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'Statesman' Reporter Recounts 'Mistake' That Allowed Lakefront Properties To Avoid Paying Taxes

Properties along Lake Austin are exempt from city taxes.
Gabriel C. Pérez
Properties along Lake Austin are exempt from city taxes.

Housing affordability is one of Austin's biggest challenges during this period of economic growth. Even after someone buys a home or rents property, as the value of that property goes up, so does the annual tax bill. But some of the most desirable homes in Austin – a few hundred right on Lake Austin – are not subject to any city property taxes.

That might be about to change.

KUT's Nathan Bernier spoke with Austin American-Statesman reporter Philip Jankowski about a story published Friday on this "mansion tax exemption."  

This transcript has been lightly edited for clarity.  

Nathan Bernier: What are these properties on Lake Austin people aren't paying city taxes on?

Philip Jankowski: We're talking about 400 properties. The large majority of them are what you would consider very idyllic waterfront homes – mansions, really, for lack of a better word. An average property value of $2.1 million, some of them going all the way up to $13.5 million. Though some of that is skewed by properties that are really low value, because they're on parcel, but they're technically just a boat dock that is valued at $10,000. So the $2.1 million is probably a little low when we're talking about the average value of the homes that are out there.

Bernier: How did it come to be that hundreds of homes are not paying any city property taxes, even though they're in the Austin City limits?

Jankowski: It dates all the way back to 1891. That's when the city was authorized by the state to annex roughly 22 miles of shoreline extending out from the city's center all the way out to basically the entirety of Lake Austin's shores. Most of the homes that are subject to this stop right about where Emma Long Park starts, right at this sort of southern tip of a bend in the river.

Bernier: And so when it was annexed, I guess the idea was they weren't receiving city services, so they shouldn't have to pay city property taxes? What happened there?

Jankowski: The city annexed them because this is where they were getting all of their drinking water from. So the idea was to start having some sort of protections of the shoreline to make sure that the water quality in the river was good. And that basically continued on. Back then that would have been like the frontier or whatever; nobody lived out there.

As the city got bigger and bigger – in 1891, it was only 15,000 people who lived here – and so as the city got bigger and bigger – it spread out and more wealth came. People started looking at these properties as idyllic places to build their homestead in. It remained that way for a long time, until roughly late 1985 and that's when – I don't know where exactly it came from; I'm still doing research on that but – somebody started sending notices the city was going to try to put them on to the tax rolls and had sent out notices saying, "We're going to tax you." Obviously, they did not want to be taxed.

So they organized and got together and in early 1986, they brought something to the City Council, which basically said, "We're going to make sure that this is codified; that these properties are within the city limits, but we're not going to tax them for the reasons that you mentioned: that the city did not or does not – that was open to interpretation even at the time – provide adequate city services to them."

Way back in the day, they basically said, "There's no way; it's impossible for us to provide any city services to anyone." Now that's more possible and indeed is happening.

Bernier: What kinds of city services are these property owners receiving? How much of a say do they have when it comes to municipal elections?

Jankowski: That's a very good point, I'm glad you brought that up. So everyone gets to vote. They have access to police and EMS and fire services; fire is a little more limited because there's a lot of mutual aid agreements that basically say, "We're not going to wait for a City of Austin firetruck to come all the way out there if there's an emergency service district that is, you know, a half mile away and they're going to get there much more quickly." Because we're talking about a house that might be burning down.

City leaders also like to point out park services and library services, as well, are extended to them. But everyone has access to park services – like I could travel in from Cleveland and have access to Zilker Park, right? The services that they don't have are water, wastewater and trash. They are not connected to the larger water system and Austin Resource Recovery. The city's trash service does not pick up their trash.

Bernier: How much tax revenue would these properties generate if they were on the city's rolls?

Jankowski It's estimated that last year it would have created $3 million in revenue for the city.

Bernier: This morning, Austin City Council members Greg Casar and Jimmy Flannigan held a news conference, and I want to play a part of that for you:

Jimmy Flannigan: Good morning, everybody. Council Member Jimmy Flanagan here. You know, when we found out about this earlier this year at first it felt impossible. There's no possible way this could be happening in our city. These property owners are Austinites. They are in the city, and I think that they would describe themselves in that way. Greg Casar: And I think that's a really important part of why on the June 20th agenda we have sponsored an item to repeal the 1986 mistake on the lake ordinance.

Bernier: Will City Council change this?

Jankowski: I don't like to read the tea leaves on it, but at this point, it looks like they have what is approaching majority. They've got four, possibly five, council members who have already signaled that they will support this and they only need one more person. Given what you led to open up the segment with the talks about affordability and everything like that, it seems to me likely that it will pass.

But, I mean, we are talking about a large consortium of very well-heeled people, and we don't know what kind of effort they might be able to amass. Do I think they'll be able to stop it by June 20 when the meeting happens? No, but who knows what sort of legal challenges might arise.

Bernier: Jimmy Flannigan said he was shocked to find this out. What was your reaction when you discovered this?

Jankowski: I heard just a little bit about it and in my mind, I'm just sitting here thinking – that can't be true; that cannot be true. That's ridiculous if that is true. By the end of the day, I am sitting there just clicking on property after property on the Travis County Appraisal District website and just saying to myself, "My god, this is just house after house after house and I'm looking at the valuations – $3 million, $4 million, $5 million, $10 million, $13 million. And it's like no taxes paid to the city of Austin.

So, I also was shocked by this.

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