Texas House and Senate have different ideas on property tax relief

The two chambers of the Texas Legislature are working through their plans to provide property tax relief, but there is a divergence between their preferred strategies. Both chambers appear in lockstep on another round of rate compression — using state dollars to buy down school district tax rates, for which both draft budgets itemize about $9 billion — but deviation emerged this week as it relates to appraisals, and it came to a head at a policy conference on Thursday in Austin.

State Sen. Paul Bettencourt (R-Houston) announced the filing of Senate Bill (SB) 3 on Wednesday, part of the broader property tax relief that will increase the school district standard homestead exemption from $40,000 to $70,000 permanently.

Bettencourt says the increase would result in $341 in savings on the amount an average property tax bill would have risen.

“The fact that unanimously every Senator in the Texas Senate signed on to these Lt. Governor Dan Patrick priority bills, speaks volumes about the Senate’s commitment to property tax cuts,” Bettencourt said in a release.

“This bill will save every homestead $341 a year on top of the existing exemption, $454, totaling $795 per year in these exemptions, driving down property tax bills.”

The bill is one of Patrick’s Senate priority bills. Alongside him, Gov. Greg Abbott has called for at least $15 billion of the state’s record budget carryover balance to go toward reducing property tax bills.

All 31 senators signed onto the bill, which would raise the standard homestead exemption. The Legislature’s draft 2024-25 budget includes $3 billion to increase the exemption — the pot of state dollars necessary to replace that which would have gone to local school districts through property taxes.

Last session, the Legislature increased the exemption from $25,000 to $40,000, which amounted to a roughly $175 decrease in the average property tax bill.

But after that reform, it came to light that homeowners who receive the elderly or disabled homestead exemption didn’t benefit from the full increase because they exist as a separate category within the Texas Constitution. And so, Bettencourt’s bill fixes that issue to ensure the Legislature doesn’t have to pass two separate constitutional amendments each time it raises the exemption.

But the House seems to have other ideas.

At the Texas Public Policy Foundation’s (TPPF) 2023 Policy Summit, Speaker Dade Phelan (R-Beaumont) said that House Bill 2 would soon be filed to halve the year-to-year appraisal cap. Currently, the taxable value of homesteads may not increase above 10 percent from the previous year — preventing that value from increasing commensurate with the wildly growing appraisals across the state. This legislation, authored by Rep. Morgan Meyer (R-Dallas), would reduce that cap to 5 percent.

Under HB 2, the cap would be extended to all property, not just homesteads; businesses currently do not benefit from this cap. The bill also requires localities to allow property owners to establish an escrow account through which tax bills are paid.

“We can talk about homestead exemptions all day long — and that is great — but what does that do for the small business?” Phelan asked. “But when their values go up 200 percent and there’s nothing they can do about it but have to go hire an attorney to fight it? That’s not right, and it’s not Texan, and the Texas House is going to do it this session.”

He added that a $350,000 home would save $461 on its next-year property tax bill: “That savings will continue to grow in perpetuity for as long as that individual owns that home. And this is meaningful, real relief.”

Phelan noted that he’s not opposed to raising the exemption, but said, “At a fixed value with rising increases in appraisals, it’ll be stagnant or eventually go away and some will never even see it.”

“We have to do something for every single landowner, property owner in the State of Texas.”

Both sets of figures are “savings” based on what the bills would have reached without those reforms, and local officials are the ones that set rates.

Phelan mentioned a Houston Chronicle report that last session’s exemption increase resulted in a $60 bill increase, of which he said, “Well, that’s better than the $600 increase they were seeing before.”

During his afternoon TPPF speech, Patrick criticized the appraisal cap plan. “I know the House is pitching appraisal caps. Appraisal cap, lowering them now will destroy everything we just accomplished.”

“I think the intentions of the House are good. But that would be a disaster and would undo everything we’ve done.”

The total package of property tax relief in Phelan’s current estimation is slated to reach $17 billion in state surplus dollars being divvied out in different manners, all to put downward pressure on rising tax bills. The number Patrick highlighted was $15 billion.

Something as complicated as reform to the property tax system, intricately intertwined with the school finance system, was never going to receive a smooth pathway. But state leaders are all behind some form of reform, even if they appear for now to differ on the methods of application.

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