There are better tools to solve the ‘affordability’ problem than a 20% homestead exemption (HEx). Here’s what progressive, fiscally-responsible Austinites must argue.

“It’s just a tax cut for mansions.”

The benefits of a percentage-based homestead exemption disproportionately flow to those with the most property wealth and income. The chart below is the result of Dylan Tynan’s analysis. His work has been featured in the Austin Chronicle.

Simply put, the top 5%  will get more dollars than Council districts 1, 2, 3, and 4 combined.

I want to repeat this because it’s just such an indictment of the idea.  The top 5% of homesteads by value will get more of the total pot of money than the four Eastern council districts combined.  The top 5% gets 16.2% of the total HEx dollars.  The combination of districts 1, 2, 3, and 4 gets 15.5%.

To avoid service cuts, the Mayor is proposing a tax increase for the exemption to be revenue neutral. Some of this tax boost will be passed to industrial properties. But some – given the tight rental market – is likely to eventually find its way to renters. Egalitarians and progressives should oppose this; there’s a decent chance that working poor Austinites in rental housing will be paying, say, $50 more per year to finance $1000 tax cuts for the top 5% of Austin. This is the wrong direction for resources to flow if the goal is solving affordability.

“If we are going to have a tax increase, then let’s do things that actually help.”

Programs targeted at modest-income households experiencing financial hardships are the bang-for-the-buck option. Existing programs such as Austin Energy’s Customer Assistance Programs could expand. Or perhaps Council could start a new program aimed at modest-income households catastrophically affected by assessment surges.

“We need a shared prosperity strategy. Not a regressive tax cut.”

A Council-driven “shared prosperity” strategy would link enabling further growth/density with providing the community benefits many growth skeptics fear will disappear. And it would reform our revenue and spending policies to support middle-class and low-income residents.

Specifically, the Council could commit to using a fixed percentage of property tax revenues to subsidize housing construction (including “missing middle” types such as “granny flats”). This aligns proponents of subsidized housing construction with growth and density advocates. Subsidized housing funds should target transit corridors to further aid with affordability by promoting car-independence.

Further, new public investments and existing operating dollars would be prioritized for those communities opting-in to density and growth. Land use liberalization would tie said initiatives together. This would require a new set of “hidden costs” reports that detail the areas that are receiving a disproportionate share of services given their land use.

A shared prosperity agenda would also launch a new “Revenue Reform Commission” to examine the different revenue sources and come up with a revenue approach that places the lowest burden on those with limited incomes by potentially re-calibrating the mix of fees, property, sales, transfers, exemptions, and special assistance programs.

Finally, a shared prosperity approach would create a working group to revisit the City’s large investments in public safety and determine if there are alternatives that are also effective at keeping our community safe but can also serve as income support to families. Expansion of pre-k services is one potential resource shift option.

“If we are going to do it, it should start as a trial.”

The momentum for passage for some version of a percentage-based homestead exemption is the result of a lack of publicly understood alternatives. Opponents of the percentage-based exemption should push for a sunset provision, as well as press-friendly annual studies of its effects.

It’s quite possible that a much less problematic flat-amount exemption will be allowed by the Texas legislature in the near future. Therefore, reducing the substitution friction by future Councils should be fused into the design of any percentage exemption considered by the current Council.

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Bonus: HEx impact charts

The scatterplots below visualize each Council district’s share of exemption dollars in comparison to several demographic variables. They were originally featured in this previous discussion of the proposed homestead exemption.