AUSTIN – Gov. Greg Abbott recently signed off on an $18 billion property tax break package after months of Republican infighting, offering Texas property owners a tax break that will reduce hundreds of property taxes if it gets voter approval.
The package aims to use excess tax revenue to offset school district taxes, saving the average homeowner living within the Dallas school district boundaries about $1,200. Businesses could also see their taxes lowered in a negotiated package of exemptions and rate cuts that the state’s Republican leadership hopes voters remember when they go to the polls.
Voters must pass a relevant constitutional amendment that allows for the cuts. Those elections are expected to take place in November.
Since taking over state government in 2002, Republicans have touted their fiscal stinginess and vigilant opposition to any new taxes.
As one of only seven states that do not levy personal income taxes, Texas has only two legs of the usual “three-legged stool” that pays for public services: sales and property taxes.
Pressure from grassroots GOP conservatives to cut property taxes has been a constant throughout the more than two decades of Republican rule.
One thorny problem: The state has only partial control over one of the many forms of property taxes, the one that school districts collect to pay for maintenance and operations.
Through the state budget, the Legislature pays part of the cost of local schools. Districts collect a maintenance and operations, or “M&O tax,” and another to pay for bonds typically used to build facilities.
So a buy-down of M&O tax rates using state dollars plus restrictions on ratings and when voters have to approve a newly adopted rate are all the governor and Austin lawmakers can dictate.
It was a formula for enormous frustration.
As former Governor Rick Perry and Abbott signed one tax-reducing legislative package after another, rising property values and actions by other local tax entities at least partially diminished the effects.
For more than a decade, GOP lawmakers have complained that despite attempts to reduce property taxes, voters haven’t sent many thank-you notes.
This year, GOP leaders proclaimed that with the state’s record surplus, things would be different. Here’s a look at the key questions raised by Abbott’s signature property tax relief package:
What’s in it for homeowners?
Two treats are in store for homeowners: higher exemptions and lower rates.
The exemptions work like this: On tuition, a residence declared as a farm currently gets $40,000 cut from its rateable value.
If a home is appraised at $388,639, which was the market value of the average single-family home in Dallas ISD last year, the district must exempt $40,000. Owner pays tuition as if only worth about $349,000.
Under the package, the amount of one farm’s value that would be excluded is $100,000. Under DISD, that would bring the typical home’s rateable value to about $289,000.
Using the 2022 Dallas District total tax rate of $1.18 per $100 of appraised value, an additional $60,000 in exemption would save a farm owner $708.
Statewide, increasing the homestead exemption would save the average homeowner $681, according to Sen. Paul Bettencourt, R-Houston, author of the omnibus property tax overhaul bill.
How much will the compromise agreement reduce school tax rates?
A state reduction in school M&O tax rates benefits all property categories: commercial and industrial, as well as residential.
Under a 2019 law, recent increases in Texas real estate values require school districts to adopt lower, countervailing tax rates: a decrease of 9.9 cents per $100 of appraised value.
The GOP leaders’ recent compromise would add another decrease of 10.7 cents, for a total reduction of nearly 21 cents.
Related: Texas lawmakers send ‘record-breaking’ property tax cut to Governor Abbott
Currently, the average M&O tax rate for Texas school districts is over 91 cents with a debt retirement tax adding nearly 23 cents, for an average total school tax rate of $1.14 per $100 of assessed value.
The signed bill from Abbott’s desk brings the total to 93 cents.
To see the approximate savings, businesses and owners of second homes or any other “non-home” property can deduct just 21 cents from their school district’s going rate.
I own a house. Can you help me guess my savings?
YES. In the Dallas school district, farm owners can account for both higher waivers and lower fees with some back calculations.
Currently, last year’s rate of about $1.18 is applied to the average single-family home worth $388,639, but after two waivers: the $40,000 the state requires, plus a 10 percent discount, which is voluntarily granted by DISD.
Apply the 2022 district total tax rate of $1.18 per $100 of assessed value to $309,775 of taxable value and voila!
Tax due, before laws are changed: $3,655
Now suppose the district maintains the optional 10% local exemption. Take $100,000 off the median home value, plus another $38,864. Now, you’re taxing just $249,775 in value, at a low rate of 97 cents per $100 in appraised value.
Tax Due, After Laws Changed: $2,423.
That’s a reduction of $1,232.
Elderly and disabled homeowners will save even more.
In May 2022, when voters approved a $15,000 increase to the farm exemption, they were inadvertently barred from benefits. They’ll pocket another $170 a year if they own a Texas home with an average value of $331,000, Bettencourt said.
In Dallas County, you can find average single-family residence values on the Assessment District website. Tax rates for different tax entities are available on a separate web page.
Related: Texas Lieutenant Governor Dan Patrick and House Speaker Dade Phelan reach agreement on property taxes
Is there anything being done to help with rating scrolling?
Since 1997, when the legislature proposed and voters approved a “valuation ceiling,” a farm’s rateable value cannot grow more than 10% a year.
The limit applies to city, county and other taxes, not just those collected by schools.
This year, House Speaker Dade Phelan wanted to lower the cap on annual value growth to 5%, and not just for farms. Under a proposed constitutional amendment that the Beaumont Republican has pushed through the House several times, the valuation cap would apply to all categories of real estate for the first time.
Phelan has received pushback from two influential sources.
Business groups objected. For years, they’ve criticized the appraisal caps as shifting the burden of property taxes to Texas. Their argument: If you lower someone else’s rates, you have to raise rates on the rest of the tax register.
For generations, the Phelan family has owned and developed commercial properties. Yet his move to bring those and industrial properties under the roof has failed to move the lobby’s needle.
Lieutenant Governor Dan Patrick also vehemently objected, once advocating lower rating limits.
The 2019 law made them redundant, Patrick argued this year. Revenue growth caps of 3.5 percent in most cities and counties and 2.5 percent in school districts have required localities to lower tax rates as assessment values rise, he said. Lowering caps on valuations would distort housing markets, Patrick said.
In recent negotiations, Phelan got Patrick a concession: The property tax package includes a “circuit breaker” experiment. It should help small businesses, Phelan and his allies said.
For fiscal years 2024, 2025 and 2026, the annual cap on the growth of estimated values for “non-farms” — commercial real estate and second homes, for example — would be 20%. Only properties worth $5 million or less would qualify. The program will expire on December 31, 2026.
What about the renters?
The proposed settlement does not provide direct financial aid to tenants.
Statewide, 37.4% of Texans do not own the homes they live in. Nearly half of Dallas County residents rent, while 57.2 percent of residents within the Dallas city limits rent their homes, according to 2021 data from the US Census Bureau.
GOP leaders said they hope landlords will pass some of their property tax savings to tenants. Competition in hot apartment rental markets would force them to do so, said Dallas GOP Rep. Morgan Meyer, the House’s top tax policy writer.
Democrats have derided such arguments as naïve. Saying that profit considerations would guide the decisions of most real estate investors, the more progressive House Democrats have proposed using part of the state surplus to provide 10% annual rebates to renters. The idea received a cold reception from GOP leaders.
Progressives argue that Texas’ tax system is regressive, that the wealthiest fifth of households by income pay less than their fair share of state and local taxes.
Will the entire property tax process become more transparent?
In urban counties, the plan will create three new elected positions on the board of local assessment districts. They would be expanded to nine members, from five members plus the county tax collector, who does not vote.
Boards of trustees hire a chief appraiser and set the bureau’s budget.
In counties with populations of 75,000 and fewer, there will continue to be five voting directors, all appointed by tax jurisdictions such as cities, counties and school districts who rely on assessments to calculate tax rates and revenues.
Also, in more populous counties, the wardens, not the state district judge who is the local administrative judge, would appoint people who sit on boards that hear appeals.
Although Bettencourt, a former Harris County alderman-tax collector, said the moves are necessary to apply sunshine and accountability to assessments, some tax experts fear the process could become more prone to political pressure.
Related: Property tax cuts clear Texas House panel, but lack of teachers fuels unrest