the next fiscal year. This calculation does not depend at all on the previous year’s payments.

That means, at least to me, the only reason why the rollback rate is below the proposed rate is because the I&S rate this coming year is much lower. But then the question becomes, how did that happen? I guessed it had something to do with the city’s recent and successful bond refinancing efforts, but, to make sure, I posed that very question this morning to Kyle’s superb Finance Director Perwez. This was his reply:

"You are correct, the I&S component of the tax rate did reduce slightly due to all of the bond debt refunding transactions completed as well as for the net change in the assessed taxable valuations.

"The total proposed tax rate of $0.5848 per $100 of AV, at this time, is strictly subject to and pending council discussion and changes. You will recall that when the city manager presented his proposed budget to the city council on July 30, the city was still waiting to receive the certified valuations from the chief appraiser at HaysCAD. During the budget workshop on July 30, after much deliberation, the city council adopted a resolution (required by tax code) to record vote ‘to place a proposal on the agenda of a future city council meeting as an action item to adopt a maximum ad valorem tax rate not to exceed $0.5848 per $100 of assessed taxable valuation for Fiscal Year 2016-17 for the City of Kyle…’

"At the next City Council budget meeting on August 17," Moheet concluded, "the city manager plans to discuss the 2016 certified valuations provided by HaysCAD, its impact on the proposed budget, and present his recommendation(s) to city council for the ad valorem tax rate."

I’m going to go ahead and read between the lines here and predict that City Manager Scott Sellers will continue to press for, at the very least, his current recommendation of a one-cent reduction in the current rate, which would push it just about a half-cent below the rollback rate. I would not be surprised at all, however, if he seeks an even larger reduction.

I am also going to predict that when all is said and done, the council will vote to reduce the current tax rate — if not as low as Sellers’s recommendation — at least to an amount at or below the rollback rate.

Not that I think the council is in danger of facing a rollback election if it held the rate steady. Under Texas law, 10 percent of the registered voters in Kyle would have to sign a petition requesting such an election and knowing that the average turnout for a municipal election is far less than that, I doubt that many valid signatures could be collected.

Incidentally, Kyle is not alone in this rollback tax predicament. Austin’s current tax rate is $.4589 and it’s rollback rate is $.4418. However, it’s proposed tax rate for the upcoming fiscal year is identical to that rollback rate.