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Property tax cuts will be one of the dominant topics of debate during this legislative session, and the fight over how much to spend on them is starting to take shape.
Lawmakers on both sides of the aisle have filed dozens of bills aimed at curbing the state’s high property tax burden. Texas Republicans, who campaigned heavily on cutting homeowners’ exorbitant property tax bills, are particularly focused on the issue. With the state sitting on a nearly $33 billion budget surplus, Gov. Greg Abbott has made a big promise: using half of that money to reduce property owners’ tax burden.
But Abbott faces resistance from top Republicans in the Legislature. Lt. Gov. Dan Patrick and House Speaker Dade Phelan are both wary of spending too much of the surplus — considered a once-in-a-lifetime pot of cash — on property tax cuts, expressing concerns over the state’s ability to pay for the benefit in the long term.
Part of the fight will deal with whether to use less funds on property tax cuts and more on public schools, infrastructure and other needs. Democrats have their own ideas about what to do with the extra funds, including a $15,000 pay raise for Texas teachers, which would cost $12 billion over the next two years.
“With an unprecedented $33 billion budget surplus, we have at least 33 billion opportunities to improve our schools,” said state Rep. Trey Martinez Fischer, of San Antonio, head of the Texas House Democratic Caucus.
Here’s what you need to know about the coming fight over Texas property taxes.
Texas’ high property taxes
More than almost any other state in the country, Texas relies on local property taxes to pay for government services like public schools, police departments and road maintenance.
That reliance, coupled with the state’s lack of an income tax, has resulted in some of the highest property tax bills in the nation. Texas homeowners pay a bigger chunk of their home value in property taxes than homeowners in almost every other state, according to the Tax Foundation. Only New Hampshire and Alaska depend more on the property tax than Texas.
In addition, property tax collections have been on the rise, growing more than 20% from 2017 to 2021, according to the Texas comptroller’s office.
The biggest chunk of a typical Texas homeowner’s property tax bill goes to pay school property taxes — the state’s primary method of paying for public schools. School property tax revenue makes up more than half of the funds Texas uses to pay for public schools (the remainder comes from state and federal funds). It also accounts for more than half of all property tax revenue in the state.
In recent years, Texas lawmakers have tried to slow the growth of property taxes. Four years ago, state legislators passed a massive school finance package that included $6.5 billion in new school spending, $5.1 billion to lower school property taxes and caps on school districts’ tax rates. They also passed a law placing a more stringent cap on how much property tax revenue cities, counties and other local taxing units can collect without seeking voter approval.
A study last year by the Texas Taxpayers and Research Association showed that the new laws had at least some success in reining in property taxes. Without them, according to the study, Texas taxpayers would have paid $6 billion more in property taxes in 2021.
Those laws — along with a voter-approved boost in the state’s homestead exemption last year — prompted tax bills in some of the state’s urban areas to fall slightly.
How to spend $15 billion
Budget writers in the House and Senate have proposed $15 billion toward property tax cuts over the next two years.
Of that amount, some $5.3 billion would maintain existing cuts under the 2019 school finance law and help reduce property taxes even more.
The other $9.7 billion would be new, but it’s not clear yet how they would be used. The money could go toward further buying down school property taxes or raising the homestead exemption again.
For Abbott, who has vowed to spend half of the $32.7 billion surplus on property tax cuts, the $15 billion price tag isn’t enough. Abbott told reporters last week he considered that amount “a good start.”
“I, of course, will be pushing for even more,” he said.
But Patrick and Phelan have been cautious about spending too much of the surplus on property tax cuts for fear of busting the state’s constitutional spending limit — and committing to a costly recurring expense that lawmakers will have to find ways to pay for in future budgets.
“Whatever we do on property tax relief … we have to do it every single session in perpetuity or we’re raising your taxes,” Phelan said in November.
Savings for homeowners
The Senate draft of the state’s next two-year spending plan sets aside $3 billion to boost the state’s homestead exemption, which is the dollar amount of a home’s value that can’t be taxed. The money would raise the homestead exemption on school district taxes from $40,000 to $70,000. (The House version doesn’t put any dollars toward a homestead exemption, though the bill does list it as a possible option for cutting taxes.)
That would net the owner of a $300,000 home at least $300 in savings on their annual tax bill, said state Sen. Paul Bettencourt, a Houston Republican and Patrick’s lieutenant on property taxes.
Texas voters approved a separate boost in the homestead exemption last year, which raised the exemption from $25,000 to $40,000. Factoring in that increase and the one being proposed this session, the typical homeowner could potentially save about $500 on their future tax bills, Bettencourt said.
“This is a real monetary benefit,” he said.
Lawmakers are weighing other ways to shield more of a homeowner’s property value from taxation.
State law limits the taxable value of an owner’s primary residence from rising more than 10% in a given year. Lawmakers have already filed several bills to bring down that cap. One proposal from state Rep. Giovanni Capriglione, a Southlake Republican, would lower the cap to 5%.
But the more homeowners are exempt from paying property taxes, the more that burden shifts to businesses and renters.
“Appraisal caps sound really good,” said Dale Craymer, president of the business-backed Texas Taxpayers and Research Association. “Everybody likes the idea that their appraisal is going to be less than it actually is. But somebody’s got to pay for that and it’s everyone else that’s left in the basket.”
Proposals for businesses
Businesses and landlords could also get a break on their property taxes this session.
The House and Senate budget proposals each raise the possibility of further “buying down” property taxes, which would apply to residential and business properties alike.
Patrick has floated the idea of giving businesses a break on the taxes they pay on “personal property” like furniture and equipment. He wants to raise that exemption from its current limit of $2,500.
Similar to how the growth of homes’ taxable value is capped, a proposal from state Sen. Lois Kolkhorst, a Brenham Republican, would cap how quickly the taxable value of nonresidential properties can grow each year.
Left out of the debate
Some conservative lawmakers want to abolish the property tax altogether — an idea that has increasingly gained traction in Republican circles but is likely a long shot.
One bill filed by state Rep. Andrew S. Murr, R-Junction, would abolish school districts’ maintenance and operations tax — which is used to pay salaries and day-to-day expenses — and make up the lost revenue with a nearly two-fold increase in the sales tax.
But the idea of raising the sales tax in order to cut property taxes proved extraordinarily unpopular in 2019 when Texas’ top three Republicans backed such a proposal, which ultimately went down in flames. The burden of paying sales tax falls more heavily on poorer households — a notion that some have raised again in the debate about how to use the state’s surplus, which was generated in part by larger-than-expected sales tax revenue in the last two years. And the sales tax is a more volatile revenue source than the property tax, making it more prone to dips in the event of an economic downturn.
“Even though the lure of lower property taxes is attractive, so far we have not seen that it’s so great that it can offset the political pain of raising the sales tax,” Craymer said.
There are other ideas on how to tackle the property tax burden. For state Rep. Diego Bernal, a San Antonio Democrat, the debate in the Legislature has focused too narrowly on big dollar amounts rather than the day-to-day burden that property taxes put on households, especially poorer ones.
“If all you’re going to do is focus on percentages or the spend on the state side without any regard for the way that it’s felt at home, it really doesn’t matter. It’s just a political exercise,” Bernal said. “For me, it’s whether or not we’ve done something that keeps someone in their home that’s on the verge of being taxed out of it.”
One Bernal bill would require that homes be appraised based only on the value of neighboring homes, not nearby rental homes or short-term rental properties leased through companies like Airbnb and Vrbo.
Another would allow taxpayers to pay off their tax bills in installments rather than all at once. The legislation would apply only in major urban counties like Bexar and Travis where 70% of the population lives in a single city. But it’s an attempt, Bernal said, to at least help poorer households spread out the expense.
One group of Texans that might be left out of the entire property tax debate: renters.
Renters, who pay property taxes in the form of higher rents, don’t benefit from a homestead exemption and can’t deduct their rents on their federal income taxes the way homeowners can for property taxes.
In a time of record demand for rental units, which has spurred huge spikes in rent, there’s no guarantee that landlords would pass the savings along to their tenants if they get a break on their property taxes, said Chandra Villanueva, director of policy and advocacy for the progressive think tank Every Texan.
“If your apartment complex ends up getting a property tax break because of this, there is no requirement or obligation that they’re going to reduce rent,” Villanueva said. “Now that people are already paying these high rents, they’re like, ‘well, people are paying it, we’re just gonna keep it there.’”
That’s a key feature of the property tax debate: figuring out who pays them and who doesn’t.
“Property tax is a zero-sum game,” Craymer said. “One taxpayer’s benefit is another taxpayer’s cost.”
Disclosure: Every Texan and Texas Taxpayers and Research Association have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.
Correction, Jan. 31, 2023: An earlier version of this story incorrectly stated that a 2019 school finance law allocated $6.5 million for new school funding. It allocated $6.5 billion.
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