Facing deficit, Presidio County officials deliberate property tax rates

PRESIDIO COUNTY — At last Friday’s meeting, the Presidio County Commissioners Court spent hours discussing the county’s proposed budget for Fiscal Year 2024. In the wake of property tax reform bills passed in the Texas Legislature over the past few years, local officials have had to think strategically about balancing the poor, isolated county’s budget — which is currently facing a deficit of around $680,000.

The county was also in the red last year, to the tune of around $300,000. Presidio County’s total budget is around $4 million — bare bones compared to nearby oil rich counties.

For comparison, the state’s smallest county, Loving County, enjoys a $25 million budget for 67 residents. “I’m not saying I’m envious of people with oil and gas in their backyard,” said Presidio County Judge Joe Portillo. “But it sure makes things easier.”

In Texas, the bulk of taxes collected come from sales tax. A smaller portion comes from property tax, which is split between local school districts — which get the lion’s share — and county governments. Counties funnel taxpayer money into their general funds, which covers the baseline costs of running essential offices like county treasurers and clerks.

Though the county regularly pursues grants and other opportunities, it does not operate enterprises like water and waste disposal services — moneymakers for the county’s incorporated communities of Marfa and Presidio.

The majority of the county’s budget comes from property taxes. The state of Texas sets the standards, which have been consistently slashed over the past few years — this year, all eyes were on Senate Bill 2, representing the largest property tax cut in Texas history.

Legislative sessions in Texas typically end in May, but this year Governor Greg Abbott called a series of special sessions that stretched through the summer. Property tax reform — popular on both sides of the aisle, with some caveats — was the subject of a session called in June.

While the measure was touted as a financial relief to many households in Texas, many local officials couldn’t help but wonder: how would this impact local governments?

County Judge Joe Portillo raised the question back in March, when SB 2 was still a gleam in the governor’s eye. Portillo approached both Presidio County and the City of Presidio about making the Presidio International Bridge its own taxing entity.

The goal of Portillo’s pitch was not to raise taxes, but to ensure that the bridge could fund its own improvements in the likely event of budget cuts caused by slashed property tax revenue. “We are going to see a cut — all of us are going to see a cut in our general revenue that comes in,” he said.

SB 2 was finally passed in July, and faces a statewide constitutional amendment election in the fall. If voters approve the amendment, homestead exemptions will jump from $40,000 to $100,000 for all homeowners, with a ceiling of $110,000 for elderly and disabled Texans.

Homestead exemptions apply to property owners who can prove that a property is their primary residence. Taxable value is deducted from the appraised value of a home — a homestead appraised at $300,000 before SB 2 would be taxed as though it was worth $260,000. Under the new law, that same property would be taxed the same as a property valued at $200,000.

If the amendment is approved, Texas homesteaders stand to save an average of $1,300 a year on property taxes, a significant cut considering Texas’ property tax rates have consistently rank among the top 10 in the nation. “This will be a good thing for many of our citizens,” said Precinct 4 Commissioner David Beebe.

State Representative Eddie Morales, who represents the Big Bend, was a co-sponsor of SB 2. “No bill is perfect, but this legislation was built on months of negotiations between the House, Senate and governor’s office and will provide nearly $18 billion in relief across the state,” said Cayden McCord, Morales’ director of communications.

If approved by voters, SB 2 will positively impact many households across Texas — but the long-term impacts to local governments remain to be seen. This year’s county budget was crafted with these unknowns in mind.

The Big Bend’s state representative in the Senate, César Blanco, was confident that SB 2 would not negatively impact county budgets, due to “compression measures” built into the bill that would shift the tax burden away from property owners and toward the state, which is currently enjoying a budget surplus.

Blanco also knew that small and poor counties were particularly vulnerable to shifting regulations guiding their budgets. “I’ve also supported legislation to prohibit unfunded mandates on local government, to ensure counties in Far West Texas have the resources they need to serve their communities,” he wrote in a statement in The Big Bend Sentinel.

SB 2 was not the first time that Abbott had championed property tax reform. In 2019, the legislature passed a bill that caps annual growth in property tax rates by 3.5% for county governments and 2.5% for school districts.

County officials pointed toward the 3.5% growth cap as a major reason why the county could not keep a balanced budget in FY 23 and the upcoming FY 24. Like most American consumers, Presidio County has been hit hard by inflation. For example: last year, the county’s expenses for existing employees’ health insurance went up 9%, and electricity in county facilities went up 12%.

Counties wishing to alter their property tax rates have a few options. Their tax rates are tiered: the lowest is the “no new revenue” tax rate, which keeps property tax revenues the same year to year. Last year’s county property tax rate was around 42 cents per $100 of taxable value.

The “no new revenue” rate is typically a bit lower than the proposed tax rate, prepared by the county’s appraisal district, which allows the county to raise revenues.

The voter-approval rate is intuitive: it’s the rate the county can raise taxes without giving taxpayers the power to petition for an election. If appraisals go up and new properties are added to the rolls, these proposed tax rates decrease year to year. This year’s voter-approval rate is 43 cents per $100 of taxable value.

Then there’s the de minimis rate. For smaller counties, the de minimis rate allows the government to raise $500,000 in new revenue, but that rate gives voters the power to petition for an election that can roll back that number to the standard voter approval rate.

The county can decide to go beyond the de minimis rate, which triggers an automatic election. Presidio County officials decided not to go that route and instead to deliberate whether or not to seek the de minimis rate.

Typically, local entities will stop at nothing to prevent any kind of election — almost universally, voters are not in favor of raising their own taxes. “I don’t want the cost and trouble of an election,” Beebe said. “There’s going to be a freakout.”

Judge Portillo was adamant about going for the de minimis rate. He felt that the situation was so dire that he was willing to fall on his sword — politically speaking — to help the county function. “I have no delusions of grandeur,” he said. “Any way you look at it, it’s going to be painful.”

Despite the fact that tax rate increases are unpopular, Portillo felt that the county could use this year’s tax cuts to their advantage. He was confident that Presidio County property owners would still be able to reap the benefits of the statewide cuts while supporting the county’s quest to close the deficit.

Pursuing the de minimis tax rate would decrease the county’s deficit by around $470,000 — leaving the county around $110,000 in the red. If the county were to attempt to levy a tax rate higher than the de minimis rate, an election would be triggered by law.

Portillo pointed out that the de minimis tax rate would only raise bills by four cents per $100 of taxable value. A Presidio County resident homesteading a property valued at $200,000 would only see their bill go up about $40 per year.

Beebe agreed that the tax situation left Presidio County in dire straits. He explained that part of the expense was the sheer size of the county — offices like the county clerk and judge need to be filled by a full staff, despite the fact that the county has a population of around 6,000 and even fewer property taxpayers.

Anything beyond these basic county services would be on the chopping block. “I’m going to be reevaluating everything we do,” he said. “Everything we own owns us.”

Portillo agreed. “Do you want it, or do you need it? That’s the million dollar question.”

The commissioners ultimately voted in favor of adopting the de minimis tax rate for the proposed budget. The final budget will go to public hearing on August 28 — the proposed budget does not include employee raises, which are currently under review for elected officials.

If voters successfully petition, the budget will still be adopted as-is but an election will be held during the primary elections next spring. If voters vote against the tax rate increase, the tax rate will return to the standard voter approval rate. “It’s a mechanism for the voters to speak,” Portillo said.