Denton will probably adopt a new kind of property tax to help pay for big public works projects needed for massive new subdivisions coming to the west side: a contract tax.
City leaders learned about the proposed new tax — which would only be assessed on properties planned for Cole and Hunter Ranch — during a work session this week. To accommodate the 6,400-acre development, the city must build new water and sewer treatment plants sooner than expected, as well as build and maintain miles of new roads and utility lines.
In addition to apartments, businesses and a possible corporate campus at the foot of Pilot Knob Hill, the new subdivisions could bring 12,900 additional homes to Denton. The city currently has 30,062 single-family homes on the tax rolls.
The city staff told council members Tuesday afternoon that a contract tax would be a more secure revenue stream to repay debt for those big public works projects.
City Manager Todd Hileman said he learned some tough lessons at his previous job in Arizona when an economic downturn left his fast-growing city in the lurch.
“You don’t want to get addicted to impact fees to pay for growth,” Hileman said.
A contract tax would not leave current residents vulnerable if Cole and Hunter Ranch developed slower than projected, especially during an economic downturn, he added.
Here’s how the contract tax would work: The city would agree to allow the developers to create special taxing districts for the properties. Home and business owners would pay an extra 55 cents per $100 valuation in property taxes to the special taxing district on top of city, county and school property taxes. The special taxing districts would keep 49 cents to repay bonds that financed some public works, such as streets, water and sewer lines and storm drains, built by the developers. The special taxing districts would remand the other 6 cents to the city for repayment of bonds for about 14 major public works projects the city needs to build, including the new water and sewer plants.
“We’re back where we started,” noted Mayor Chris Watts of the extra 55-cent property tax rate for the subdivisions.
Council members expressed concern early on that the additional 55 cents per $100 valuation could prove burdensome for property owners in the district, especially when the school district or city called a bond election that might affect their property tax rates.
A council vote on the agreements between the city and Hillwood, which is developing Hunter Ranch, and Stratford Land, which is developing Cole Ranch, is expected in the coming weeks.
On Tuesday, the City Council reviewed four separate analyses of how the massive development will affect demand for city services so that the city can plan and prepare for the demand. Hileman cautioned council members that the city may feel flush with cash the first few years of development before the full demand for public safety and other general government services is felt. Still, the project is expected to have a positive net impact on the city over the next 40 years, he added.
“As long as the average EAV [equalized assessed value] is significantly higher than the city’s current EAV, it should never go negative,” Hileman said.
In other words, the city must resist temptation to keep its hand out of the cookie jar with the first surge of property tax collection, including the contract taxes.
“It’s got to be managed,” Hileman said.