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To address high Texas property tax rates, Gov. Greg Abbot has proposed using a tax surplus to deliver "the largest property tax cut in the history of the state."
According to Tax-Rates.org, Texas has the 3rd highest median property tax rates in the nation, about double that of Florida and 2.5 times that of California.
Gov. Abbott recently stated in a press release that Texas’ $2 trillion economy is “America’s undisputed economic leader.” Referring to the number of fortune 500 companies based in Texas, Abbott went on to signal it as the “headquarters of headquarters” as the state “lead[s] the nation in job growth.”
Texas Comptroller Glenn Hegar initially projected Texas would end this two-year budget cycle with more than $27 billion in the bank – a historic surplus. However, he recently released his office’s updated revenue estimate reporting that the state is expected to have a budget surplus of $32.7 billion, as legislators make plans for the 2024-25 biennial budget.
To make good on Abbott’s promise, the legislature will need to deliver a property tax cut of about $20 billion when adjusted for inflation from 2009 dollars.
James Quintero currently serves as the policy director for Texas Public Policy Foundation’s (TPPF) Government for the People initiative. Having joined the Foundation in 2008, his research covers a wide range of issues, focused on local government matters such as taxes, spending, debt, transparency, annexation, and pension reform.
Houston Daily reached out to Quintero for his opinion on the proposed property tax relief. Quintero points out that the largest property tax cut in Texas history was previously $14.2 billion in 2009.
"Before and after the gubernatorial campaign, Governor Abbott repeatedly urged state lawmakers to enact 'the largest property tax cut in the history of our state!' To achieve this feat, policymakers will need to exceed the $14.2 billion mark set in the 2008-09 biennium, according to the Legislative Budget Board," Quintero said. "Legislative history suggests that, if they endeavor toward this goal, then policymakers will employ one or both of the following options: increasing the residence homestead exemption and/or compressing school district maintenance and operations (M&) tax rates."
"From the Foundation’s perspective, tax rate compression is the best method to deliver meaningful and long-lasting tax relief. The reason is that rate compression reduces the burden for all taxpayers, not just homesteaders. In addition, rate compression moves the state’s tax system toward a broader goal: eliminating ISD M&O taxes permanently."
Quintero believes that the governor's plan to provide tax relief is sound.
"Based on leadership’s remarks, the state’s fiscal picture, and obvious public angst, the chances of realizing historic tax relief this session is extremely good," Quintero said.
According to Quintero, The Foundation has developed a 10-year plan to permanently eliminate M&O school taxes using surplus funds only and the plan would provide immediate tax relief, return surplus funds to taxpayers and put Texas on the pathway to ending Robin Hood. He added that since Texas has historically had historic surplus and savings, the Legislature could potentially be in a position to accelerate the timeline.
Quintero went on to provide an overview of House and Senate budgets as they pertain to property tax relief and tax cuts
"Included in the introduced House and Senate budgets is Rider 81, which outlines the two chamber’s goals for tax relief. As you’ll note, the same rider exists in both bills with one notable exception located in subsection (d)," Quintero said. "In short, the House version excludes language specifying the level of homestead exemption increase—the Senate says it explicitly ($3 billion). Otherwise, both bills make provisions for $15 billion in tax relief. Of that $15 billion, $5.3 billion will be used to pay for unexpected tax compression costs associated with 2019’s House Bill 3 and $9.7 billion will be put toward new tax relief. In recent days, Governor Abbott said that this framework was “a good start…[but] I of course will be pushing for even more.” It’s worth noting that both budgets are about $4 billion underneath the spending limit, so there is room to increase the amount of tax relief made available and still avoid busting the cap.
"For the record, the Foundation supports exceeding the spending limit for tax relief purposes. Giving people their money back is not the same as growing government," Quintero concluded.