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Voters in Texas, which faces some of the highest property taxes in the nation, could sign off on a massive tax cut in the Nov. 7 constitutional election.
Early voting is underway on a number of amendments. Proposition 4 would allow the state to spend $18 billion on property tax cuts for homeowners and businesses, lower tax rates for school districts and other tax reforms.
Whether Texas will be able to finance these tax cuts over the long term remains to be answered. Lawmakers are leveraging a record $33 billion surplus this year, boosted by the state's strong economic growth and federal coronavirus relief money, to increase state spending on public schools, a common expense for states and school districts. The increase in contributions was covered.
Republican tax cut warriors are touting the tax cut, which has bipartisan support in both chambers of the Texas Legislature, as an unprecedented tax cut for homeowners and business owners. Meanwhile, public education advocates warn that the proposal could jeopardize public school funding and lead to future school budget cuts. Even if the constitutional amendment bill were passed, renters would not receive any direct tax relief.
The entire property tax relief package totals $18 billion, which includes $5.3 billion in tax cuts that lawmakers have approved in previous years. If voters approve the constitutional amendment, the state could send $12.7 billion to school districts to pay for new cuts in property tax collections, which make up the bulk of landlords' property taxes. Of that amount, $5.6 billion will more than double the main tax breaks for homeowners in Texas: the state's homeowner credit for school district taxes, or the portion of a home's value that cannot be taxed for public school tuition. . The constitutional amendment increases the exemption amount from $40,000 to $100,000.
The remaining roughly $7.1 billion would go toward paying school districts to lower their tax rates by replacing local property taxes with state sales tax revenue, a tax reduction method lawmakers call “compression.” That would reduce the tax rate districts pay on operating costs such as teacher salaries by 10.7 cents per $100 of property value.
Together, these measures would result in significant tax savings for Texas homeowners, advocates say.
A Texas Tribune analysis found that if the voting system had been in place last year, owners of homes valued at the state's median sales price of $340,000 would have had to pay the school's average tax rate. , you would have spent about $940 less in property taxes. That's just under $80 per month.
State Sen. Paul Bettencourt, a Houston-area Republican and Lt. Gov. Dan Patrick's aide for property taxes, said homeowners can expect even bigger savings in the coming years. The typical Texas homeowner can expect to save more than $2,500 in taxes in the first two years, according to numbers provided by his office.
“Their money is coming back to them,” Bettencourt said. “If the government had a surplus, this would happen.”
Cutting Texans' property taxes is a top priority this year for Republican lawmakers, who have promised to use the state's record surplus to provide taxpayer relief. After months of Republican infighting over how to achieve these tax cuts, state lawmakers sent a $12.7 billion tax cut proposal to Gov. Greg Abbott in July. Mr. Abbott signed the proposal into law, but voters have the final say on whether to make their own tax cuts.
Public education advocates worry that an economic downturn could deplete sales tax revenue, lead to budget cuts at the state level, and leave school districts in the lurch.
“This would leave our schools with no stability, moving up and down as the economy fluctuates,” said Chandra Villanueva, director of policy and advocacy for the left-leaning group Every Texan.
Republican lawmakers say the state's strong economic growth will allow it to maintain the cuts for now. Texas Comptroller Glenn Hegar recently predicted that by the time lawmakers return to Austin in January 2025, Texas will avoid recession and have an $18 billion surplus.
“I'm confident we'll be OK for the time being,” Bettencourt said.
But Bettencourt acknowledged that if Texas' economy worsens, lawmakers will have to reconsider the cuts. However, given that it is enshrined in the state constitution, the increase in the homestead exemption would need to be maintained.
The package includes explicit tax cuts as well as other tax reforms.
For the first time, some businesses will see a limit on how much a property's assessed value can increase each year, a key element of how property taxes are calculated. Homeowners already benefit from his 10% cap on the annual increase in taxable home value. However, companies currently have no such cap.
The new cap applies to commercial, mineral and residential properties that have an assessed value of less than $5 million and are not eligible for the homestead exemption, such as rental homes or apartment buildings. If voters agree to the proposal, the appraisal district would not be able to increase the taxable value of these properties by more than 20 percent each year for the next three years. The cap will expire in 2026 unless lawmakers and voters decide to extend it.
Tax experts question the effectiveness of such caps. Real estate values soared in 2022 on the back of the state's population explosion and job growth, according to figures provided by the Comptroller's Office. But outside of 2022, such appreciation in value has not been typical for most types of real estate, even though Texas has experienced a strong economy over the past decade. In 2022, commercial real estate owners saw an average 15% increase in the market value of their properties, but this fell short of the 20% cap.
Lynn Krebs, a research economist at Texas Real Estate Research, said that if these property owners find their value reaching the 20% limit each year, local governments and school districts will have to adjust their property appraisals. He said they would simply need to raise tax rates to make up for the revenue lost due to the decline. Center at Texas A&M University – resulting in higher tax rates for all property owners.
“We tend to just look at face value and say, 'We're not going to pay taxes on a 20% or higher tax increase, wouldn't that be great?'” Krebs said. “What does that actually mean for other people? It means they have to pay more to make up for the loss in income. The income comes from somewhere. It will come.”
The proposal would exempt even more businesses from paying state franchise taxes. If approved, the amendment would also allow voters to handpick the three members of their local assessment district's board of directors. People are currently appointed to these positions.
Notably, the tax cut package presented to Texas voters excludes a key segment of Texas taxpayers: renters.
Renters make up more than a third of the state's households and pay a quarter of the state's school property taxes in monthly rent, according to the Comptroller's Office. With high rents across the state, tenants spend far more of their household income than homeowners to keep a roof over their heads. Seventeen states and the District of Columbia have tax relief programs designed to provide property tax relief to renters, especially elderly and low-income tenants.
But Republican lawmakers ultimately ruled out direct relief for renters when putting the tax cut before Texas voters. Tax cut proponents sometimes argue that renters benefit from tax compression because if landlord taxes weren't so high, landlords wouldn't be charging as much rent. Property taxes make up about 20% of your rent bill, but they are not the only factor in determining your rent. Ultimately it will be determined by the market.
“At this point, lawmakers still don't feel enough pressure to provide solutions for renters,” said Ben Martin, research director for Texas Housers, a Texas low-income housing advocacy group. . “Until Congress feels pressure to provide solutions for renters, it makes sense to do nothing. But the data is very clear and the need is there.”
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