Texas legislators are in the middle of their 89th legislative meeting, and property tax cuts are one of the main goals Gov. Greg Abbott has directed to deal with it.
“We must make this session a significant fixed asset tax cut,” Abbott said in a keynote address at the Texas Public Policy Foundation’s recent Texas Policy Summit in Austin, weeks after declaring one of the property tax reliefs in the session.
For those who have a close eye on Texas politics, or are focusing on their annual property tax bill, this may seem like deja vu. After months of contests during regular and special sessions in 2023, Abbott signed the $18 billion property tax bill, which was touted as a major victory for Texas homeowners. However, the results did not meet the expectations of lawmakers. Since then, some Texans have still seen an increase in taxes from local governments.
How Texas tried to curb property taxes
The state is cutting property taxes over time. In the last session, Homestead exemptions increased from $40,000 to $100,000. Homestead exemptions reduce how much taxable you can tax your home’s worthy owners. Since Texas has no income tax, this is one of the few effective ways to bail out lawmakers with tax systems.
For this session, Gov. Abbott wants to increase the Homestead exemption to $140,000. The Texas Senate has already passed the bill. The move will ultimately cost the state billions of dollars.
In theory, it should reduce property taxes. But that wasn’t when Congress put $18 billion in Homestead’s exemption in 2023. The Texans, a conservative policy group, compiled data from the Texas Secretary’s office showing that savings did not match what lawmakers promised.
People who were upset about pay raises complained to Texas legislators. Second, state legislators point their fingers to their local taxable districts. Both a lack of savings and changing responsibility were on display at the Texas Policy Summit.
“Of curiosity, who saw the tax cuts after Congress passed the $18 billion tax credit?” group James Quintero presided over a panel on property tax reductions.
More than half of the audience raised their hands. During the Q&A session, a woman in the audience expressed her frustration.
“This session is called How to Make Property Tax Breakdown Permanent. I haven’t heard that from you today. I’m tired of the locals pointing their fingers at you. You’re pointing their fingers at the locals,” she said.
Sen. Paul Bettencourt, a panelist and Houston Republican, repeated this point.
“I’m not pointing my fingers at a city, county, or special district. I don’t need to, that’s behind your tax bill,” Bettencourt said.
That’s true, but the reason local tax agencies say they need money is because they have to pay for the services they provide. From local law enforcement agencies, fire departments to public schools, they all take money to run. Additionally, in states that do not have income tax, sales tax and property tax are the sole sources of funding for the government.
Chandra Villanueva with all Texans, a progressive policy organisation, calls these taxes three-legged stools.
“If they remove the property tax, we’ll basically be stuck with Pogostick, the most precarious sales tax of these three,” Villanueva said.
How school funding affects property taxes
That brings us to one of the big issues lawmakers say they want to tackle this year. It involves increasing funding for state public schools, including providing salary increases to Texas teachers.
Villanueva told the Texas newsroom that he believes the district doesn’t need to raise taxes if the state places more money towards funding schools. At the very least, “please they do so because of the lack of funding from the state.”
Since 2019, Congress has not provided additional funding to the schools. Instead, they have replaced funds that asset school districts lose by reducing property tax revenue. This is done through something called Hold Harmless Provement.
“Essentially (with harmless clauses), taxes lost at the district level will be compensated for by the state with general income,” said Brandon Lottintinhouse, a political scientist at the University of Houston.
So, Congress is technically sending more money to state public schools than before the property tax change in 2023, but that money will only replace the funds it has already received if the state fails to increase its Homestead exemption. It’s more money, but it’s not extra money.
If property taxes continue to be cut, some are concerned about what will happen to school funding. Now, the state has the extra money on the increased homestead exemption and the harmless provisions of the hold, as Texas has a monetary surplus. The Texas Secretary’s latest report shows the state has $24.8 billion in its Economic Stabilization Fund. This is basically a state savings account.
But Rottinghaus says the path for the state to lower property taxes is not a very stable way.
“So, a state that will be in Hook forever for this money might mean that it could become a financial problem in the future where the national funding is not so full,” Lottin Tinhouse said. “And they still have to pay for these tax cuts.”
Ultimately, San Antonio’s Southside ISD manager John Craft says they are in a deep hole as there hasn’t been any more funding in state schools since 2019. Estimates show that the state will need to add another $24 billion to public education to bring schools back to expenditure in 2019.
“The reality is… to have the resources to solve problems and meet the needs of infrastructure, water needs, health and services, public education needs, and public education needs that are needed to generate more revenue,” Craft said.
To be precise, it is uncertain how states begin to generate more revenue while continuing their promise to cut property taxes.
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