In 2019, Texas lawmakers vowed to cut property taxes and raise the State’s share of the cost of public education. They passed legislation intended to do just that.
However, a recent analysis from the Texas Taxpayers and Research Association (TTARA), a business trade group that concentrates on tax and fiscal policy, concluded that property tax bills have not reduced but increased, albeit slower than they would have without the 2019 legislation.
State politicians have been discussing how to lower property taxes in Texas for decades, but the latest round of tax bills, which will go out soon, will again continue their annual rise.
Property taxes are calculated by combining the value of a property and the tax rate. Thus, higher real estate values push homeowners’ tax bills upwards.
As average property values in the state rise, tax rates for schools and other government entities have fallen because the 2019 legislation capped the amount that the tax rate could be raised.
One downside of capping tax rate increases is that it is “a one-size-fits-all approach based on the faulty assumption that the need for services is steady from year to year,” according to the Texas Association of Counties. “Local revenue needs often spike above or below proposed revenue limits.”
While the rate of taxes per household was lower in 2021 than in 2019, climbing home values have mitigated any potential savings.
According to The Texas Tribune, TTARA says school tax rates have dropped 13% since the 2019 legislation on property taxes. However, average property values have risen 23% over that same period.
“As property values rise, jurisdictions are finding they must cut tax rates or face voters,” TTARA wrote. “As a result, property tax rates are dropping like never before.
Before the 2019 property tax legislation, someone who owned a $400,000 house and paid $8,000 in property taxes would have seen an increase of $1,840 in property taxes without any lawmaker intervention. Instead, that person has only seen an increase of $640 on their property taxes. Better, but still a bigger bill.
“It will take many years for Texas to become more tax competitive with other states absent additional infusions of state funds to bring our local taxes more in line,” the TTARA report says.
Texas ranks as one of the highest property tax states. According to the Tax Foundation, the Lone Star State is ranked sixth in property tax values and thirteenth in property tax collections.
The Foundation also says that only three states rely more heavily on property taxes than Texas, which collects 44% of its total local and state taxes from property taxes.
Overall, property tax bills in 2021 totaled $73 billion — but would have totaled $79 billion without the 2019 changes in the law.
“Texas property tax bills would have been $6 billion, or 8%, higher in 2021 had it not been for property tax reforms,” the TTARA report states.
In Texas, state lawmakers do not set or change property taxes. Instead, local institutions decide on the property taxes charged in each county. Local school districts, hospitals, and government agencies come together to determine the property taxes.
State lawmakers can increase funding to local school districts, hospitals, and government agencies to replace funding that would otherwise be collected by a property tax.
This was done to an extent by Senate Bill 1, signed into law by Governor Greg Abbott during a special session in November 2021.
Under the bill, Texas used $2 billion in state funds for public school education. The law is expected to shave $200 off the average Texan’s 2022-23 tax bill.
State Senator Paul Bettencourt (R-Houston) was the author of the property tax legislation.
“The obvious is that when you have excess funds, you should be giving some of it back to the taxpayers,” he said.
Lt. Gov. Dan Patrick prioritized the bill in a special session that was called primarily to complete redistricting.
“This represents a quantum shift in the way we think about spending surplus dollars,” Patrick said. “Tax relief must come first — before new spending.”
The TTARA report says that because of an excess in the state budget, there is hope that more property tax relief could be on the way.
Comptroller Glenn Hegar has said he estimates a budget surplus of approximately $12 billion or more and around the same amount of surplus in the State’s “Rainy Day Fund.”
“Lawmakers in 2023 should have more than sufficient funds to further buy down tax rates for Texas property owners,” the TTARA report says.