City Council commits to repeal Lake Austin tax exemption

This week, Austin City Council members say, they will repeal a decades-old ordinance that made hundreds of waterfront homes on Lake Austin exempt from city property taxes.

The American-Statesman first reported last week that about 400 properties lining Lake Austin, many of them multimillion-dollar dwellings, have been exempted from city property taxes since at least 1986. The properties have an average value of $2.1 million and would have generated an estimated $3 million in tax revenue last year, according to initial estimates based on Travis County property records.

The discovery has prompted the City Council to move to repeal the ordinance Thursday during its regular meeting. The Statesman reached out to all 11 members of the City Council this week, and every one indicated directly or through a staff member a preference to do away with the tax exemption.

"To exclude certain people is unfair to other taxpayers," Council Member Kathie Tovo said. "That is a situation that we need to right."

The council became aware of the tax exemption after homeowners Nicole and David Zern sued the city in a bid to get the same exemption their neighbors along Lake Austin enjoy. Their suit revealed the long-forgotten ordinance, which exempted the properties because, initially, they did not receive adequate city services.

That has changed, according to council members interviewed for this story. While the properties are not hooked up to Austin's water system and do not benefit from city trash service, their owners now receive police, emergency medical services and city fire service in certain circumstances.

"There are some areas in the city that we don’t provide sewer (and water) service, and it would be great if some day we are able to do that, but in the meantime these folks are in the city and are receiving a lot of city services and a lot of benefit of living in the city," Mayor Steve Adler said.

While the ordinance is expected to be repealed unanimously, the likely change is not without opposition. Dave Herron, a retired attorney who counts himself among those exempted under the 1986 ordinance, said he would gladly pay city taxes if he was hooked up to the city's water system.

"If you are east of the river and you are getting water and any other service, fair game," Herron said, "but a broad-brush approach is not going to get it done."

Herron said he would prefer the city perform an audit of services provided to landowners under the exemption to determine at what level they should be taxed.

Several council members have said applying property taxes only to those on Austin's water system is a flawed way to look at how the city pays for services. Property taxes do not fund the water system; it is funded by water bills.

Property taxes fund police, fire and emergency medical services along with parks and libraries — services that are provided to those property owners.

"They are receiving city services," Tovo said. "Not everyone in the city of Austin is on Austin Energy either."

On Friday, Council Member Greg Casar said city property taxes would apply only to the portions of lots that fall in the city of Austin. When the land was annexed in the late 19th century, boundaries were drawn based on elevation. As a consequence, many of the properties are only partially in the city.

The same rules that apply to swaths of land that cross into multiple taxing jurisdictions would apply to these properties, Casar said.

"We won't double dip," Casar said. "Only the parts in full-purpose jurisdiction will be taxed. We are not changing people’s jurisdiction. If your full property is in that, then we will tax all. If not, we will only tax the part in the city."

"This exists in other parts of the city, too," Casar added. "We are going to treat it just like that."

Also up for a council vote this week will be a resolution that would call for determining how new tax revenue resulting from the repeal could be dedicated to combating homelessness and supporting early childhood education.