State Legislative Leaders Advance Property Tax Measure

posted on 7.10.2023

- Agreement Gels After Bitter Disagreement

The state’s legislative leaders appear to have bridged their disagreement over how to restructure the way Texas funds public schools in light of the state’s $50 billion budget surplus, with action likely as soon as this week in at least one chamber.

The total surplus that lawmakers started with in developing the state’s next two-year budget includes nearly $33 billion in excess revenues earned during the state’s current budget cycle, more than $14 billion in the state’s Rainy Day Fund, and more than $3 billion in unspent monies from President Biden’s American Rescue Plan Act funds.

Excluding surpluses from previous budget cycles, lawmakers had $17.7 billion more available to spend in the next biennium than they did when crafting the current budget.

Under the agreement struck by Lt. Gov. Dan Patrick, House Speaker Dade Phelan and Gov. Greg Abbott, owners of commercial property and owners of residential property with a homestead exemption will save billions collectively under the plan announced this week. Components include:

• Shifting $12.6 billion in local school property tax burden to the state by reducing the costliest portion of the local levy (often called “tax compression”)
• Spending $5.3 billion to hike the homeowner property tax exemption by $40,000 to $100,000, with additional breaks for homeowners who are disabled or aged 65 or older 
• Limiting to 20 percent the amount a property’s appraisal can increase from year to year, but only for property not subject to a homestead exemption
• Increasing the franchise tax exemption for smaller businesses

None of the spending goes to public education, school teacher pay raises, or to benefit renters whose landlords are unlikely to pass along property tax reductions to tenants.

The agreement stands in stark contrast to what a group of House Democrats, led by Rep. John Bryant of Dallas, proposed last week:

• Increasing the state’s “basic allotment” to public schools by $1,000, indexed to inflation, resulting in a permanent increase in teacher salaries of $4,300 per year
• Establishing a homestead exemption of the higher of $100,000 or 25 percent of a home’s appraised value, capped at $200,000
• Extending property tax relief to the 38 percent of Texas households that rent homes with a rebate of up to 10% of the rent paid in the previous year
• Implementing a six-cent “tax compression” in the costliest portion of the local school property tax to shift a greater burden to the state from local property taxpayers

Noting that property taxes are the chief revenue source for public education, the lawmakers supporting this plan asserted that any wholesale change to the property tax system should be made with public education in mind.

Texas currently has the fifth highest property taxes in the nation but ranks 44th in support for public education.

Chances of Passage

The legislation will start in the Senate where it will pass quickly, but the House may engage in some debate as Republicans do not hold the 100 seats needed to advance the plan to voters whose approval is required.

Despite the new Democratic proposal, most Democrats will likely decide to advance the huge tax shift now but stand firm in opposing Abbott’s school voucher plan and preserving the state’s commitment to public education for all Texans during a special session anticipated after the start of the school year.

Another Life for Vetoed Bills 

Gov. Greg Abbott vetoed dozens of tax policy bills that originated in the Senate last month in an effort to compel the upper chamber to adopt a path toward eliminating a key part of school property tax which Lt. Gov. Dan Patrick and some state tax and budget experts said would eventually require huge hikes in the state’s sales tax rate.

One of the vetoed tax bills was a measure that TAB advanced to ensure that local Radio broadcasters aren’t subjected to unfair treatment under the state’s franchise tax law.

Abbott said in his veto message that he didn’t oppose it but, like the other bills he tanked, preferred to postpone final action until after lawmakers had acted on property taxes.

Questions? Contact TAB’s Oscar Rodriguez or call (512) 322-9944.

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