Texas Senate passes $16.5 billion package to lower property taxes

Texas senators on Wednesday 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.

“This is off-the-charts, incredible property tax relief for millions of Texas homeowners,” said state Sen. Paul Bettencourt, a Houston Republican and Patrick’s point person on property taxes.

Before the session started, Republican leaders made it clear they wanted the Legislature to use part of a historic state surplus of nearly $33 billion to bring down property taxes. Patrick’s $16.5 billion package — contained in three separate priority bills — is the Senate’s proposal on how to do it.

The package’s most popular component among senators is Senate Bill 3, a proposal to raise the state’s homestead exemption for school districts. That bill — carried by Bettencourt — would raise the amount of a home’s value that can’t be taxed from $40,000 to $70,000, with an additional $20,000 bump for seniors. The proposal would save a homeowner who pays the state’s average school tax rate an additional $341 on their annual tax bill — and save seniors another $227 each year.

Democrats joined Republicans to pass all three bills.

“It is a great testament to Republicans and Democrats working together for all of their constituents,” Patrick said after all three bills passed.

Senators also passed — but were less sure about — Senate Bill 4. That bill would require the state to funnel at least $5.38 billion into public schools, which make up the biggest chunk of Texans’ property tax bills. That’s on top of $5.3 billion that Senate budget writers have separately proposed for property tax cuts over the next two years.

In exchange, the bill, which amends a 2019 landmark school finance law, would cut school property tax rates by 7 cents per every $100 in property value. For the owner of a $300,000 home paying the state’s average school district tax rate, that would mean $210 shaved off their annual property tax bill.

The measure drew some skepticism from Senate Democrats who warned that, in the future, Texas won’t have the glut of federal stimulus dollars that have flowed in during the COVID-19 pandemic to cushion the state should the economy hit a rough patch. If that were to happen, it’s possible the state would have to raise sales taxes to make up for any shortfall for schools, said 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, seconded that notion.

“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 tried to tamp down that skepticism, noting that Texas’ economy is booming and that voters will ultimately decide the measure, which will go to the ballot box 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.”

But despite the skepticism, no Democrat voted against the bill.

SB 4 is also an effort to lower property-wealthy districts’ payments through the recapture program, informally known as “Robin Hood.” The program requires those districts to give any tax surplus it collects to the state so it can go to “property-poor” districts that can’t raise all the money they need through taxes.

Some school districts’ recapture payments have ballooned in recent years, with some like the Austin Independent School District paying the state close to $800 million in the last fiscal year.

Ed Ramos, chief financial officer at Austin ISD, said Austin’s property values are expected to grow beyond the state’s average growth rate. If SB 4 were to become law, that would mean the district would have to lower the rate it uses to tax property owners for its maintenance and operations.

In turn, the state would cover the district’s shortfall and, because the tax rate would go down, so would the district’s Robin Hood payments, Ramos said.

But a lower tax rate would also mean that Austin ISD would see no new money.

“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 the only concern he has is that if the state is spending so much money to cover the shortfall created by the bill, it may leave lawmakers with little left 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.

The basic allotment — or the base amount the state gives schools per student, which currently sits at $6,160 — has not 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.

Chandra Villanueva, director of policy and advocacy for the progressive think tank Every Texan, said the bill will expand school district inequities by benefiting businesses and the highest-earning Texans while providing no new dollars for school districts.

“It’s just a tax break that costs a lot of money,” she said.

She also thinks it’s an unsustainable model for the state to take. If the bill goes through, the state will commit to pay districts’ shortfall. But while it can cover the difference now, the state’s share will continue to increase 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 passed Senate Bill 5, a separate measure by state Sen. Tan Parker, a Flower Mound Republican, which would cut $1.5 billion in business property taxes.

Ultimately, the Senate tax proposals to raise the homestead exemption and cut business property taxes would go before voters — who are highly likely to favor cutting their own taxes.

The Senate proposals now head to the House, where legislators have taken a different approach to reducing property owners’ tax burdens.

Just like in the Senate, budget writers in the House want to use at least $5.3 billion from the state’s surplus to lower property taxes.

The House’s chief tax cut proposal contains an additional $12 billion in school property tax cuts. But the proposal’s most controversial element would tighten a cap on how much the value of a homeowner’s main 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 lower the state’s “appraisal cap” from 10% to 5% and expand the benefit to owners of business properties such as grocery stores, apartment complexes and restaurants. Tax experts argue doing so would make the property tax system more unfair by giving bigger breaks to owners who have held their property for a longer period. It also wouldn’t bring tax bills down, experts say, because local governments such as cities and school districts could just raise their tax rates to make up for funds lost from lowering the appraisal cap.

The bill cleared the House Ways and Means Committee on Monday by a 10-1 vote with state Rep. Chris Turner, a Grand Prairie Democrat, casting the lone “no” vote.

Erin Douglas contributed to this story.

Disclosure: Every Texan has been a financial supporter 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.

We can’t wait to welcome you Sept. 21-23 to the 2023 Texas Tribune Festival, our multiday celebration of big, bold ideas about politics, public policy and the day’s news — all taking place just steps away from the Texas Capitol. When tickets go on sale in May, Tribune members will save big. Donate to join or renew today.

This article originally appeared in The Texas Tribune at https://www.texastribune.org/2023/03/22/texas-senate-property-taxes/.

The Texas Tribune is a member-supported, nonpartisan newsroom informing and engaging Texans on state politics and policy. Learn more at texastribune.org.