Texas senators unanimously approved Lt. Gov. Dan Patrick’s agenda for property tax cuts this legislative session on Wednesday, which would invest billions of dollars in public schools and provide larger tax breaks to homeowners and business owners.
“This is off-the-charts, incredible property tax relief for millions of Texas homeowners,” said Houston Republican state Sen. Paul Bettencourt, Patrick’s point person on property taxes.
Before the session began, Republican leaders made it clear that they wanted the Legislature to use a portion of the state’s historic surplus of nearly $33 billion to reduce property taxes. Patrick’s $16.5 billion package, which is divided into three separate priority bills, is the Senate’s proposal.
Senate Bill 3, a proposal to increase the state’s homestead exemption for school districts, is the package’s most popular component among senators. Bettencourt’s bill would raise the amount of a home’s value that cannot be taxed from $40,000 to $70,000, with an additional $20,000 increase for seniors. The proposal would save a homeowner who pays the state’s average school tax rate $341 on their annual tax bill, and seniors another $227.
All three bills were passed with the help of Democrats and Republicans.
“It is a great testament to Republicans and Democrats working together for all of their constituents,” Patrick said following the passage of all three bills.
Senators also passed, but were divided on, Senate Bill 4. This bill would require the state to invest at least $5.38 billion in public schools, which account for the majority of Texans’ property tax bills. This is in addition to the $5.3 billion in property tax cuts proposed separately by Senate budget writers over the next two years.
In exchange, the bill, which amends a landmark school finance law passed in 2019, would reduce school property tax rates by 7 cents per $100 of property value. A $300,000 homeowner paying the state’s average school district tax rate would save $210 on their annual property tax bill.
Senate Democrats expressed scepticism about the bill, warning that, in the future, Texas will not have the flood of federal stimulus dollars that poured in during the COVID-19 pandemic to cushion the state if the economy falters. If that happens, the state may have to raise sales taxes to make up for any shortfall in education funding, according to state Sen. Nathan Johnson, a Dallas Democrat.
“We’re doing something that’s popular, we’re doing something that provides genuine tax relief for people,” Johnson said. “And it could require us to make some difficult decisions in the future.”
State Sen. Sarah Eckhardt, an Austin Democrat, agreed.
“If for any reason the state is unable or unwilling to pay … it will be a starvation for our public education system,” Eckhardt said.
Bettencourt attempted to dispel that scepticism by pointing out that Texas’ economy is booming and that voters will ultimately decide the measure, which will appear on the ballot as a proposed constitutional amendment.
“I can’t disagree that someday there will be a crisis, but we made this commitment,” Bettencourt said. “We have to stand by it.”
Despite this scepticism, no Democrat voted against the bill.
SB 4 is also an attempt to reduce property-wealthy districts’ payments through the recapture programme, colloquially known as “Robin Hood.” The programme requires those districts to give the state any tax surplus they collect so that it can go to “property-poor” districts that can’t raise all of the money they need through taxes.
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Some school districts’ recapture payments have skyrocketed in recent years, with some, such as the Austin Independent School District, paying the state nearly $800 million in the most recent fiscal year.
According to Ed Ramos, chief financial officer at Austin ISD, Austin’s property values are expected to grow faster than the state’s average. If SB 4 becomes law, the district would be required to lower the rate at which it taxes property owners for maintenance and operations.
In turn, the state would cover the district’s shortfall, and because the tax rate would be reduced, so would the district’s Robin Hood payments, according to Ramos.
A lower tax rate, however, would mean that Austin ISD would receive no new funds.
“It’s basically a flat effect for school districts,” Ramos said. “There’s no new money for us with this bill. But what it does is … lower property taxes throughout the state.”
Ramos said his only concern is that if the state spends so much money to cover the bill’s shortfall, it may leave lawmakers with little left over from the surplus to actually increase the state funds districts receive — a raise they say is desperately needed after the COVID-19 pandemic and amid ballooning inflation.
On March 23, KSAT 12 posted a tweet to its official Twitter page. For more information, please see the full tweet provided below:
Texas senators unanimously approved Lt. Gov. Dan Patrick’s agenda on property tax cuts this legislative session, which would pump billions of state dollars into public schools and give bigger tax breaks for homeowners and business owners. https://t.co/Nf6pNOmDTW
— KSAT 12 (@ksatnews) March 23, 2023
The basic allotment — or the base amount the state gives schools per student — has not been increased since 2019, when lawmakers overhauled the school finance system.
“When the state is looking at its $32 billion surplus, if about half of that is going to be taken because of property tax compression, what is left for other needs of the state?” he said.
According to Chandra Villanueva, director of policy and advocacy for the progressive think tank Every Texan, the bill will exacerbate school district inequities by benefiting businesses and the highest-earning Texans while providing no new funds to school districts.
“It’s just a tax break that costs a lot of money,” she said.
She also believes it is an unsustainable model for the state to pursue. If the bill is passed, the state will commit to covering the districts’ shortfall. However, while it can cover the difference now, the state’s share will continue to rise with no guarantee of a future surplus to help it pay the bill.
“The only reason we have a lot of this revenue right now is because of inflation and its impact on tax collections,” she said. “It’s not something that we can be guaranteed to grow and be sustainable. What we’re doing is setting up our schools for future cuts.”
Senators also approved Senate Bill 5, a separate bill sponsored by state Sen. Tan Parker, a Flower Mound Republican, that would reduce business property taxes by $1.5 billion.
Finally, the Senate tax proposals to increase the homestead exemption and cut business property taxes would go before voters, who are highly likely to favour cutting their own taxes.
The Senate proposals are now on their way to the House, where lawmakers have taken a different approach to lower property owners’ tax burdens.
Budget writers in the House, like those in the Senate, want to use at least $5.3 billion from the state’s surplus to lower property taxes.
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The House’s main tax cut proposal includes an additional $12 billion in school property tax cuts. The proposal’s most contentious component, however, would tighten a cap on how much the value of a homeowner’s primary residence taxed by school districts can rise each year — a proposal that has drawn opposition from Patrick and Bettencourt, as well as tax-cut advocates and business lobbying groups.
The bill would reduce the state’s “appraisal cap” from 10% to 5% and extend the benefit to owners of commercial properties such as grocery stores, apartment complexes, and restaurants. According to tax experts, doing so would make the property tax system more unfair by providing larger breaks to owners who have held their property for a longer period of time. It would also not reduce tax bills, according to experts, because local governments such as cities and school districts could simply raise their tax rates to make up for funds lost by lowering the appraisal cap.
The bill was approved by the House Ways and Means Committee on Monday, 10-1, with Grand Prairie Democrat state Rep. Chris Turner voting no.
