Texas lawmakers have given property tax reform top billing this legislative session, and they agree that tamping down school taxes is the best way to lower Texans’ tax bills.
That’s because school taxes make up more than half the total property taxes in the state. And the average school district tax rate has slightly and gradually increased since 2006, though skyrocketing local property values across the state are the main reason why the average tax bill gets higher and higher.
But figuring out how to limit that portion of the tax bill has proven monumentally complicated. Three quarters of the way through the legislative session, lawmakers agree on how much they want to spend on tax relief but are still juggling several proposals, including some that would not provide any help. And it’s unclear whether some of the people backing certain ideas understand how the school tax system works.
One of the main problems: State leaders made several early attempts at property tax relief, especially in the Senate, that lumped school districts in with cities, counties and other taxing entities — instead of recognizing the major, unique differences in how school taxes affect the state’s budget.
And they’ve been vocal about limiting how tax rates can grow and limiting how local property tax revenue can grow — sometimes confusing the two.
Republican Gov. Greg Abbott said on Twitter last week that his property tax reform plan “does more than any other to actually reduce your property taxes.” The accuracy of that statement, at least for school districts, depends on which plan he’s talking about.
The first proposal
The state’s top three Republican leaders — Abbott, Lt. Gov. Dan Patrick and House Speaker Dennis Bonnen — along with each chamber’s main tax-writing lawmaker, unrolled the first proposal for property tax reform in January.
The idea was to force cities, counties and school districts to ask voters for permission before significantly increasing their tax bills.
Addressing property taxes for school districts, cities and counties in a similar way in the same legislation “means that there’s a universal solution,” said state Sen. Paul Bettencourt, R-Houston.
But pushing a universal solution that includes school districts is like trying to fit a square peg in a round hole. Unlike for cities and counties, the state is required to ensure school districts have a certain amount of money, made up of a combination of local property taxes and state assistance. If lawmakers choose to cap districts’ funding in a way that ties their hands to raise local tax revenue they’re entitled to, the state must fill in the gap.
Most districts are supposed to set a tax rate of at least $1 per $100 valuation, meaning a house with a taxable value of $250,000 would pay at least $2,500 in school district taxes. They must ask voters for permission to tax anywhere above $1.04 per $100 valuation, and they hit a maximum rate at $1.17. That means the maximum school property tax bill for a house with a taxable value of $250,000 would be $2,925, excluding money raised locally to pay off debt for construction. More than 97% of school districts have tax rates at or above $1.04, meaning they have to go voters for any increases or cannot raise tax rates any further.
School boards must adopt a district tax rate each year, just like cities and counties. Usually, if they don’t plan on a tax hike, that rate is the same as it was the previous year, as long as they have the same revenue per student needed to meet educational needs.
If a school district has recently seen a significant gain in property values due to, say, a natural gas plant moving into its boundaries, its tax rate will be automatically driven down to a number that allows it to keep the same state and local revenue per student as it had before. It may then, under state law, raise its tax rate by up to 4 additional cents per $100 valuation without going to voters.
In most instances, under current rollback calculations, a district cannot exceed its current rate without voter approval.
But the language in Senate Bill 2 was incorrect and would let school districts bypass some existing limitations on when they can raise taxes. Instead, it gave districts permission to hike tax rates by as much as 2.5% without voter approval.
Early in the session, lawmakers seemed to acknowledge the shortcomings, and they quickly explained that certain language in the bill pertaining to schools was a placeholder. And in late March, House lawmakers removed school districts from their version of the bill, instead deciding to tackle the issue in separate school finance legislation.
But hard-right conservatives clamored for school districts to be included in the property tax reform bill, arguing it was the only way for real relief. So the Senate passed a version of the bill that included the placeholder language for school districts.
“That language was kept the same because it was co-filed, and we were making a point that schools should be part of that process,” Bettencourt said last week after that vote.
A second attempt in the Senate
But the placeholder language didn’t pass through the Senate unnoticed.
Normally allied with Republican lawmakers, the business-backed Texas Taxpayers and Research Association launched a scathing Twitter campaign the day of the Senate vote. The group pointed out that lawmakers were about to approve a provision that could end up increasing tax bills. “Introduced #HB2 & #SB2 produced ZERO school property #tax relief,” one tweet said.
Perhaps to assuage those concerns, Bettencourt filed Senate Bill 2503. The initial version of the bill would work within existing constraints and limit school districts from increasing their rates more than 2.5% without voter approval, instead of 4 cents, in those specific circumstances.
Supporters argue this would put a permanent, stricter limitation on how school districts can raise taxes without asking voters, especially as local values continue to rise.
But according to experts, that idea — backed by Abbott and many conservatives — wouldn’t have much of an impact because current limitations on school districts are already so strict.
“If today’s limitation of 4 cent increases were replaced with 2.5%, there really wouldn’t be a tremendous impact on school districts because for the most part, that does not control what tax rate they are allowed to adopt,” said Joe Wisnoski, an associate at Austin-based consulting firm Moak, Casey and Associates and the former deputy associate finance commissioner at the Texas Education Agency.
A third attempt in the Senate
Bettencourt quickly scrapped the idea in that bill. Now he’s considering an idea similar to one proposed by Abbott before the session began, this time looking at limiting the growth in school districts’ revenue due to rising property values.
Under this plan, school districts that see their property values increase by more than 2.5% would have their tax rates automatically reduced to keep tax revenue growth in line. The state would be on the hook for the extra money the districts are entitled to.
Abbott shopped this proposal around before the legislative session began. School finance and tax experts pushed back, arguing that the impact would be unequal across the state. Austin ISD, where values are growing quickly, would get to lower its tax rate significantly and would not have to pay as much money to the state in recapture, a state program that requires wealthier districts to help subsidize poorer ones.
But Boles ISD, the poorest school district in Texas, is not seeing major increases in property values and is now taxing at the maximum rate allowed for school districts. It could see its rate unchanged and no major increases in state funding.
Bettencourt’s version appears to include language that would require the state to level out wildly different tax rates by not lowering some districts’ tax rates too far below others, which could help assuage those concerns. He called it a concept bill that could have “almost an unlimited number of permutations.”
Any permutation would likely lower some Texans’ tax bills and cost the state billions to replace the lost funding school districts are entitled to.
A different tactic in the House
As Senate lawmakers brainstormed, the House pitched and passed a school finance bill that would lower school district tax rates statewide by 4 cents per $100 valuation, or about $100 for the owner of a $250,000 home.
It would also further lower rates for school districts taxing higher and would limit how they can raise them again.
Texas Taxpayers and Research Association President Dale Craymer praised the bill for “accomplishing both tax relief and tighter constraints on future tax increases.”
But some of the House’s more conservative members have argued this isn’t sufficient and doesn’t ensure tax bills won’t go back up as property values continue to rise. In 2006, after losing a school finance lawsuit, lawmakers cut tax rates by a third for school districts; in the next few years, property values and other taxes rose and wiped out any tax relief Texans had seen.
“There is real property tax relief in this bill, but my point is I don’t see how it doesn’t get washed out very quickly,” said Rep. Matt Schaefer, R-Tyler, a member of the hardline conservative faction of the House.
Some of those conservatives have also called for the House to put school districts back into the property tax bill. They’ve argued that a 2.5% election trigger, limiting how school districts can increase their rates without going to voters, is “meaningful” relief — even though experts say it likely would not have a big impact.
State Rep. Dustin Burrows, R-Lubbock, the lower chamber’s lead tax writer, said it would be a mistake to shove school districts into the tax code instead of realizing they work differently than cities and counties.
“Essentially, we have two different property tax systems, one for school districts and one for everybody else,” he said. “To do anything to limit property taxes for schools or give people more control over their school taxes has to be done in the education code.”
A statewide cap
The House also briefly considered using a cap on local revenue growth, but applying it statewide instead of for individual districts. The proposal would take revenue from property value growth across the state above 2.5% and use it to lower tax rates for all school districts by the same amount.
Rep. Dan Huberty, R-Houston, author of the House’s school finance bill and chair of the House Public Education Committee, considered attaching the provision to the school finance bill. But he decided not to because it would be too expensive; the state would have to make up lost funding for school districts.
This type of cap would likely avoid major concerns about treating school districts differently since it does not lower some tax rates and not others.
Running out of time
In the last month, top state leaders have been making the rounds on local conservative radio shows renewing their commitment to property tax reform. They have often been vague, not necessarily drawing distinctions between the different plans.
For instance, Patrick told Lubbock-based radio host Chad Hasty earlier this month that he supported limiting hikes in school district tax rates to 2.5% without an election. A few sentences later, he also backed a proposal to “cap your school taxes of growing at 2.5% a year, whereas now statewide they’re growing around 7.”
But imposing a stricter election trigger for tax rates and capping property revenue growth are two vastly different mechanisms with different costs to the state and different impacts on Texans.
Which one do lawmakers want? They have 33 days left in the legislative session to figure out it.
Disclosure: The 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.