Long-awaited $18 billion property tax-cut deal heads to Gov. Greg Abbott

Sign up for The Brief, The Texas Tribune’s daily newsletter that keeps readers up to speed on the most essential Texas news.

A landmark $18 billion tax cut for property owners in the state is headed to Gov. Greg Abbott’s desk late Thursday, ending a monthslong stalemate among the state’s top Republicans with a deal that drew near-unanimous support from legislators.

Both chambers adjourned sine die Thursday evening, ending the second special session Abbott had called this summer to hammer out an agreement on property tax relief.

“We knew … the most contentious issue that we faced was how to return these dollars to the taxpayers,” House Speaker Dade Phelan told House members after they approved the bills Thursday evening. “Congratulations to you, but more importantly, congratulations to the taxpayers of Texas. They are the big winners.”

During floor debate Thursday, Democrats attempted to insert benefits for renters, teacher pay raises and more money for public education into the tax-cuts package in a series of floor amendments but were unsuccessful.

A cheer went up on the chamber floors upon the passage of the three bills that make up the package: Senate Bill 2, which details the proposed property tax cuts; Senate Bill 3, a franchise tax relief bill; and House Joint Resolution 2, a constitutional amendment required to authorize the tax cuts.

“We now have a record-setting plan that will affect every family, every individual, every business, every operation in this state pretty much, for the next several decades,” said Houston Republican Sen. Paul Bettencourt, an architect of the package. “Every Texan deserves it because it’s their money.”

The package puts $12.6 billion of the state’s historic budget surplus toward making cuts to school taxes for all property owners, dropping property taxes an average of more than 40% for some 5.7 million Texas homeowners, and offering brand-new tax savings for smaller businesses and other commercial and non-homesteaded properties. The voters would need to approve the package in November for the cuts to take effect this year.

At a time when the state has some of the nation’s highest property taxes and lawmakers face massive political pressure to ease the financial suffering of their constituents, Abbott said he will sign the legislation — a cornerstone of his 2022 reelection campaign and that of most state lawmakers for several cycles now.

“The Texas House and Senate fulfilled our promise with an agreement that delivers a comprehensive, long-lasting solution to increasingly burdensome property tax bills,” Abbott said in a statement after the bills passed. “I thank my partners in the Texas Legislature for coming together to honor the best interests of hardworking Texans who want to own their property—not rent it from the government.”

The package’s marquee item is a $5.3 billion expansion of the state’s homestead exemption from $40,000 to $100,000. Bettencourt said the new exemption combined with the school tax cuts would save homesteaders — Texans who live in a residence they own — an average of $1,300 a year in property taxes.

It also offers additional cuts for seniors and property owners with disabilities, averaging about $170 more per year, Bettencourt said.

The most novel part of the plan, an idea introduced publicly for the first time on Monday, is a first-ever temporary 20% cap on appraisal increases for properties valued at $5 million or lower that aren’t considered homesteads. Those would include second homes, vacation properties, rental houses, or commercial retail or business properties.

Leaders have referred to that part of the bill as a “circuit breaker” program, but it’s somewhat of a misnomer. Unlike programs in other parts of the country with the same name, the Texas proposal does not calculate property taxes based on a person’s income or ability to pay, nor does it specifically seek to benefit lower-income taxpayers.

School funding and other issues

Including more than $5 billion approved four years ago, the legislation also allocates nearly $12.6 billion to reduce the school property tax rate by 10.7 cents per $100 valuation for all homeowners and business properties.

Those billions are being sent to school districts so they can cut their taxes for all property owners and shift a portion of their maintenance and operations costs to the state.

But the package would give no new funding to schools, a sticking point with critics who note that, compared to other states’ spending, Texas is ranked near the bottom in per-student funding for education.

$4 billion in new public education funding has been tied up since the regular legislative session amid an ongoing political battle over school vouchers. In response to the calls for more money for schools and raises for teachers, senators proposed a one-time teacher pay bonus late last month as part of their tax-cut legislation. But that proposal ultimately didn’t end up in the final compromise, with House members saying teacher pay should be considered in separate legislation.

The idea was intended to pacify an increasingly angry and impatient public school community — who have been expecting a pay raise since last year’s campaign season — until lawmakers can agree on an education package in another special session expected for later this year.

The passage of the tax-cuts package this week without any nod to new school funding — which depends mostly on property taxes in many districts — triggered criticism from public education advocates inside and outside the Capitol dome, who said there’s more than enough money in the state surplus to bump up the district’s funding.

While the plan won applause from a variety of advocacy groups and organizations across the political spectrum, few agreed it was a perfect plan.

“There is no bill that is perfect, but this one is pretty damn good,” state Rep. Richard Raymond, D-Laredo, said Wednesday.

And while businesses applauded the overall lowering of taxes, some taxpayer groups and conservative economists said the resulting share of the tax burden would be even larger now for businesses.

The plan shifts the school-tax burden by about three percentage points toward businesses, raising the share of the school property taxes paid by businesses from 52% to 55%, while homeowners’ share drops from 48% to 44.8%, said Jennifer Rabb, president of the business-backed Texas Taxpayers and Research Association.

“At the same time, everybody’s getting a tax cut so I’m not here to look a gift horse in the mouth,” Rabb told the House Ways and Means committee Wednesday. “But I do think it’s important for you to understand that this shift is occurring. Texas businesses already pay a high property tax or rather tax burden overall relative to other states.”

Targeted tax relief for the state’s 3.7 million renter households has been left out of proposals that have passed both chambers.

House Democrats last week unveiled their own tax-cut package, sponsored by Dallas state Rep. John Bryant, that would’ve given tenants a cash refund equaling up to 10% of the rent they paid the previous year. It also would have made the homestead exemption $200,000, doubling the exemption in the current bill, included a teacher pay raise and added more school funding. Their proposal did not make it into the final package.

Bryant tried to replace SB 2 on the floor with his plan on Thursday, but the plan’s authors said it would jeopardize the deal the House made with the Senate. Bryant said that while the owners of “skyscrapers and refineries and oil wells and other big business” would be bringing home thousands in tax cuts, homeowners wouldn’t see enough of a cut on a monthly basis to make any real impact — and renters would see none at all.

“I urge you to join me in doing something meaningful,” Bryant told his colleagues.

The effort failed on a 51-79 vote.

Republicans and some tax policy experts argue that renters, who include about 3.8 million households in the state, will benefit from lower school taxes because landlords who benefit from the tax cuts won’t pass as much in property taxes onto their tenants — thus resulting in smaller rent increases.

But skeptics of that idea say demand for the state’s red-hot rental market and a dearth of supply to meet that demand, not property taxes, have driven rent increases in recent years — a problem that a tax cut will not remedy.

Disclosure: Texas Taxpayers and Research Association has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.

Join us for conversations that matter with newly announced speakers at the 2023 Texas Tribune Festival, in downtown Austin from Sept. 21-23.