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The 86th Texas Legislature is now in its 8th week and has seen some major activity as of late. Governor Greg Abbott set the stage early when his State of the State speech on February 4th declared property tax reform and reworking school finance, including increased teacher pay, as the top priorities for lawmakers this session. The House and Senate have complied, each tackling these issues, and a slew of others including school safety, in their own way.
The big property tax issue got underway on January 31st with the filing of identical bills, Senate Bill 2 and House Bill 2. In an unusually symbiotic fashion, the Governor, Lieutenant Governor, Speaker of the House, Chair of the Senate Property Tax Committee, and Chair of the tax-writing House Ways and Means Committee, all announced the identical bills together.
Currently cities, counties and school districts can collect up to 8 percent more in revenues than the previous year, which is called the rollback rate. These bills would lower the rollback rate from 8 percent to 2.5 percent and trigger an automatic tax ratification election if the revenue is set to exceed more than 2.5 percent.
The rollback rate is based on appraised value of properties which means a taxing entity could exceed the rollback rate without changing its tax rate or even by lowering it if there is a significant increase in appraised values. It’s important to point out that this is not a property tax reduction. The idea is that it would slow the rate of property tax increases, but you will not see a lower tax bill if this is passed.
Proponents of this legislation argue that Texas’ property taxes are too high and increasing rapidly, causing a financial burden on home owners. Texas does have the third highest property taxes in the nation but that is largely due to the fact that we have no state income tax. Texas actually ranks 33rd for highest overall tax burden in the U.S.
Opposition to the bill is coming from the taxing entities themselves, complaining that the 2.5 percent revenue cap is lower than inflation and restricts their ability to keep up with growing populations who expect expanding services from their municipalities. Cities and counties contend they won’t be able to add more police and fireman or continue to maintain their streets.
An interesting component of this is the 2.5 number. In the last legislative session, the Senate argued for 4 percent and the House was pushing 6. Without reaching a compromise, no action was taken in that session. Some legislators have indicated that 2.5 percent is merely a starting point and the final bill may be passed with a larger number in its place.
On the Senate side, SB 2 has already been approved by the committee and will next go to the full Senate for debate and vote. In the House, the bill is still pending in the committee after hearing many hours of testimony.
In addition to those two bills, House Bill 3 was recently introduced and also addresses property tax reform by compressing school district tax rates by 4 cents per $100 of taxable property value, meaning a home owner with a taxable value of $250,000 could save about $100 annually in school district taxes. That bill will be sent to committee for debate.
Next week, we’ll take a deeper dive into the school finance reform measures that have been filed in the House and Senate.