Over the past three sessions, lawmakers in both chambers of the Texas Legislature passed bills and constitutional amendments to use state money to help ease the climbing property tax burden that landowners are facing around the state.
This session, they’re eager for more. The House and the Senate have proposed different visions for expanding that relief with another $3.5 billion in state spending. And Gov. Greg Abbott last month said he wants at least $10 billion in new state property tax relief during his State of the State address.
But state budget experts and some lawmakers are warning that the state budget already might be overcommitted to property tax relief, which could jeopardize funding for public schools and the state’s long-term fiscal stability, the San Antonio Express-News reported.
Property taxes in Texas are among the highest in the country, in large part because it doesn’t have an income tax to help pay for services. That’s been exacerbated by a population boom in recent years that has boosted demand for an already tight supply of housing, helping to drive up assessed, and taxable, property values.
A variety of property tax cuts passed by prior Legislatures helped cushion the steep increase in taxes. Last session, lawmakers passed $12.7 billion in property tax cuts, including an expansion to the homestead exemption, which lets property owners discount the assessed values of their primary residence when calculating local school property taxes. They also “compressed” property tax rates for all properties, and pledged to reimburse school districts for the lost revenue.
Now, property tax relief makes up about 22% of the state’s overall spending, according to estimates from the state Legislative Budget Board. And if either of property tax relief measures pass this session, the state would be paying $51 billion to maintain existing cuts and expand new ones.
Even if lawmakers do not approve new tax cuts for landowners, the state’s expenses still will grow. A 2019 change to state law automatically reduces tax rates as homes increase in value.
All those changes haven’t posed a problem for the Legislature yet, mostly because it used a historic $33 billion surplus last session to fund those cuts. But property tax cuts are an ongoing cost to the state, and this year’s $24 billion surplus won’t last, the office of the state Comptroller of Public Accounts told the House Ways and Means Committee on Tuesday.
“The ending balance that is projected for the current biennium that will be available to you in [the 2026 and 2027 fiscal years] is … fundamentally is due to decisions by the last Legislature to not spend all of what was available last time,” Brad Reynolds, speaking on behalf of the comptroller’s office, told the committee. “It is not due to what I would describe as a structural surplus, which would be the case if you had [a] revenue system that was growing in revenue significantly faster than population inflation or your spending measures. That’s not the case.”
Last session’s surplus was largely a combination of an influx of federal Covid-19 relief money and climbing prices from inflation, which increased state sales tax revenue, Reynolds explained. Sales tax makes up more than half of the state’s revenue, according to the Express-News.
But sales tax revenue actually dropped slightly between 2023 and 2024, he explained. The state expects that trend to continue as Texans spend more of their budgets on other rising costs that it doesn’t tax, such as rent and home insurance.
If the ongoing cost of those cuts puts the state against a fiscal wall, lawmakers could undo those changes through legislation. But lowering the homestead tax exemption, which is a part of the state constitution, would require a constitutional amendment, with support from two-thirds of legislators and a majority vote from the public.
A more likely alternative is that the state would change public education spending, according to Shannon Halbrook, the director of Invest in Texas, which is part of the left-leaning nonprofit Every Texan. If state revenues decline, the state may not be able to deliver its promises to school districts.
This year’s House proposal, House Bills 8 and 9, would further increase property tax compression and allow businesses to exempt inventory from taxation by any entity, including school districts, cities and counties, the Texas Tribune reported. Senate Joint Resolution 2 would raise the homestead exemption from $100,000 to $140,000 via a constitutional amendment.
