Property tax relief passes Texas House and Senate
July 17, 2023 | Austin, TX
After two calls by Governor Greg Abbott for special sessions to pass meaningful property tax legislation, a House and Senate stalemate, and 76 bills vetoed by the Governor, the House and Senate ultimately passed SB 2, which combines increased homestead exemptions with compression. It’s been called the largest property tax deduction in Texas history, but is it really?
Originally, the Governor had purported to support “compression only,” saying on June 9, “Property tax exemptions begin to evaporate after a few years of increase in home valuations. What we need to do is eliminate the school M&O property tax altogether. That’s my plan.”
Lt. Governor Dan Patrick disagreed with the Governor’s plan, saying, “The Governor mentions that cutting the tax rate is a lasting tax cut. It is not. As soon as sales tax flattens or declines in any year, property tax rates would skyrocket. The only tax cut that is lasting is a homestead exemption, which is locked into the Texas Constitution.” He also disagreed that elimination of property tax was possible at all.
A stalemate ensued in the first special session, when the House quickly passed HB 1, which would have lowered the M&O tax only, and adjourned sine die, forcing the Senate to decide whether to pass the bill without the ability to work out any differences with an absent House. The Senate responded by producing SB 1, which would have combined savings derived two-thirds from compression and an additional third from an increase in homestead exemptions.
Governor Abbott then made good on his threat to veto bills for a total of 76 vetoes. He later called for the second special session to pass property tax legislation saying, “Unless and until the House and Senate agree on a different proposal to provide property tax cuts, I will continue to call for lasting property tax cuts through rate reductions and working toward eliminating the school property tax in Texas. Special sessions will continue to focus on only property tax cuts until property tax cut legislation reaches my desk.”
Bill passes the House and Senate
Finally, in special session 2, an agreement was forged, the ultimate deal that resulted with SB 2. Details of the bill include:
Raising the homestead exemption from $40k to $100k. This increase in homestead exemption amount will provide a savings of $681 to a homeowner’s school tax at the statewide independent school district (ISD) average tax rate of $1.136.
Providing the full amount of the $40,000 homestead exemption increase to over 65/disabled exemption holders who did not receive the full benefit from SJR 3 and SB 1 that was approved by voters in May 2022.
Automatically providing benefits to over 65/disabled exemption holders if the legislature increases the homestead exemption amount in the future. This provision will eliminate the need to vote on a separate constitutional amendment every time the exemption amount is increased for over 65/disabled exemption holders.
Providing 10.7 cents of additional school tax rate reduction through the maximum compressed rate.
Creating a pilot program circuit breaker 20 percent limitation on appraised value increases for non-homestead real property valued less than $5 million, indexed to inflation. The circuit breaker will sunset on December 31, 2026.
Creating three new elected positions for appraisal district boards of directors in counties with population of 75,000 or more. Appraisal review board membership will be determined by the appraisal district board of directors in counties of population 75,000 or more.
Prohibiting local taxing units from reducing or eliminating an existing local option homestead exemption for four years following the increase to the homestead exemption.
Both Speaker Phelan and Lt. Governor Patrick have called SB 2 the largest property tax in Texas history.
Dissent
While Lt. Governor Patrick and Speaker Phelan are calling SB 2 the largest property tax cut in Texas history, others disagree. According to Texans For Fiscal Responsibility, “the amount looks to be only about $12.7 billion in new relief (an additional $5.3 billion to maintain past relief was passed in HB 1 budget) of the at least $33 billion surplus. And given that the largest property tax cut was $14.2 billion for 2008-09, the state would need to provide $21 billion in new relief this time for it to be the largest tax cut in Texas history, so Texans could have the same purchasing power of relief as they had then.”
Currently, SB 2 awaits the Governor’s signature.