Texas Gov. Greg Abbott just announced a new six-point plan to provide property tax relief. This provides a great opportunity to examine recent property tax relief efforts by the Texas Legislature to determine why they haven’t worked and the best path forward to real, lasting relief. The path forward involves implementing a straightforward, four-step process.
Let’s get started.
Have past efforts by the Texas Legislature actually provided lasting property tax relief?
A: In his plan, Greg Abbott claimed (along with other legislative leaders) that he has “delivered … $51 billion in property tax relief for Texans.” What he really means is that since 2019, the Texas Legislature has spent an additional $51 billion on public schools hoping that some of the money will trickle down to taxpayers. Yet over those seven years of relief, property taxes have risen from $63.2 billion to $86.8 billion, an increase of $23.6 billion. Add these together, and the tax burden on Texans to support schools, cities, counties, and special districts has increased by $74.6 billion since 2019. There has been no tax relief–property or otherwise–for Texas taxpayers.
Why have the property tax “relief” efforts by the Texas Legislature failed?
A: The Texas Legislature’s property tax relief efforts have failed because the Legislature has refused to stop runaway local government and school spending and the property tax increases needed to pay for them. It will not matter if the Legislature throws $51 billion or $100 billion of our money at the problem. Texans will see no property tax relief until Gov. Abbott, Lt. Gov. Dan Patrick, and Texas legislators get serious about stopping property tax increases by all local taxing entities.
What must we do to provide real, lasting property tax relief?
A: Many Texans, rightfully so, want to eliminate all property taxes. They are tired of paying rent to the state for their own property. And many legislators have been promising–and failing–to eliminate property taxes for years. If we want true property tax relief, we have to step back and deal with the most pressing issue at hand–stopping property tax increases. If we do not stop the increases, we will never be able to eliminate property taxes in Texas no matter what anyone promises.
How do we stop schools and local governments from raising our property taxes every year?
A: Step 1. In his plan, Gov. Abbott provides a simple, yet elegant solution for stopping local property tax increases: “require two-thirds voter approval for tax increases.” If a school, city, county, or special district wants to increase its property tax revenue in a given year, they have to ask the voters for permission to do so. And two-thirds of the voters will have to say yes. It is as simple as that.
How can the two-thirds voter approval requirement be implemented?
A: Texas’ property tax code is very complicated. The reason for this is so local governments can take advantage of many loopholes the Legislature has placed in the code to far exceed the current illusory limits on property tax increases. For instance, although voter approval is supposedly required for increasing city and county property taxes by more than 3.5%, city property tax revenue has increased by 7.1% annually since 2019 and county revenue by 8.5%. Texas must replace all the loopholes with a simple formula: if a school or local government wants to increase current year’s property tax revenue by any amount in next year’s budget, they have to ask the voters. In other words, the Voter Approval Rate would be any rate that increases property tax revenue by more than $0.
Okay. We’ve stopped local governments from forcing runaway property tax increases on us. How do we actually reduce property taxes?
A: Step 2. Fortunately, Gov. Abbott has a plan for this as well: “empower voters to roll back taxes.” Under his plan, “if 15% of registered voters in a local area sign a petition, they can force a rollback election to lower rates.” The beauty of this is that for decades Texans have had to rely on the Texas Legislature to do something about property taxes. They have failed us. Under this plan, we can take matters into our own hands. A couple of details. First, the focus should be on revenue, not rates; this measure should cut the amount of money Texans pay on their property tax bill. Second, there should be a limit on how large the revenue roll back could be in any one year; perhaps 10% would be a good limit.
At this point, we’ve stopped runaway increases and started reducing taxes. What is next?
A: Step 3. This is where Gov. Abbott’s plan–and the Texas Legislature–come up short. Neither Abbott, Patrick, nor a single legislator has ever proposed a serious plan to eliminate property taxes. But it can be done. And the way to start is by eliminating school district maintenance and operations (M&O) property taxes.
Why should we start with eliminating the school district M&O property tax?
A: School M&O taxes make up the largest portion of property taxes, about $32 billion annually. Eliminating them by shifting costs to the state would provide meaningful relief without needing any complex changes to law or funding structures, since school funding already flows through state formulas. Three steps are needed to accomplish this: 1) freeze school M&O property taxes; 2) limit biennial state spending growth to create an annual budget surplus to buy down the M&O tax, and 3) replace school property tax revenue with state revenue.
How can the state afford to replace school M&O property taxes?
A: The state’s general revenue growth averages 5.45% annually. By limiting state spending growth to 2% annually, the current revenue base of $85 billion would create annual revenue surpluses of about $4.5 billion per year. This would be enough to eliminate school M&O taxes within eight years. During that time, in conjunction with the new voter approval rate, the total property tax burden could decline as much as $32 billion annually.
What happens after school M&O taxes are eliminated?
A: Step 4. Attention then would shift to eliminating remaining property taxes, those levied by cities, counties, special districts, and school I&S (debt service). At the time the school M&O is eliminated, annual property tax revenue from school I&S, cities, counties, and special districts would likely be between $45 billion and $69 billion (depending on how well voters discipline local governments using the voter approval and roll back mechanisms). State general revenue would be about $142 billion. This would generate on average a $6 billion annual surplus over the next 7 to 12 years, which would be how long it would take to eliminate all Texas property taxes.
Does eliminating property taxes require new taxes or tax swaps?
A: No. The approach spelled out above relies entirely on fiscal restraint and controlling spending growth. Tax swap proposals currently circulating in the Texas Legislature would increase other taxes leaving Texans with no overall tax relief with state and local government spending problems intact. A tax swap would require almost a doubling of the sales tax or a new tax such as a European-style value added tax (VAT) to generate the $86 billion in annual revenue to immediately replace property taxes. Unlike the tax swap, the plan outlined above will reduce the property tax burden without creating new or higher taxes elsewhere. The property tax burden will be reduced, and the overall size of state and local governments would be less than it would be under the tax swap or the status quo.
For more information on responsible budgeting, spending limits, property taxes and the options for eliminating them, visit the “News” tab at TexasTaxpayers.com!
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