Texas lawmakers are in the midst of their 89th legislative session, and lowering property taxes is one of the main goals Gov. Greg Abbott has directed them to address.
“We must deliver meaningful property tax cuts this session,” said Abbott in his keynote speech at the Texas Public Policy Foundation’s recent Texas Policy Summit in Austin, just weeks after he declared property tax relief one of his emergency items for state lawmakers this session.
For those who closely watch Texas politics — or even just those focused on their own annual property tax bill — this may seem like déjà vu. After months of wrangling during 2023’s regular session and a special session, Abbott signed an $18 billion property tax bill that was touted as a major win for Texas homeowners. But the results didn’t meet lawmakers’ expectations. In the years since, some Texans still saw increases in taxes from local municipalities who said they needed to make up for lost revenue.
How Texas has tried to curb property taxes
The state has been chipping away at property taxes over time. Last session, they increased the homestead exemption from $40,000 to $100,000. The homestead exemption reduces how much of a home’s value owners can be taxed on. Since Texas has no income tax, increasing this is one of the few effective ways lawmakers can provide tax relief to residents.
This session, Gov. Abbott wants to increase the homestead exemption to $140,000 — something the Texas Senate has already passed a bill on. The move would ultimately cost the state billions of dollars.
In theory, that should decrease property taxes. But that wasn’t the case when the legislature put $18 billion towards homestead exemptions in 2023. Texans for Fiscal Responsibility, a conservative-leaning policy group, compiled data from the Texas Comptroller’s office showing that the savings didn’t match up with what lawmakers had promised.
Those upset about the raise have complained to Texas legislators. In turn, state lawmakers have pointed the finger at local taxing districts. Both the disappointment in the lack of savings and the shifting blame were on display at the Texas Policy Summit.
“Just out of curiosity, who saw a tax cut after the legislature passed that big $18 billion dollar tax relief measure?” asked the group’s James Quintero, who moderated a panel on reducing property taxes.
A little over half 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 relief permanent, I haven’t heard that from you guys today. I’m tired of the locals pointing the fingers at you guys, and you guys pointing the finger at the locals,” she said.
Sen. Paul Bettencourt, a panelist and Houston Republican, reiterated the point.
“I ain’t pointing the finger at city or county or special districts. I don’t have to, it’s on the back of your tax bill,” said Bettencourt.
While that’s true, the reason local taxing entities say they need that money is because they have to pay for the services they provide: from local law enforcement, fire department to public schools, all of these things take money to run. And in a state with no income tax, sales tax and property taxes are the only funding sources for the government.
Chandra Villanueva with Every Texan, a progressive policy organization, refers to these taxes as a three-legged stool.
“If they get rid of the property tax, then we’re gonna be stuck with a pogo stick, basically just a sales tax that is the most volatile of all three of those taxes,” said Villanueva.
How school funding impacts property taxes
That brings us to another one of the big issues lawmakers have said they want to tackle this year: Increasing funding for the state’s public schools, including providing raises for Texas teachers.
Villanueva told The Texas Newsroom that she believes — if the state put more money towards funding schools — the districts wouldn’t need to raise taxes. At least not, “in the same way they do because of the under funding from the state.”
Since 2019, the legislature hasn’t given additional funding to schools. Instead, they’ve been replacing the funds school districts lose out on from reduced property tax revenue. This is done through what’s called a hold harmless provision.
“Basically (with the hold harmless provision), any taxation lost at the school district level the state will make up in general revenue,” said Brandon Rottinghaus, a political scientist at the University of Houston.
So, while the legislature is technically sending the state’s public schools more money than it was before 2023’s property tax changes, that money is only replacing funds they would’ve already received had the state not increased homestead exemptions. It’s more money, but it’s not additional money.
If property taxes keep being cut, some are concerned about what could happen to school funding down the line. Right now, the state has the extra money it takes for increased homestead exemptions — and the hold harmless provision — because Texas has a financial surplus. The latest report from the Texas Comptroller shows the state has $24.8b in their Economic Stabilization Fund, which is basically a savings account for the state.
But Rottinghaus says the path the state is on to bring down property taxes isn’t a very stable method.
“So the issue is that the states on the hook forever for this money, that might mean that it could be a financial problem in the future where the state coffers are not as full,” said Rottinghaus. “And they still have to pay for these tax cuts.”
In the end, John Craft, a superintendent of Southside ISD in San Antonio says that — because there hasn’t been more funding for schools from the state since 2019 — they’re in a deep hole. Estimates show the state would need to add an additional $24 billion into public education to get schools back to the spending power they had in 2019.
“The reality is… in order to solve the problem and have the resources to take care of the infrastructure needs, the water needs, health and human service needs, public education needs we need to generate a whole lot more revenue,” said Craft.
Exactly how the state will begin to generate more revenue while continuing the promise of cutting property taxes is uncertain.
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