The House’s priority property tax reform received a litigious hearing in the Ways & Means Committee, illustrating the weedy debate over property tax appraisal reform currently gripping the Texas Legislature.
“What we’re doing is providing predictability in what constituents pay in property taxes,” Rep. Morgan Meyer (R-Dallas), chair of the committee and author of House Bill (HB) 2, told the committee.
“Businesses, homeowners, just want predictability.”
HB 2 is the House’s top property tax relief priority. It provides for a 15-cent reduction in school district property taxes by compressing local rates with state dollars, and lowers the year-to-year appraisal cap on taxable property values from 10 to 5 percent.
It then extends that cap to all real property; currently, only properties with homestead exemptions benefit from the cap. Additionally under the bill, if 50 percent of a property changes hands, a reappraisal in line with the market value is triggered. Another provision of HB 2 would allow property owners to create escrow accounts upon request through which to pay tax bills.
HB 2 is estimated to cost $17 billion over the 2024-25 biennium and will raise the state’s share of the school finance system — split between the state and school districts through property taxes — to over 50 percent for the first time ever, according to Meyer.
The Senate prefers a $30,000 increase in the standard homestead exemption paired with the compression, something that the upper chamber believes will provide more immediate benefit. Due to the average continuous increase in appraisals, the effect of the Senate’s plan would be felt most acutely in the next biennium, though it would be a permanent increase.
However, as the years go by, the exemption must be raised in parallel to appraisals in order for the temporary relief to be felt; the homestead exemption was raised from $25,000 to $40,000 last session, and now the Senate intends to raise it again to $70,000.
For businesses, the Senate is pining for another exemption-centered remedy. Senate Bill 5 would raise the inventory tax credit and establish a $25,000 exemption to the business personal property tax — a tax on all property a business owns, including inventory, other than the land itself. That blueprint is an increase from $2,500, itself an increase from $500 last session but a fourth of what Gov. Greg Abbott called for during the interim.
Lt. Gov. Dan Patrick and multiple Senators held a press conference Tuesday morning countering the House’s committee hearing, arguing further that the appraisal cap reduction is insufficient. They also announced a tripling of the current over-65 homestead exemption currently at $10,000.
Excluding the compression, here’s the upshot of the disagreement: the lower chamber views the exemption increase as shortsighted and neglectful of businesses, while the upper chamber views the appraisal reduction as ineffectual in the short run and passive in the long run.
Of the roughly 25 individuals who testified, each fit generally into one of three categories: unabashed supporters of the compression and the cap; critics less concerned about what’s in the bill than what’s not, specifically that it doesn’t move toward eliminating the largest segment of property tax bills; and those supportive of the compression but opposed to the cap reduction.
Skeeter Miller, owner of County Line BBQ which has five locations across Texas and one in New Mexico, was among the first category along with Blanca Aldaco, the owner of Aldaco’s Mexican Cuisine in San Antonio.
Both cited massive cost increases from clogged supply chains and rampant inflation cutting into their ability to expand or maintain the same level of staff.
“It’s gotten so bad that when I see someone eating potato salad at one of my restaurants, I go into ‘dad’ mode and say ‘Make sure you finish that!” Miller told the committee.
Reiterating his comment made in recent weeks, Meyer said that he’s heard from many constituents asking for the Legislature to counteract ever-increasing appraisals.
As one testifier put it later on, property tax bills amount to a straightforward equation of “appraisal times rate equals levy” — but that’s where the simplicity largely stops.
Exemptions, fluctuating property values, and macroeconomic factors all make the issue complex, and that’s before throwing into the mix the intricacies of the school finance system that differs substantially from the method by which non-school taxing units operate.
To paraphrase Newton’s third law of motion, every action has an equal and opposite reaction.
Meyer and the House have chosen their path forward by emphasizing the long-term limitation of all property appraisals through the lowered cap. The catch is that once a property is bought by a new party, that land, whether homestead or commercial, is reappraised to the market value.
In other words, the cap is tied to the property owner, not the property.
That can cause a substantial discrepancy between the taxation of similar neighboring properties in a year’s snapshot. But the bill’s supporters see it as a worthwhile trade-off, especially for businesses: 30 years of more manageable growth in tax bills with a one-off jump between owners versus the uncapped and volatile status quo.
But those opposed do not see the trade-off as a net benefit.
Foy Mitchell, former executive director and chief appraiser of the Dallas Central Appraisal District, told the committee, “I can tell you unequivocally they do not work — property tax caps redistribute the burden to the poor.”
Mitchell then argued that large businesses will “structure their sale to not trigger the reappraisal,” pointing to examples in California, which has a similar across the board appraisal cap. Because the larger company has the legal wherewithal to toe that line whereas smaller outfits or individuals would not, those smaller entities would face higher taxation proportionally to the larger outfits.
“That’s why you get the distortion in the tax market, values do not go up equally,” Mitchell added.
Another testifier asserted that appraisal caps are unconstitutional, stating they violate the state’s mandate of “equal and uniform” taxation. Meyer countered that an appraisal cap is already in place, and only for one kind of property taxpayer.
The other opposition focused on what neither chamber’s plan does: move toward eliminating the school district Maintenance & Operations (M&O) rate, the largest portion of property tax bills.
While supporting both facets of Meyer’s bill, Tim Hardin, president of Texans for Fiscal Responsibility, told the committee, “House Bill 2 does not seek to restore Texans’ right to own property but allows state lawmakers to continue treating the symptoms of the problem as opposed to the problem itself: the government renting property to taxpayers via taxation.”
Though the idea of M&O elimination hasn’t gained much political steam within the Legislature, Abbott did flirt with it last May in imprecise terms. Each of his primary opponents made the issue a feature — particularly former state Sen. Don Huffines, who launched the “Huffines Liberty Foundation” after the race, which had a representative at the Monday hearing arguing along the same lines as Hardin.
One thing everyone seemed to agree on was that the root problem of rising property tax bills is the spending by political subdivisions. Rep. Tom Craddick (R-Midland), a member of the committee, questioned one individual, Ray Head, a representative of the Texas Association of Property Tax Professionals along these lines.
In another exchange about the efficacy of an appraisal cap, Head argued that the cap would undermine what the Legislature did in 2019 and make the tax system less fair and uniform. Craddick pushed back saying, “You’re the only person SB 2 seems to have worked for. I think the process is broken and it needs to be fixed.”
Head agreed with Craddick’s contention, but the two argued further past one another — discussing the symptoms but dancing around the disease.
From 2017 through 2022, total property taxes collected by local governments increased 31 percent; school districts accounted for the largest share of that increase, rising 38 percent.
When discussing rising property tax bills, local officials often point the finger at appraisals, saying they do not control growth in values — which is a true statement. But local officials set the tax rates and have the appraisal information in front of them to do it.
One local official did testify at the hearing in full support of HB 2. Galveston County Commissioner Robin Armstrong told the committee that the commissioners court unanimously supports the bill, specifically touting the expansion of the cap to all property and not just homesteads.
“I believe that if appraisals are capped at 5 percent, property owners will see real tax relief, but local governments will still have the ability to raise that rate if needed — it’s not a guarantee they’ll raise the rate, but it’s an option,” Armstrong said.
Four years after enacting the seminal 2019 tax reforms of tax rate cap reduction and compression — and two years after compounding the previous compression supplemented by other tweaks — the Texas Legislature again has property taxes on its mind.
The game of appraisal chess is well underway and the next move belongs to the Senate, whose Finance Committee will consider the priority homestead exemption bill in a hearing on Wednesday.
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