After what seemed like an eternity, the Texas Legislature finally passed a record-breaking property tax relief deal brokered by House Speaker Dade Phelan and Lt. Gov Dan Patrick. This landmark deal effectively resolved the prolonged legislative deadlock, which had warranted the calling of two special sessions.
After intensive negotiations, Senate Bill 2, incorporates several key provisions aimed at benefiting homeowners, renters, and businesses.
“Reducing property taxes, providing relief to small-business owners, and reforming our appraisal system will ensure economic growth and prosperity, and this agreement is a significant victory for all Texans,” said Phelan.
Breakdown of Property Tax Relief Deal
The $18 billion property tax relief plan is the largest tax cut in Texas History. It comes from a historic $33 billion budget surplus and is set to be disbursed over the next two years,encompassing the following:
- Benefits for Homeowners:
The $18 billion package includes measures to lower school tax rates and increase the school homestead exemption, which allows homeowners to reduce the taxable value of their primary residences for school property taxes.
The plan entails a substantial investment of $12 billion in school property tax compression for both residential and commercial properties. Additionally, it includes an increase in the homestead exemption from $40,000 to $100,000 for homeowners.
- Partial Winners & Losers:
The compromise plan addresses concerns about the distribution of benefits. By raising the school homestead exemption, the plan primarily targets homeowners, ensuring they receive a larger share of the tax relief.
Overall businesses will shoulder about 55% of the school property tax burden, while individuals would see their share decline 45%, Jenniffer Rabb, president of the Texas Taxpayers and Research Association, told the Houston Chronicle.
The deal does not provide any direct relief to renters. However, conservatives are advocating that landlords will likely pass on the benefits to tenants, in order to remain competitive within the broader rental market.
In an interview, Lt. Gov. Patrick said he believes that landlords, who are getting a tax break, will “pass it on” through the market.
“The apartment market is very competitive, and as soon as one of them gives a month of free rent or lowers their rent, the apartment complex across the street is going to have to do the same thing.”
Among the partial losers in the deal are also teachers who did not secure the temporary pay increase proposed by the Senate. Sen. Roland Gutierrez, unsuccessfully, attempted to bring teacher bonuses back during a Thursday night vote, but was blocked by a procedural move.
Nevertheless, the inclusion of this pay bump may still be considered a bargaining chip in future special sessions, potentially tied to school vouchers.
Lt. Gov. Patrick said there’s $5 billion set aside in part for teacher pay raises in the next special session, which will be in October.
“The House decided this time that they want to stick on property taxes. So they decided to take it out… we’ll get to them.”
Along with homeowners, small businesses came out victorious, since they were a priority for Speaker Phelan. Approximately 67,000 small businesses will be exempt from paying franchise taxes, saving them a collective $300 million annually. Additionally, a temporary cap of 20 percent on year-to-year appraisal hikes will be implemented for commercial properties valued at $5 million or less.
In a press release, Patrick and Phelan called the 20 percent appraisal cap a “circuit breaker,” a term that typically refers to policies that limit tax bills based on income levels or other criteria, Lynn Krebs, an economist at the Texas Real Estate Research Center at Texas A&M University, told the Houston Chronicle.
“That may be a term they’re using, and I’m just speculating, to avoid using the term appraisal cap, because that’s got a lot of negative connotations,” Krebs said.
- Governor Abbott’s Involvement:
While SB2 fulfills Gov. Abbott’s promise of allocating at least 50% of the state’s budget surplus toward property tax relief; it deviates from his initial mandate during the first special session that lawmakers dedicate all tax relief toward rate compression.
In addition, his public disagreement with Lt. Gov. Patrick on a compression-only approach raised questions about whether Gov. Abbott’s restrictions hindered progress rather than facilitating it.
“The Texas House and Senate fulfilled our promise with an agreement that delivers a comprehensive, long-lasting solution to increasingly burdensome property tax bills,” Abbott said in a statement.
Critics have also pointed out that Gov. Abbott’s objective of creating a guide path to eliminate property taxes by reducing maintenance and operations (M&O) taxes to zero remains unaddressed.
– Long-Term Sustainability:
Concerns about the long-term sustainability of this plan have been repeatedly voiced by public school advocates and others over the past couple of days.
Dax Gonzalez, Division Director at the Texas Association of School Boards Governmental Relations, told KXAN, that while Texans do need property tax relief, he has his doubts on how the state will be able to sustain it in the future.
“If the state is on the hook for more of the public education funding across the state, then if they don’t have the money to pay, it might be a little bit harder, and would be a little bit harder for school districts to generate that revenue locally,” he said. Gonzalez said if there were any provisions put into law that freeze local property tax rates, that would keep districts from being able to raise money locally. Which would lead to a lot of cuts across the state.