While Texans pay no state income tax, if they are homeowners, they currently pay the sixth-highest effective property tax rate in the nation.
Conservatives and the Republican Party of Texas have consistently complained that the Republican-led legislature hasn’t adequately addressed one of the most pressing issues Texans face: property tax relief.
Property tax relief wasn’t listed as an emergency legislative item by Gov. Greg Abbott during the first two special legislative sessions he called this year after the regular session failed to take up the issue. Some Republican lawmakers argue the state must address it and introduced three property tax relief bills during the third special legislative session, which is ongoing, with input from the Texas Public Policy Foundation.
The TPPF claims that its proposals if implemented would eliminate all property taxes in Texas by 2033.
Earlier this year, it proposed its “Lower Taxes, Better Texas” plan. In a summary, TPPF argues that property taxes can be eliminated over time by using excess state revenue to pay down local school taxes. Public school district taxes constitute the largest portion of property tax bills. A new tax structure, if implemented, would move toward funding local governments primarily through sales tax revenue.
The proposal would “eliminate property taxes for every Texan by 2033 or sooner, while also making structural changes to the system that prevent year-to-year spikes in tax bills and rein in irresponsible local governments.”
“Texans will never experience the peace of mind that comes with owning their home until property taxes are eliminated,” TPFF’s chief economist, Vance Ginn, said. “Until then, Texans are simply renting their home from the government, always with the fear that taxes could become so exorbitant they can no longer afford to stay.”
The Washington, D.C.-based Tax Foundation notes that Texas’ tax structure relies heavily on property taxes in lieu of other major tax categories like not having a personal state income tax. “This often involves greater devolution of authority to local governments, which are responsible for more government services than they are in states with greater reliance on state-level revenues,” the foundation states.
One way to help reduce property taxes is to reduce state spending, which the legislature did address this year.
A new law that went into effect Sept. 1, filed by Sen. Kelly Hancock, R-Dallas, and many others, limits state spending by tying it to population growth plus inflation.
“The current constitutional spending limit only includes state tax revenue not dedicated by the constitution, which is not a true representation of our state spending,” the bill analysis states. The bill “seeks to remedy this by creating an additional ‘consolidated general revenue appropriations’ spending limit and places restrictions on the amount of appropriations of these funds using population and inflation.”
TPPF’s proposal recommends that any surplus general revenue the state has above the new cap should be used to first reduce school maintenance and operations (M&O) taxes, which it argues have become a de facto statewide property tax. Doing so will give taxpayers relief and also comply with the constitutional requirement to fund public schools.
In addition to the spending limitations and restructuring, three new bills were introduced and are making their way through the legislative process.
State Sen. Paul Bettencourt, R-Houston, introduced SB 1, and Rep. Tom Oliverson, R-Cypress, introduced HB 90. They would lower school districts’ M&O taxes by using surplus state dollars to replace local tax dollars, in line with TPPF’s recommendations.
Senate Bill 1 proposes a one-time M&O tax rate buy-down for the 2022-23 school year of at least $2 billion and as much as $4 billion, depending on the state comptroller’s surplus estimate. If implemented, this would save the average Texas homeowner between $200 and $400. The Senate passed the bill by a vote of 30-1 last month. The bill was referred to the House and is pending in committee.
House Bill 90 would provide permanent property tax relief by applying 90% of any state surpluses every year to buy down school M&O taxes. As of Sept. 30, the bill is pending in committee.
State Rep. Andrew Murr, R-Junction, also introduced House Bill 91, which would create a committee to study a new tax model.
At a recent House Ways and Means Committee hearing on HB 90 and SB 1, Oliverson said the key issue constituents asked him to address when he ran for office is property tax relief.
“One of the top reasons I was sent here by the people back home is to do something about property taxes,” Oliverson said. “This is the taxpayers’ money. We’re going to first give it back to them.”
Dale Craymer with the Texas Taxpayers and Research Association, testified at the hearing, “It doesn’t take money away from any part of the budget. We’re talking about gravy, not meat and bone.”
Ginn, who spoke about both bills, emphasized that the proposals are “not about defunding education.” Public education is still fully funded, the difference is that Texans are granted property tax relief. “That’s what Texans want,” he said.