This month, TPPF’s James Quintero testified before the Senate Committee on Finance in support of Senate Bill 1438, a bill to close the disaster tax loophole that some local governments sought to exploit to raise taxes by more than 3.5% without voter approval due to COVID. The bill has been approved by both chambers and is on its way to the Governor’s desk.
Below are Quintero’s prepared remarks delivered orally to the committee.
Madame Chair and Members of the Committee—
My name is James Quintero and I represent the Texas Public Policy Foundation. I am here today to testify in support of Senate Bill 1438.
When the legislature passed its historic tax reform package last session, no one foresaw the onset of a pandemic or the government’s response to it. Nor did anyone predict that in the midst of all that economic carnage, some local governments would contemplate taking advantage of a perceived loophole to raise taxes mightily without voter approval, on advice from certain taxpayer-supported nonprofit associations.
To get a sense of the problem at hand, consider Feb. 2021 Houston Chronicle article that found: “…at least 45 local governments, the city of Houston included, either went over the 3.5 percent or considered doing so…” With respect to Houston specifically, the Chronicle notes that even though the city reduced its tax rate, it “…allowed for revenue growth above the 3.5 percent cap but under the 8 percent cap.”
As for other jurisdictions that the Chronicle identified, it’s unclear how many of those jurisdictions adopted a tax rate that exceeded the voter-approval tax rate without consent; however, it’s obvious that there are at least some cities and counties that believe they can circumvent voters to max out tax increases during an economic catastrophe.
It’s worth noting that local governments flirted with this activity despite the urgings of state leaders, including the SB 2 bill authors, the Governor, the Lt. Governor, and the Attorney General.
The experience of the last 12 months demonstrates the need for further statutory change to:
- Add unmistakeable clarity to the Tax Code;
- Dispel misinterpretations of existing law; and
- Protect taxpayers when they are at their lowest.
For those reasons, I urge the committee to strengthen the tax rate setting process by specifying that a disaster must have caused physical damage to trigger the higher voter approval tax rate option. Otherwise, the requirements provided for by SB 2 should stand.
Thank you for your time. I look forward to answering any questions.