A nearly seven-month-long battle between Lieutenant Governor Dan Patrick and House Speaker Dade Phelan over property tax relief is expected to end later this week as the House and Senate will likely pass their proposed property tax cut plan.
Lawmakers announced this property tax deal earlier in the week which sets aside $12.6 billion toward tax compression or reducing school property tax rates for home and businesses owners and $5.3 billion to increase the homestead exemption from $40,000 to 100,000 with additional relief for residents older than 65 or those who are disabled.
This proposal also includes franchise tax cuts for small businesses, creates newly elected positions for local appraisal boards and hosts a new measure that legislators introduced as a temporary circuit breaker program.
Critics of the three-year pilot plan said it doesn’t operate like other circuit breakers which consider income when calculating property tax. Instead, it places a 20 percent cap on appraisal increases for commercial and non-homestead properties that are valued at $5 million or less.
This has caused some people to argue that it is more like an appraisal cap. However, during Tuesday’s House Committee on Ways & Means hearing on the recently filed legislation, Representative Will Metcalf (R-Conroe) insisted it was not one.
John Diamond, director of public finance at Rice University’s Baker Institute for Public Policy, said the finalized plan incorporating both compression and increasing the homestead exemption aligns with what lawmakers suggested for relief.
But the so-called circuit breaker program, seemed like an ineffective way to implement tax policy, he said.
“It’s questionable from an efficiency standpoint, and it’s questionable from locking people in. It just doesn’t make sense to me why we’re trying to give a benefit in this way when we could’ve just given it through compression, ” Diamond said.”
According to Diamond, the pilot program makes it difficult to determine to who the legislators are trying to provide relief to. Putting the funds toward more tax compression would have relieved a broader group of taxpayers, and not isolated it only to commercial and non-homesteaded property owners.
He said the circuit breaker also doesn’t make a lot of economic sense because it could “lock people” in or incentivize property owners to not sell or move from the place they have because their taxes are reducing. This is especially an issue if it evolves into a long-standing program. Currently, legislation indicates the program is set to expire in three years.
“Fortunately, it’s a temporary policy, but unfortunately, bad temporary policies have a way of becoming permanent,” Diamond said.
“Fortunately, it’s a temporary policy, but unfortunately, bad temporary policies have a way of becoming permanent.”
Metcalf said during the Committee hearing that the House’s property tax relief legislation outlined the program’s termination date. Jennifer Raab, president of the Texas Taxpayers and Research Association, challenged this and requested that the corresponding constitutional amendment be modified to also include the date the program would end.
She said that this was to ensure that voters and legislators will have the opportunity to strike the plan down after it expires if it is not working effectively.
Diamond said the franchise tax relief component of the plan is another poor policy, and other taxpayers will end up having to pick up part of the tab for these small businesses.
He said lawmakers could’ve used these funds — if not for more compression — to increase teacher pay or public education funding like they were initially planning to do.
“They ended up with this plan that not only deviates from the real issues but adds in these two wonky business tax cuts,” he said. “It’s pretty much a lesson in how politics shouldn’t work, but unfortunately, this is how politics does work.”
Bob Stein, political science professor at Rice University, said the inclusion of these two measures were likely what let a compromise between the House and the Senate, “The sweetening of the pot may have come from these nonresidential property and franchise tax relief efforts,” he said.
And legislators might have felt the pressure as school districts are starting to complain that property tax relief is holding up other bills that could provide the money needed to raise salaries and recruit teachers.
He said bills related to school finance should not be pushed off any longer, as teachers are already getting hired for this coming school year.
Both House bills related to the plan as well as the constitutional amendment, were approved unanimously in committee and sent to the full House for consideration on Wednesday. The Senate Finance Committee will take up the Senate’s property tax cut proposals the same day, and Speaker Phelan said both chambers are likely to pass the property tax plan on Thursday.
The proposal will then be sent to Governor Greg Abbott’s desk for signature. Abbott has already said he is in support of the plan and changed the second special session call to fit the pending legislation.
“I think we’re done,” Diamond said. “I think this is on a fast track to be put to bed, and we’ll move on from there.”
Update: 12:30 p.m.
The Senate Finance Committee referred both Senate Bill 2, the property tax relief bill, and Senate Bill 3, the franchise tax relief bill to the full Senate. The Senate unanimously passed both pieces of legislation on Wednesday afternoon.
The House is expected to pass all of its property tax legislation, and the Senate will likely pass House Joint Resolution 2, the corresponding constitutional amendment, when each chamber convenes on Thursday.
This article appears in Jan 1 – Dec 31, 2023.
