Tasked by Lt. Gov. Dan Patrick with finding ways to give homeowners and business property owners tax relief as appraisal values skyrocket, the Senate Finance Committee heard invited and public testimony Monday on how current efforts are working and different proposals they could consider in session next spring.
Progress of Tax Relief Efforts
The homestead exemption increase for school property taxes that voters adopted earlier this month will cost the state $55 million per year to aid school districts, according to the Legislative Budget Board’s chief economist. Senators also learned the ongoing costs of the 2019 school district property tax compression began with $5 billion during the 2020-2021 biennium. Recall, the school finance reforms which upped state funding of public schools, HB 3, was paid out of general revenue, but as advocates like Dick Lavine of Every Texan point out, there was no sustainable revenue source found to cover the costs.
The property tax reforms from 2019, SB 2, which reduced the rollback rate by which tax rates for cities, counties and special taxing districts can grow before putting it to voters, saved an estimated $1.3 billion, according to Dayle Cramer with the Texas Taxpayers and Research Association.
Cramer also said there were $6 billion in combined savings due to both HB 3 and SB 2. As reported previously, this has not always been felt in the pockets of taxpayers, as appraisals have been growing exponentially even if tax rate growth has slowed down or decreased because of the 2019 legislation. He predicted property tax bills this fall will be less than 2021 because of these reforms.
Property Tax Relief Proposals
As for proposals, the Texas Public Policy Foundation’s (TPPF) plan endorsed by Gov. Abbott earlier this year to buy down property taxes with surplus in state revenue and broadening the sales tax base was met with tepid response from GOP senators on the committee, including Chair Joan Huffman (R-Houston). She reminded the Senators paying with surplus is not a permanent solution and it ought not be, as it could break the constitutional spending limit.
Sen. Robert Nichols (R-Jacksonville) asked how areas of rural Texas with smaller sales tax revenues will be able to fund local services without property taxes. Vince Ginn, with TPPF said tax rates do not need to go up but more exemptions need to be lifted, like those for unprocessed food. Sen. Charles Schwernter (R-Georgetown) said those exemptions cover expenses of the average Texan and asked how they and renters will benefit from additional sales taxes when property taxes go down. Ginn responded with an example that benefitted the local HEB if not the local grocery shopper, which went back to Schwertner’s question.
When Huffman asked the chief economist of the state budget board if federal COVID relief monies could be used for property tax relief, the response was it depends on ongoing litigation with no clear timeline for resolution.
Brent South, the chief appraiser of Hunt County and president of the Texas Association of Appraisal Districts, told Senators his group were in favor of ending one of three methods of property tax protest under the “equal and uniform” provision of state law because of abuse by large commercial property owners. The law allows property owners to protest the appraisal district’s appraised value by suing the appraisal district with the argument that the value is higher than the median of similar properties.
Because the equity appeal lawsuits are so financially burdensome, most residential homeowners do not employ it; however, several large commercial property owners do and those lawsuits have only been growing. See the reports by the San Antonio Express-News in 2019 and more recently by the Fort Worth Star-Telegram. South told the Senators that $23 billion of tax value was knocked off the tax rolls in 2020 alone due to equity appeal litigation. Committee members of both parties were not too enthused by the proposal to end equity appeals with Chair Huffman at one point saying saying property owners need ways to “meaningfully” contest their appraised values and this was one of them.
Ch. 313 Comeback
Another item of discussion during the hearing was reviving the soon-to-be expired Chapter 313 school property tax abatement program. First indicated by Speaker Dade Phelan in one of his many conversations with business groups during the interim, there is growing momentum of the business community to get some form of tax incentives for businesses from school district property taxes.
Bob Harvey, who leads one of the most influential chambers of commerce of the state in the Greater Houston Partnership, was entreated by Senator Brandon Creighton (R-Conroe) to come back to the committee with a proposal on what would replace the business property tax incentive program.
One suggestion by some of the Senators was to exclude renewable energy as one of the potential beneficiaries of a new incentive program. Grid reform bill author Charles Schwertner parrated this idea that federal tax incentives to renewable energy have skewed the market and made it less likely for new geothermal generation, which he argued was more reliable and “dispatchable.”
The program died in a suprising turn of events last session after a surprising bipartisan agreement among advocates that the program was “corporate welfare” and not ultimately beneficial to the taxpayer. That was one of two big losses for large businesses last session, the other being state preemption of sick leave ordinances.
Recently, it was reported by Scott Braddock of the Quorum Report that the business lobby is allying themselves with former Speaker Dennis Bonnen to make the case for the tax abatement program’s revival. To date, Bonnen has not registered as a lobbyist, but if he did, he might fall prey to the same ethics law that fellow retirees Eddie Lucio III and Chris Paddie were snared into this month.
Who or What is to Blame for High Property Taxes
There is no easy scapegoat for rising property taxes. Legislators have often blamed the local taxing districts while local governmental bodies like school districts respond with how they are working under the system the Legislature created. Public education advocates often retort that property taxes for schools are high because Texas underfunds schools. And while there is truth to state funding not incorporating inflationary measures like consumer price index in their school finance formulas, the boost to schools in 2019 helped bring up the share of state to local funding of schools.
Appraisal review boards might seem an easy target but as Brent South testified to the committee, they are bound by statute to appraise property to 100% of the market value, even if they do not have the sales data of properties since Texas is a non-disclosure state.
Texas’ growth, low housing supply, and an aggressive real estate market are all factors in play. Legislators and state leaders will not be able to act until next spring to give homeowners any relief and it remains to be seen if homeowners’ taxes actually decrease because of the 2019 and now 2021 reforms.