After Statesman reports, hundreds of lakefront properties avoiding taxes now may have to pay up

The number of lakefront properties that have avoided city of Austin property taxes — despite being considered inside the city limits since the 19th century — was greatly underestimated when the city repealed the tax exemption last year.

The Travis Central Appraisal District last year found 400 properties, many of them idyllic homes lining the shores of Lake Austin, that benefited from a 1986 ordinance that codified their city tax exemption. The Austin City Council last year repealed that exemption and added those properties to the city tax rolls.

Now, an American-Statesman analysis of property records and decades-old documents has identified 366 additional properties that received the exemption, nearly double what the appraisal district had presented to the Austin City Council in June.

Without the Statesman’s reporting, many of these properties, including a $12.7 million luxury spa and resort, might have avoided being subject to city property taxes, despite whole or parts of the property being within the city’s limits. Now, they might have to pay up.

The appraisal district’s Chief Appraiser Marya Crigler said Thursday that her office is reviewing properties in light of the Statesman’s new findings.

“It is something you are bringing to our attention,” Crigler said. “I don’t know if at the time staff made an error in their report that they made to me.”

In June, the Austin City Council repealed the 1986 ordinance that made hundreds of lakefront properties exempt from city taxes. At the time, the appraisal district had compiled the list of 400 properties, which the city used to estimate that adding them to the tax rolls could bring in $3 million of new annual revenue. The upper end of that tax impact to the city’s coffers actually could approach $6 million with the addition of the other properties the Statesman found.

“We knew that the mistake on the lake was real bad,” said City Council Member Greg Casar, the lead sponsor of the repeal. “Now, we know it was really, really bad.”

The Statesman discovered the additional properties by comparing a handwritten list of geographic IDs attached as an exhibit to the 1986 ordinance to current online property records. Many of those tracts of land no longer appear in the appraisal district’s records. But 766 properties were found and verified that they have not paid city taxes for decades, avoiding untold thousands of dollars in tax bills.

The investigation also found that city staffers brought attention to the unique exemption to many of Austin’s most privileged residents in a 2006 audit. Two years later, the City Council considered taxing some of the lakefront properties but, ultimately, opted to do nothing.

Homes, buildings and land not on the appraisal district’s original list of properties to add to the city’s tax rolls include Lake Austin Spa and Resort, a $1,000-a-day wellness resort situated on the north shores of Lake Austin about 4 miles downriver from Mansfield Dam. Its appraised value in 2019 was $12.7 million.

The properties have an average value of $1,787,420 with a total value of $1.35 billion, according to property records.

The city of Austin originally estimated it could have collected roughly $3 million in annual revenue from those properties. With the addition of 366 more properties, that number could jump as high as $6 million, but likely will be lower because many tracts are only partially within Austin’s city limits. In some cases, only slivers of shoreline fall within the city’s boundaries.

For the owners of the Lake Austin Spa Resort, roughly one-third of the southern end of the property is within Austin city limits, according to property records. The owners of Lake Austin Spa Resort declined to comment for this story.

The city will not begin collecting taxes on the new properties until 2021. In April, the city expects the appraisal district to send tax notifications to the affected properties. In October, they should receive bills for taxes that will be due Jan. 31, 2021, according to the city.

Where did this exemption come from?

In the late 19th century, state lawmakers authorized the city of Austin to annex shorelines along the Colorado River west of the city’s center. Since the city pulled its drinking water from the winding body of water, the Legislature gave the city domain over its shorelines, specifically land under 504 feet, 10¾ inches above sea level, to protect water quality.

It created a patchwork of the western edges of Austin’s city limits, showing how enclaves such as West Lake Hills have jurisdiction up to a strip of lakefront property.

At the time, the shorelines were undeveloped and miles from the city’s center. But by 1986, much of the shoreline had been developed.

That year, the City Council granted an exemption to those properties in part because the city would be unable to provide police, fire and water services to these far-flung slices of property lining the river.

The exemption persisted quietly until a 2006 city audit investigated how efficiently the city collected property taxes. It recommended further examination on whether city taxes should apply to those properties.

In December 2008, the council was set to consider a resolution that would have made some of the lakefront properties subject to the city's property taxes. The resolution also called for the city to extend all city services, including city water, to those properties.

Minutes from the meeting indicate that the council postponed the item with no debate. It later came up again at a January 2009 meeting, but was withdrawn, minutes from the meeting indicate.

Lakefront properties’ city services lag

In the ensuing years, the Austin police and fire departments have responded to numerous calls to those properties. But response times have generally lagged behind the citywide average, according to records of 2018 calls for service.

Virtually none of those properties is connected to the city’s water system nor do they receive trash service.

The lack of services was the main argument against adding the properties to tax rolls when the City Council repealed the exemption on June 20. Leading up to the vote, several affected property owners formed the group Austin Property Rights Alliance. A representative of the group declined to comment for this story.

To Council Member Jimmy Flannigan, whose district includes many properties on the shores of Lake Austin downriver from Mansfield Dam, that argument holds no water.

“Property taxes do not pay for the water system,” Flannigan said. “It’s the same for electricity. I have large parts of my district that are on Pedernales (Electric Cooperative). That same goes for trash services. None of them are paid for with property taxes.”

While the Statesman found many new properties that will be subject to the repeal, the original list showed 1,004 properties. That means that as many as 250 additional properties might be inside the city limits, but may eschew city property taxes.

“It is one of those things that we are going to have to go parcel by parcel,” Crigler said.

This story reflects the American-Statesman’s consistent focus on how government decisions affect Central Texans through such factors as tax fairness, housing affordability and funding of public services. Phil Jankowski has written about local government since 2013; follow him on Twitter: @PhilJankowski.

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