Lewisville staff outline economic outlook and warn House Bill 9 will shift property-tax burden toward residents

Lewisville city staff presented an economic outlook at the retreat that combined near-term revenue trends with longer-term capital and debt considerations, and warned a state tax law change will materially affect the city's fiscal picture.

Staff member Dave Erb told council the city faces broad economic uncertainty—from federal policy shifts to consumer-confidence softness—that is already tempering sales-tax growth. Erb said construction costs have risen sharply, noting that average construction costs increased “over 34%” in the last roughly four-and-a-half years, and that those increases have pushed some project bids well above engineer estimates.

The presentation highlighted the city's current fiscal strengths: general-fund reserves are near 36% of fund balance, well above the council's 20% policy target, and Lewisville maintains strong bond ratings. Erb said those reserves and a disciplined approach to forecasting have helped preserve capacity to issue debt; staff said the city will likely go to market for general-obligation and revenue bond sales within about 6090 days.

On taxes, a second presenter explained House Bill 9 (also cited as House Joint Resolution 1), which took effect in January after voter approval. The law raises the exemption for business personal property to $125,000 from $2,500. Ashley said that change would reduce Lewisville's taxable assessed value by about $210,000,000 for tax year 2024 and that the most immediate budgetary impact will appear in the FY27 budget cycle. "This is probably going to be one of the most important structural changes to our property tax rate coming up," the presenter said.

Staff said the statute's mechanics will raise the no-new-revenue and voter-approval rates in the short term (creating a one-time increase in allowable rates), but that in subsequent years the smaller taxable base will put pressure on maintaining current service levels. Because of that, staff said maintaining the city's current tax rate (displayed during the presentation as about 41.9 cents) "will likely not be viable under this new framework," and staff will present rate options at upcoming budget discussions, including options near the voter-approval rate to preserve revenues.

Council members asked whether raising homestead exemptions for residents could offset the shift in incidence. A council member raised the proposal and staff replied that while homestead exemptions change who bears the tax incidence, the exemption does not prevent the taxable base from shrinking and therefore does not eliminate the revenue shortfall.

The presentation also covered growth and permitting: assessed-value growth has been volatile since 2021, partly because of a large annexation (Castle Hills) that produced a single-year spike in value; staff said new-growth timing creates variability but that the pipeline of projects should support steady new value in coming years.

On retiree health liabilities, staff reported better-than-expected actuarial results for the OPEB plan. After a council-directed fund transfer and stronger-than-expected investment and experience, the plan's first-year actuarially determined contribution came in below projections and the funded ratio was reported at 105%.

Staff said it will return to council with detailed rate options, revenue assumptions and tax-rate scenarios during the FY27 budget season. The city will also continue to monitor inflation, interest rates and fee schedules as it finalizes recommendations.