Texas Senate Approves $16.5 Billion Property Tax Relief Package

Texas senators unanimously approved Lt. Gov. Dan Patrick’s property tax cut agenda for this legislative session on Wednesday, which would fund public schools with billions of state dollars and give homeowners and business owners more tax breaks.

“This is off-the-charts, incredible property tax relief for millions of Texas homeowners,” said Houston Republican state Sen. Paul Bettencourt, Patrick’s property tax expert.

The Republicans and Democrats Passed All Three Bills

Republican leaders wanted the Legislature to use part of a historic $33 billion state surplus to lower property taxes before the session. The Senate proposes Patrick’s $16.5 billion package in three priority bills.

Senate Bill 3, which would raise school districts’ homestead exemption, is senators’ favorite part of the package. Bettencourt’s bill would increase the tax-exempt value of a home from $40,000 to $70,000, with an additional $20,000 for seniors. The proposal would save homeowners who pay the state’s average school tax rate of $341 and seniors $227 annually.

Republicans and Democrats passed all three bills. After all three bills passed, Patrick said, “It is an excellent testament to Republicans and Democrats working together for all their constituents.

Texas Senate Approves $16.5 Billion Property Tax Relief Package

Senate Bill 4 was passed, but senators were less confident. That bill would require the state to spend at least $5.38 billion on public schools, accounting for most Texas property taxes. That’s on top of the $5.3 billion Senate budget writers have proposed for property tax cuts over two years.

The bill, which amends a 2019 landmark school finance law, cuts school property tax rates by 7 cents per $100 in property value. That would cut $210 from the property tax bill of a $300,000 home in the state’s average school district.

Senate Democrats cautioned that Texas wouldn’t have the federal stimulus dollars that have flowed in during the COVID-19 pandemic to cushion the state if the economy falters. State Sen. Nathan Johnson, a Dallas Democrat, said sales taxes might need to be raised to cover school funding shortfalls.

By pointing out that Texas’ economy is booming and that voters will ultimately decide the measure, which will be put on the ballot as a proposed constitutional amendment, Bettencourt attempted to ease that skepticism.

SB 4 uses the recapture program, “Robin Hood,” to lower property-wealthy districts’ payments. The program requires those districts to give any tax surplus to the state for “property-poor” neighborhoods that can’t raise enough money through taxes. The Austin Independent School District paid the state nearly $800 million in recapture payments last fiscal year.

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Austin ISD chief financial officer Ed Ramos expects property values to grow faster than the state average. SB 4 would require the district to lower its property tax rate for maintenance and operations. Ramos said the state would cover the district’s shortfall and lower the tax rate, reducing Robin Hood payments. Austin ISD would receive no new funds from a lower tax rate.

Ramos’ only concern is that if the state spends so much to cover the bill’s shortfall, lawmakers may not have enough surplus to raise state funds for districts, which they say are desperately needed after the COVID-19 pandemic and rising inflation. Since lawmakers overhauled the school finance system in 2019, the basic allotment, $6,160 per student, has not increased.

Chandra Villanueva, director of policy and advocacy for the progressive think tank Every Texan, said the bill would benefit businesses and the wealthiest Texans while providing no new funds for school districts.

She called it a costly tax break.

She thinks the state’s model is unsustainable. The state will cover district shortfalls if the bill passes. While it can cover the difference now, the state’s share will increase with no guarantee of a surplus to help pay the bill.

State Sen. Tan Parker, a Republican from Flower Mound, also passed Senate Bill 5, which would cut $1.5 billion in business property taxes. Voters will likely support the Senate tax proposals to raise the homestead exemption and cut business property taxes.

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The Senate proposals now go to the House, where lawmakers have taken a different approach to property tax reduction. Like the Senate, House budget writers want to lower property taxes with at least $5.3 billion from the state surplus.

The House’s main tax cut plan cuts school property taxes by $12 billion. The proposal’s most controversial element would tighten a cap on how much a homeowner’s primary residence taxed by school districts can rise yearly, which Patrick and Bettencourt, tax cut advocates, and business lobbying groups oppose.

The bill would lower the state’s “appraisal cap” from 10% to 5% and beneficial owners of grocery stores, apartment complexes, and restaurants. Tax experts say doing so would unfairly give longer-term property owners more significant tax breaks.

Experts say lowering the appraisal cap wouldn’t lower tax bills because cities and school districts could raise taxes to compensate for lost funds. On Monday, the House Ways and Means Committee approved the bill 10-1, with Grand Prairie Democrat Chris Turner voting no.

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