Many Texas lawmakers agreed during the regular legislative session this year that they wanted to cut property taxes. But they couldn’t agree on how to do it.
It wasn’t until a special session in July that lawmakers passed a property tax relief measure. It included lowering what homeowners pay to school districts in property taxes, raising the homestead exemption to lower what homeowner-occupied units pay in taxes, and limiting how much your house can go up in taxable value each year.
But before these changes can go into effect, the question has to be put to voters in the form of a constitutional amendment that will be on the ballot in November.
John Diamond, director of the Center for Public Finance at Rice University’s Baker Institute of Public Policy, said this issue needs to be put to voters because it counts as state spending.
“This was a constitutional amendment because technically this is considered spending. And so they had to pass a statewide thing to avoid a constitutional limit on spending,” he said. Voting “yes, in this case, would be that you’re allowing the government to spend more than they are limited to spending, and therefore they could actually pass the laws that they’re trying to pass, which would lower your property taxes.”
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Diamond said that although this plan lowers property taxes paid to schools, the state has a plan to make up that funding.
“School districts are not going to be harmed. So basically how this is passed is the state says that we’re going to lower the school district property tax rate, but then they’re going to make it up,” he said. “They’re going to pay school districts for the amount of revenue that they lose by lowering the rate. And so the state is just going to pay a larger share of education expenditures after the rate reduction.”
However, this level of education funding is not guaranteed in future years, Diamond said.
“The state is always making financial decisions year-by-year,” he said. “We say that the school districts are not going to be affected this year, and that is based on estimates that we’re going to reduce the rate by so much, and instead we’re going to give you this amount in other revenue, and those offset. It’s all fair game; two, three, four years down the road, if the state runs into a tighter budget scenario, then they could absolutely pull back on their funding level, which would hurt schools.”
This school district tax rate reduction occurs through a mechanism called compression.
“They call it compression because you’re compressing a rate, and so you’re going to lower the rate and they’re going to compress the revenues into a smaller range,” he said. “The state lowers the rate, but then that rate will raise less revenue.”
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The main pushback during the regular session had to do with how the money was being allocated, Diamond said.
“There were some some pushing back because they wanted to see the allocation of the dollars be different. They wanted it all in rate compression,” he said. “They didn’t want the homestead exemption to go up from $40,000 to $100,000. And so they really wanted to see, you know, how the tax dollars were sent to the public. You know, they wanted to go out in a different way.”
Diamond says he expects this plan – which is overwhelmingly popular with voters and lawmakers – to pass.
“This is one of the largest property tax cuts in history, if not the largest. Yes, when you spread it across all homeowners, it may only be worth, you know, $1,200 to $1,500 a year. That’s still a significant amount of money, and it still reduces the height of the property tax significantly,” he said. “When you’ve passed a $15 billion property tax bill, it’s hard to say that it’s not going to help.”
