Prop 2 is coming back to bite Houston in the ass

[WestHoustonDem]

Revenue puts city on the verge of tax cap
Exceeding limit mandated by Prop 2 may bring taxpayers refund

By DAN FELDSTEIN
Copyright 2006 Houston Chronicle

To the surprise of city officials, Houston's tax revenue and other income is approaching the voter-approved Proposition 2 revenue cap that the city still is fighting in court.

The city had expected to stay under the cap in its current fiscal year, which ends June 30. Mayor Bill White acknowledged over the weekend, however, that unanticipated spikes in sales and property tax collections could bring the total close to the cap.

If revenues exceed the cap by more than $10 million, the measure approved by voters in 2004 calls for a rebate to taxpayers. It does not specify how that would be done.

Under Proposition 2, city revenue from all sources in any year can grow by no more than the combined rate of inflation and population growth.

White said he still believes the city will slip barely under the cap, but only because a few million dollars used for the Hurricane Rita evacuation may be excluded from the revenue total under a "disaster" exception in the cap's language.

He said that while tax collections are now higher than estimates made at the beginning of the fiscal year, the underlying reason the city may hit the cap is because of booming business at Bush Intercontinental and Hobby airports.

That was one of his concerns in 2004, when he opposed Proposition 2 and put an alternative on the ballot, Proposition 1, which voters also approved. That measure caps tax rates and water bill revenue, but not other money sources.

The airports will take in $125 million more in rents and fees this year than they did five years ago.

While inflation and population have risen a combined 19 percent in that time, the airports are collecting 43 percent more money thanks to improved terminals, two new runways, a new cargo facility and a new rental-car center.

The airlines and other companies are paying higher rent to fund the bonds that built them.

All that money counts as city revenue under the Proposition 2 cap. Still, that is not the whole story.

The latest city estimates, released Friday, showed sales tax this year may be up $100 million from five years ago, 32 percent, and property tax up $161 million, 30 percent. The city's revenue for this year is projected at about $2.8 billion, including airports, water and sewer, taxes and other sources.

The exact trigger point for the cap is difficult to determine because some funds, such as grants from other governments, must be subtracted.

White contends that while some support for the cap is from advocates of limited government, most residents are concerned primarily about soaring property tax bills.

His measure, Proposition 1, sets limits on water-bill growth and prohibits the city from setting a property tax rate that collects more than the combined increase of population and inflation, or a 4.5 percent annual increase, whichever is lower. The city will not hit that cap this year, White said.

Some say Prop 2 is a must
The city contends that it only has to enforce Proposition 1 because it passed with more votes than Proposition 2, and the two measures are contradictory.

more at http://www.chron.com/disp/story.mpl/metropolitan/3831043.html