Property Taxes vs. Flooding Mitigation: Harris County's Flooding Issues Turn Into A Political Fight

Last week, nearly eight months after Hurricane Harvey, Houston City Council approved the first new flood plain building regulations in a decade. The new regulations, which passed in a 9-7 vote and take effect Sept. 1, are meant to reduce future damage in the flood-prone city.

But the new regulations are just the beginning. A comprehensive plan to prevent repeated flooding will require a near-total overhaul of the region’s flood control strategy, costing billions. With the vast majority of public funds coming from property taxes, Houston property owners are being put in a tight spot: pay up or flood.

"There's been a whole lot of talk over the years, but now it's time to get it done in the post-Harvey era," Houston Mayor Sylvester Turner said at a recent community meeting.

Getting something done will require funding, but where that money will come from is turning into a political mess. IDS Engineering President Tim Buscha, awarded Agricultural Engineer of the Year by the American Society of Agricultural and Biological Engineers, said a long-term solution to flooding across the region could cost between $10B and $15B. Barring major state and federal funding, the majority of that money will likely have to come from property taxes levied on property owners already dealing with massive losses after the storm. 

There is a disconnect between what Houston voters want and what they are willing to pay for. Houston area voters overwhelmingly support construction of a third west side reservoir, buyouts of vulnerable homes and other steps to protect lives and property from floods — yet slightly fewer than half are willing to pay for such measures through higher taxes, according to a survey released Monday by the University of Houston's Hobby School of Public Affairs. Even in the wake of Harvey, 46% of Houstonians said they would be willing to pay higher property taxes for greater flooding protection. 

"County government relies almost completely on property tax revenue, but the property tax is widely hated, and wholly inadequate as a means of financing the unique urban government that we have. Unfortunately, narrow-minded politics has pushed unfunded mandates from the state onto county government," County Judge Ed Emmett said at the State of the County address in November. "It is just pure ugly politics. And, by the way, the portion of county taxes paid by business is, I don't need to tell the business community in this room, growing. We are reaching the point where tax policies are a drag on economic development.”

According to its County Certified Annual Financial Record, Harris County has seen a 36.4% increase in property tax revenue over three years (2013-2016). Houston's commercial real estate industry has been fighting rapidly rising property taxes for years. In the past four years, Houston's central business district has seen a 100% increase in commercial property valuations. Property taxes used to be around 20% of operating expenses but have risen to more than 50%. Before the storm, Houston's chapter of the Building Owners & Managers Association went as far as to say the city was declaring war on commercial real estate with its rapidly rising property taxes.  

Last year, in the wake of Harvey, Houston City Council approved a measure to lower the property tax rate to abide by the city's revenue cap. Turner initially proposed a roughly 15% property tax increase on Houston taxpayers to fuel recovery efforts, but scrapped the plan after opposition from taxpayers, led by Houston's commercial real estate industry. Turner revised his plan, looking to approve the same property tax rate as last year, which would still trigger Houston's revenue cap imposed by state legislation. 

Appraisals make the property tax debate even harder to swallow, especially in the wake of Harvey. Harris County has so far chosen not to trigger disaster reappraisal for property owners who had their property damaged or destroyed in Hurricane Harvey. This means that a property owner will be forced to pay property taxes on the Jan. 1, 2017, value of their home, even if their home was completely destroyed during Hurricane Harvey.

Several taxing entities have triggered disaster reappraisals, including Montgomery County, Fort Bend County, Spring Branch ISD, Katy ISD and several smaller taxing jurisdictions. Major taxing entities that have not called for this relief include the city of Houston, Harris County and Houston ISD.

“This really is a tale of two cities,” state Sen. Paul Bettencourt said. Bettencourt has been leading the charge against property taxes across the state, particularly in his district around Houston.

“You have those who have flooded and those who did not. I commend the taxing jurisdictions that have triggered disaster reappraisal and continue my call on other taxing entities to do the right thing for taxpayers and give these homeowners a break.”

For the most part, Houston's commercial real estate industry got lucky, with most assets avoiding major damage during Harvey. In some cases, like in Houston's multifamily market, the storm was a boost. Now commercial owners and operators are being asked to foot their share of the bill for Harvey's recovery. 

Before the storm, Bettencourt was leading property tax relief meetings around the state. Since the storm, the Senate Select Committee on Property Tax Reform has ramped up its efforts. 

“It is past time to recognize the obvious, we shouldn’t be kicking taxpayers while they are down,” Bettencourt said. “Rather than doubling down on efforts to pass property tax rate increases, taxing entities should be enacting disaster reappraisal to give flooded-out homeowners a break."

Harris County is bracing for a decrease in property tax revenues due to property values taking a hit countywide after Harvey. 

“Harvey will deal a financial punch to us extremely hard next year because we primarily receive our operating budgets and funds from property taxes. Many of these homes will not be resorted to their original values for a long time, especially not by Jan. 1,” Budget Chief Bill Jackson told Community Impact News.

Houston’s lucrative tax income reinvestment zone funds could help offset the costs, but access to that money is limited. The funds function by siphoning off a portion of the area’s tax revenue to reinvest in that area specifically. Once a vehicle for rapid redevelopment of an area, many of Houston’s TIRZs have come under fire as they exert increasing power over the area and funds they control. Harris County Treasurer Orlando Sanchez referred to TIRZs as “enclaves of opulence” at a Senate Select Committee on Property Tax Reform meeting with voters in Houston. 

“The city really needs the ability to control the TIRZ money a little more than we can,” Houston City Councilman Mike Knox added.

"Everyone needs to face up to the fact that about 18% of Houston’s tax roll is now in a TIRZ,” Bettencourt said.

The political fight continues as hurricane season bears down on Houston once again. Property owners across Houston will watch nervously as their property tax bills rise with the water. Finding a long-term solution will not be easy and finding the political will to raise taxes to finance it will be even harder.  

“We can't just keep dangling this idea that an eighth of a cent tax cut is gonna solve all the problems of the world 'cause it's not," Emmett said. 

How are the City of Houston and the Flood Control District implementing actionable flood prevention strategies? Join Steve Costello and Jeff Lindner at Bisnow's Houston State of the Market June 5 to find out how these strategies will transform the development landscape in Houston.