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This Time, Lawmakers Want Property Tax Cut That Folks Notice

The last time lawmakers cut property taxes, it barely registered with most voters because appraisal increases and local tax hikes overwhelmed the savings. This year's cut will be smaller, but Republican leaders hope people will feel richer for it.

State Sen. Jane Nelson, R-Flower Mound, and Lt. Gov. Dan Patrick at a budget press conference on Jan. 27, 2015.

Nine years ago, Texas lawmakers cut school property taxes across the state. "This is a tax cut Texans can take to the bank and count on in the years to come," Gov. Rick Perry boasted as he signed the bill in Houston in 2006.

But Perry, and every member of the Texas Legislature, soon found that homeowners didn’t see it that way. The bill saved taxpayers $14.2 billion over two years, but many still watched their property tax bills go up due to rising values and higher local tax rates.

This year, Republican leaders hope to pass property tax relief that taxpayers will actually feel, even as the package being proposed is a fraction of that passed in 2006.

At a press conference Tuesday, Lt. Gov. Dan Patrick was joined by a dozen Republican senators to tout a $4.6 billion tax relief package that includes $2.5 billion to lower property taxes. Currently, Texas homeowners receive a homestead exemption of $15,000. Senate Bill 1, from Senate Finance Chairwoman Jane Nelson, R-Flower Mound, would peg the exemption at 25 percent of the state’s median home market value.

In 2016, when the median home market value is projected to be $134,500, that could translate into a $33,625 exemption. State Sen. Paul Bettencourt, a Republican tax consultant from Houston and a co-author of Nelson’s measure, said it would save the average homeowner $233 in 2016.

Over the past year, Republican leaders have often talked about passing “meaningful” or “lasting” property tax relief, but have avoided putting any dollar figures on that. Some have expressed wariness of sowing the type of widespread disappointment that followed the 2006 package.

“It’s not the dollar amount that’s important to me,” said House Appropriations Chairman John Otto, R-Dayton, earlier this month. “It’s will the owner of the property, will he or she realize that they have seen a reduction and will it be long-lasting? Last time we did this, appraisal increases wiped it out in a matter of a couple of years.”

Some lawmakers have also filed bills aimed at restricting how much appraisals or local tax rates can grow. Patrick said Tuesday that he also hoped to address “value increases” this session.

Conservative activist Michael Quinn Sullivan has said that lawmakers shouldn't give up on a property tax cut because it will be smaller than a previous one. 

“It’s problematic when I hear folks say, ‘Oh, it’s not going to be really significant. It’s not that much. Let’s not even try,’” said Sullivan, president of Empower Texans. “I think for a lot of families, an extra 100 or 200 bucks in their pockets every year is actually a fairly significant thing. And we shouldn’t be dismissive of taking steps toward tax relief.”

The tax overhaul package Perry signed in 2006 lowered school property tax rates by a third. Lawmakers created a new business franchise tax to cover most of the revenue lost to school districts. Yet the franchise tax has never brought in as much as expected, creating a hole that lawmakers have plugged with other revenue.

While some homeowners saw their tax bills stay flat or rise, even those who saw decreases of hundreds of dollars were left underwhelmed. Part of the problem was that Perry had campaigned on providing a $2,000 tax cut for the average Texas homeowner.

“Folks did get tax relief. I think it was just oversold to them,” Dale Craymer, president of the business-backed Texas Taxpayers and Research Association, told the House Ways and Means Committee hearing Tuesday morning.

Craymer warned lawmakers not to be discouraged by reaction to the 2006 property tax cut. Further property tax relief will have a real impact on the state economy, he said.

“Appraisals are going to go up if you cut property taxes, or whether you don’t,” Craymer said. “What rising appraisals mean, that means it’s going to make those cuts harder for taxpayers to notice, but it’s not going to make those cuts any less real.”

Dick Lavine, a fiscal analyst with the liberal Center for Public Policy Priorities, said lawmakers should consider that some Texans might appreciate increased investment in education rather than a tax cut that they may not even notice.

“Do you want to take this money to put it into schools to pay for the money they’re not going to be collecting because of the homestead exemption?” Lavine asked. “Or do you want to take the same amount of money and put it into pre-K, and smaller class sizes and more counselors? It’s a choice, and I’m not sure this is the right choice.”

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Dan Patrick Jane Nelson