Houston’s ‘Rain Tax’ Could Swamp Property Owners

Houston’s ‘Rain Tax’ Could Swamp Property Owners
December 12, 2010

Julie Drenner

Julie Drenner is R Street’s Texas director and a co-founder of the institute. She... (read full bio)

A new “rain tax” that voters in Houston narrowly approved in the November general election could add thousands of dollars of fees to some properties.

The so-called Proposition 1 “rain tax” applies a minimum fee on all property in the city limits without exemption for churches, schools, charities, or senior homeowners. Supporters sold the fee as a means to improve drainage and reduce flooding in the city, but opponents say it is a tax and grab.

“The real problem with Prop 1 is that these rates haven't been adopted by the City Council, we have had no public hearings on this ‘proposal,’ and the general public has no idea what this is going to cost them now, and in the future,” says former Harris County Tax Assessor Paul Benttencourt. “My estimate is that it will cost smaller homes around $100 a year and many businesses, churches, and schools tens of thousands of dollars a year in new tax bills.”

Texas State Representative Garnet Coleman (D-Houston) says the savings in interest payments on borrowed funding will have a significant positive impact on the city’s budget.

“With this responsible pay-as-you-go plan, we’ll save millions of dollars for taxpayers and use the money to fix our streets and drainage problems,” he says.

Non-Deductible ‘Fee’
Although many agree with the move away from debt financing, the proposition’s designation as a fee rather than a tax has several dubious implications.

For individual taxpayers, a fee is not deductible on their personal income taxes. Small-business owners will have to pay the fee for their homestead and their office with already taxed income.

The fee also applies to organizations that are exempt from taxes. David Welch, executive director of the Houston Area Pastors Council, warns the Catholic Church alone would pay between $750,000 and $1 million a year for the new fee.

Schools Predict Layoffs
The churches are not the only ones alarmed. Because the fee is based on the amount of impervious coverage of a piece of property, it will cost local schools thousands of dollars a year because of their large parking lots and athletic fields. The Houston Independent School District passed a resolution stating the fee is likely to cause the layoff of about 70 teachers.
 
City officials had estimated the cost would be just $5 a month, but they never provided firm numbers. Within days of the election, officials began hearing from large property owners, including hospitals and churches, that want to be exempted. If exemptions are granted, however, all other property owners will have to pay more to make up the difference.

Julie Drenner (jdrenner@heartland.org) is director of the Austin, Texas office of The Heartland Institute’s Center on Finance, Insurance, and Real Estate.

Julie Drenner

Julie Drenner is R Street’s Texas director and a co-founder of the institute. She... (read full bio)