AUSTIN — Texas GOP officials are arguing over the best way to offer the greatest property taxes relief. Experts say any way will benefit Texans.
“When the House and Senate are arguing over who can deliver the best tax relief, the only guaranteed winner is taxpayers,” said Dale Craymer, president of the Texas Taxpayers and Research Association.
Hours after the end of the regular session, Gov. Greg Abbott called lawmakers back to the Capitol to discuss border security and property taxes. While border security legislation is expected to pass relatively quickly, debate continues on property tax relief.
Infighting between Abbott, Lt. Gov. Dan Patrick and the Speaker of the House Dade Phelan, all Republicans, intensified in the final days of the 88th Legislative Session, which ended last week. All parties were arguing over how to provide “the largest property tax relief” in state history, with distinction between the House plan, by Phelan, and the Senate plan, by Patrick.
During the session, the House was pushing for an appraisal cap that would limit year-over-year appraisals to determine property taxes. The Senate is all in on exemptions for homesteads and businesses with added exemptions for Texans 65 and older.
Within a day, the House took appraisal caps off the table and settled on only instituting a rate compression. Patrick said he believes Texas could do better.
“I will not step back from (exemptions),” Patrick said. “I might be the last guy standing but I’ll be the last guy standing. Homeowners in this state deserve real property tax cuts.”
PROPOSED LEGISLATION
Lynn Krebs, a research economist at the Texas Real Estate Research Center at Texas A&M University, said both plans offer “meaningful” property tax relief, but the benefit of either depends on who you are.
“It just comes down to a matter of how much relief can the state afford to give and who do they want to target – favor homeowners or businesses?” he said.
For example, both sides agree on a school tax rate compression.
The special session House version offers an additional 16 cents compression across the board for homesteads and businesses. School taxes make up the largest portion of one’s property tax bill. The legislation will buy down the taxes by using the state’s record-breaking surplus to contribute more in school finance, making public school districts less financially reliable on property taxes. Abbott has touted this option frequently on social media and held a fireside chat with the Texas Public Policy Foundation, a conservative think tank, on Friday. He has said dozens of business owners support the House legislation. Patrick and experts say that is no surprise since they have more to gain from the House version than the Senate version.
In addition, Abbott says the House version is the best way to rid the state of property taxes all together.
“What we want to achieve in the state of Texas is to eliminate your property taxes, make them go away,” Abbott said. “We must go big. We must dream big – the possibility that we can eliminate property taxes in Texas.”
Ray Perryman, an economic analyst, said that while ridding the state of property taxes is a frequently used phrase, state government only has control over school taxes. Cities, counties and other local taxing entities will still need to collect taxes to run public services such as police, fire and parks. Therefore, Texans will never have zero property taxes.
Patrick, too, has pushed back on this thinking, stating that the Texas government only has two sources of income — property and sales tax. By eliminating one, it only means greater dependence on the other and likely a hike in rates.
Perryman added that Texas is flushed with cash at the moment due to an unprecedented collection of severance taxes from oil and gas activity, massive injections of COVID stimulus funds, high inflation driving up sales taxes, and a strong economy. But it must also be prepared for bumps in the road.
“That will not always be the case,” Perryman said. “In the recent past, the state has had to deal with major revenue shortfalls. Thus, assuring a permanent source of funds for local governments other than property taxes would be challenging at best.”
Patrick and the Senate are pushing for a different approach. While onboard with the rate compression, they are also fighting for homestead exemptions. The Senate currently supports a plan to increase the homestead expedition from the current $40,000 to $100,000 with additional exemptions given to older Texans and business owners.
Patrick said this the best option to provide “real” relief because exemptions are permanent, if the constitutional amendments are passed by voters. Therefore, no matter the economic challenges of the state, the homestead exemption is fixed.
Perryman and Krebs agree that the Senate version offers more equitable distribution of relief. This is because the $100,000 exemption would effectively eliminate any property tax applied to a modest home and would provide a much larger relative reduction for someone who owned a $200,000 home as compared to a $2 million home, Perryman said.
Patrick said the Senate plan gives homeowners a permanent $1,200-$1,450 tax cut, while the House version offers homeowners about $740. Patrick said this is because it gives a significant portion of tax cuts to businesses and the top 20% of the highest-priced homes.
Will Wiggins, a consultant with North Texas Property Tax Services in Dallas, says he also stands behind the Senate version because he believes it will offer the most benefit to the most Texans, adding that he believes the push to reach zero property taxes is a “waste of time.”
While he said he supports exemptions, he also believes lawmakers need to address the inequality in determining appraisals. Currently, tax assessors look at surrounding properties to determine the value of a home. One can protest those values, but it is incumbent upon them to do so.
“They really need an oversight body to ensure that mass appraisal standards are being followed,” Wiggins said.
ARGUMENTS OVER GERMANENESS
In an effort to squash the Senate’s pushback, Abbott and state representatives have argued that the Senate version with exemptions is not germane to the special session call.
Abbott has praised the House for offering a property tax bill that is germane to the initial special session layout. Abbott said he wanted legislation to cut property tax rates solely by reducing the school district’s maximum compressed tax rate in order to provide lasting property tax relief for Texas taxpayers.
The House stayed true to the “solely” aspect, stripping away their preferred appraisal caps to get the special session done quickly.
“The Texas House is the only chamber that passed a property tax cut bill that is germane to the special session that I called to provide Texans with property tax relief,” Abbott said. “It provides more cuts to property tax rates than any other proposal at this time. I look forward to signing it when it reaches my desk.”
This public statement appears to have angered Patrick who issued his own statement openly criticizing
the governor, who he says is “misinformed about the roles of the executive and legislative branches.”
“I stand by our bill,” Patrick said. “It is germane to the call — legal precedent is clear on this point.
“Something (Abbott) and (Phelan) should remember — for any bill to pass, it must go through both the House and the Senate,” he added.
According to the often cited “Constitution of the State of Texas: An Annotated and Comparative Analysis” by professor George Braden, while the state constitution states there shall be no legislation upon subjects other than those designated in the proclamation of the governor calling such session, for many years the legislature has considered and adopted resolutions during special sessions on a variety of subjects not in the governor’s proclamations, and this practice has not been challenged.
In addition, it states that historically, as a practical matter, the governor often submits draft legislation on the subjects he wants considered.
Where the governor’s control does come from is his veto power. A governor can veto bills up to 10 days after the end of a special session, with which he can disapprove bills passed on subjects not submitted, and not from this section.
“As noted, the veto is always a threat, but more important is the legislature’s responsibility to obey the constitution,” it said.
WHAT NOW?
The House has already adjourned the special session, and Phelan has made clear that he believes the House has done its part and now it’s the turn of the Senate. This leaves the Senate with two options: adopt the paired down version of property tax relief passed in the House or end the special session without a deal and not provide Texans with any sort of property tax relief.
“While the House may have thrown in the towel, the Senate continues to work,” Patrick said. “The governor should feel free to expand the call to include other critical issues for our state.”
Wiggins added that he supports the Senate to “keep fighting” for exemptions. He added that while he realizes the House believes they have compromised by taking appraisal caps off the table, and therefore the Senate should do the same, he said experts in the industry frequently state the negative impacts of appraisal caps where exemptions are seen generally as a positive.
“To anybody in the industry or anybody that truly understands this industry, (appraisal caps) are known to have long-term negative effects,” he said. “They should have been a non-starter from the beginning.”