Emergency responders squeezed by tax caps

Just weeks after flash flooding killed more than 100 people in Kerr County, many of the first responders who served on the front lines of the crisis for the City of Kerrville got another gut punch: They learned that health insurance premiums for their families could be going up as much as $5,000 a year.

The ensuing outrage was palpable, from widely circulated videos on social media to online petitions. "You are looking at a mass exodus of first responders," one firefighter wrote on the Kerrville mayor's Facebook page.

City officials say they have no choice but to raise premiums and warn that they may need to find more cuts, including in public safety services. Kerr County leaders, along with fire and emergency officials across the state who responded to the July 4 tragedy, are anticipating similar problems.

Though the floods themselves are estimated to have caused billions of dollars in economic and property damage, they are not the reason for the financial squeeze. The culprit is actually the Republican-led Texas Legislature's yearslong war on local property taxes that began in 2019, according to interviews with more than a dozen local officials across the state.

That's when lawmakers passed a law that forced most local jurisdictions to seek voter approval if they aim to collect a certain amount more in property taxes than they did the previous year -- even if, in many cases, the tax rate may have actually decreased or stayed the same. As a result, many local governments have had to cut spending, even as costs for things like health insurance have increased.

"They're after us," said Kerrville Council Member Kent McKinney in an interview, referring to state lawmakers. During a recent council meeting, he urged attendees to "get a hold of the legislators," repeatedly referring to the city's financial situation as a "sinking ship."

It was a striking admission coming from a disaster-ravaged community that Gov. Greg Abbott had promised "limitless" resources after this summer's devastating floods. And it's not just Kerrville and Kerr County that are feeling the pinch. Texas doesn't have its own large dedicated firefighting service and instead relies on local communities across the state to lend their first responders out during big disasters.

Dozens of those localities stepped up to help out during the recent Kerr County floods and last year's wildfires in the Texas Panhandle. They might have to rethink doing so in the future if their funding gets squeezed any further, said Stephen Watson, the fire chief in Parker County, just west of Fort Worth.

"The state legislators would rather go spend all their time regulating local government versus doing the job of state governments," Watson said in an interview, adding that he deployed a handful of firefighters to Kerrville for several weeks but also needs to hire about 16 more people to be at an adequate staffing level.

"You come here and you try to legislate against major tragedies," said Watson. "Who is on the forefront of every single one of those disasters? Your first responders. So why cut our legs off?"

Lawmakers in support of the changes say they're providing much-needed relief to ordinary Texans with steep property tax bills, and limiting unnecessary spending by local governments. They claim their aim is not to "cap" tax increases, as critics allege, but simply to give citizens more of a say on the matter by requiring elections if the increase reaches a certain threshold.

"Whatever the government takes in, it generally spends," said state Sen. Paul Bettencourt, a Houston Republican and tax attorney who has been the Legislature's leading champion for property tax relief. "So long term, if you slow the growth of government, you generally slow the growth of tax bills."

But many local officials insist that emergency services are suffering as a result. "Every city, every county can probably find a little bit of waste somewhere," McKinney said. "It's fine to have a little bit of encouragement to wring all that out that you can. But at some point, streets and police protection ... start to suffer."

Property tax matrix

Homeowners in Texas pay some of the highest property taxes nationally, largely because the state does not levy an income tax.

A decade ago, as home values started to climb, lawmakers tried to rein in their constituents' soaring tax bills, in part by using state funds to buy down local property taxes, basically reimbursing taxing jurisdictions like school districts for lost revenue.

At the time, local governments could raise tax rates by up to 8% before voters could demand an election to lower rates. State lawmakers watched as the money they'd spent to buy down taxes was absorbed by cities and counties raising overall rates, leaving homeowners paying the same or more than they had before.

"There was no slowdown," Bettencourt said. "The cities and counties basically absorbed the buy-down within just a couple of years."

By 2019, lawmakers decided they also needed to rein in spending by local governments by focusing on total revenue collected from property taxes.

Senate Bill 2, which passed that year, capped the amount cities and counties could raise property tax revenues from year to year, lowering the threshold from 8% to 3.5%. If cities wanted to raise more in property tax revenue, they would need voter approval.

Though local officials warned the law could wreak havoc on their budgets, they were also able to delay its impact for the first few years thanks to an exemption for communities affected by major disasters. By 2022, most cities and counties had to restrict collections to the previous year's total revenue -- known as the "no new revenue" rate -- plus 3.5%.

Just as budgets were shrinking, inflation started to climb. "The hardest thing is we're seeing an average of 5% to 6% increase in the cost of doing business in fire service," said Michael Thompson, the fire chief for the City of Carrollton, a Dallas suburb.

Thompson said a fire engine that might have cost $640,000 in 2022 would cost $1.2 million to replace today.

Although cities can omit new development from the no new revenue rate, allowing them to spend more as their population grows, once a city is built out, its funds stagnate -- even as the cost of servicing those new residents grows.

"We don't have any new revenues coming in like some of the faster growing cities, but my call volume in the fire department is still going up," Thompson said. He said over the past five years, EMS calls to Carrollton Fire Rescue have increased by 20%, in part driven by growth in regional employment centers.

The revenue cap established in 2019 also applied to emergency services districts, local taxing entities formed to provide fire protection and emergency medical response to areas without municipal services, like unincorporated areas of counties. Today, roughly a third of Texans are served by more than 300 ESDs.

By law, ESDs can charge no more than 10 cents per $100 property value. The 2019 reforms squeezed them even more. Robert Abbott, the fire chief for Lake Travis Fire Rescue, which serves roughly 82,000 people in Austin's unincorporated suburbs, called the combination "a double handcuff."

SB 2 allowed taxing districts to hold elections to raise property tax collections. But many fire chiefs said the cost of holding an election dissuaded them from going to voters, even when they felt like more money was needed to fund basic services.

Nick Perkins, the chief of the Pflugerville Fire Department, an ESD that serves the city and several other Austin suburbs, said a recent election cost the district $189,000, including legal fees. "So when I look at $200,000, well, that's two firefighters," he told lawmakers in August.

Perkins was among dozens of fire chiefs and local officials who testified at the Capitol during an hourslong public hearing in August, after lawmakers proposed lowering the revenue cap even further, to 2.5%.

Republicans said, despite the new proposal, voters were unlikely to reject funding for basic services like fire and police. "If you're increasing services, and it has value to the people that you're serving, they'll pay for it," said state Rep. Hilary Hickland, a Belton Republican. "So take it to an election ... that's democracy."

John Carlton, the general counsel for the Texas State Association of Fire and Emergency Districts, told lawmakers that he knew of at least seven elections to increase ESD revenues that had failed in the last two years.

During the committee hearing, Abbott, the fire chief, thanked state lawmakers for enacting a slew of other laws that help first responders on issues like workers' compensation, post-traumatic stress disorder and cancer risk. But he asked lawmakers to exempt emergency services from further restrictions on tax collections.

"It doesn't really matter if somebody got a $110 tax deduction if their house isn't standing anymore," Abbott said. "It just doesn't."

Bettencourt said state lawmakers have heard the need for funding for emergency services and responded accordingly, allocating $90 million for rural ambulances and $338 million for rural sheriffs in the current budget.

And, in September, lawmakers passed a package of bills to help places like Kerr County, allocating $50 million to help local governments purchase flood warning sirens and rain gauges and $28 million for grants for flood monitoring.

"When we see a need, we actually go in and pay for it," Bettencourt said.

Still, that is a fraction of what they've allocated to cutting property taxes. In the current budget, which covers 2026-2027, the state will spend $51 billion on property tax relief, nearly a quarter of the state's total spending.

Thompson, the Dallas suburb fire chief, also testified at the Legislature this summer, noting that his department sent a dozen first responders to Kerrville. Although the state reimburses local departments that respond to statewide mutual aid calls, that reimbursement can take a year, and local departments must first have the resources available to deploy.

"If the state continues to go the direction they've been going, it's going to impact the city's ability to send resources when the state calls for them," Thompson said in an interview.

Challenges ahead

This month, communities across Texas must decide on their next year's budgets, which means they also have to adopt a tax rate. And though the city of Kerrville and Kerr County recently each went in different directions, leaders of both warned of rough times ahead.

In Kerrville, the city council voted to adopt a higher tax rate -- about 8% above the no new revenue rate -- allowed under the exemption in state law for communities affected by major disasters.

Kerrville's mayor, Joe Herring, Jr., acknowledged in public meetings the decision would likely be unpopular, but argued the city has no other choice.

"I pay taxes. Everyone here pays taxes," Herring said recently. "I don't want my taxes to go up. Also, I didn't want a flood to come down the river and kill 120 people."

The move drew the ire of Gov. Greg Abbott, who told a San Antonio TV station he couldn't understand why Kerrville would raise property taxes "with all the resources being provided by the state as well as by charitable organizations." Many Republican lawmakers have also vowed to eliminate what they call the "disaster loophole."

Kerrville leaders pushed back, pointing out that the tens of millions in charitable donations won't go to city coffers. Though the state will cover some large storm-related costs, such as debris removal, city officials say they've incurred at least a million dollars in losses from the month of July alone that won't be covered, including overtime for first responders. FEMA might cover some of that, but it could take years -- if it happens at all, they say.

"I am extremely impressed with what the State of Texas has done for us. It's amazing," said McKinney, the city council member. But he said that unless the governor "can give us some kind of guarantee that we don't have any expenses at the end of this, well, we've got bills to pay."

Even with the new disaster rate, McKinney said he expects that Kerrville will have to hold an election in the next few years to increase its tax levies by more than 3.5%. Inflation has hit the city hard; for instance, officials said in a city council meeting that the cost of a new police car has doubled to $120,000.

"This is not about new programs; it's about keeping police, fire, EMS, and core services intact," Herring wrote on his Facebook page this month.

Though leaders in Kerr County considered taking a similar path, they chose to stick with the same property tax rate as 2024. But they'll have to dip into $12 million of the county's reserve fund to pay for storm-related expenses.

"I know nobody wants to talk about raising tax rates," said County Judge Rob Kelly during one recent public meeting. "But I'm afraid that this is going to catch us next year and the year after and potentially render the county insolvent, meaning bankruptcy. I'm that scared of that."