Texas governor eyes end to property taxes for school operations

Enjoy complimentary access to top ideas and insights — selected by our editors.

Texas Gov. Greg Abbott is on a mission to eventually eliminate property taxes that fund public school district operations, but he's having a hard time getting a legislature controlled by fellow Republicans to agree on a way to take a major step towards that goal.

The Lone Star State is not alone in its struggle. A Colorado plan to rein in property tax increases with the help of surplus revenue is being challenged in court.

At a Texas Public Policy Foundation event earlier this month, Abbott outlined a plan that would drive down school operating property taxes by 29% with further actions in ensuing legislative sessions reducing school tax rates to zero. 

Texas Governor's Office

"Texans want to own their property, not rent it from government," he said. "We must provide that by eliminating property taxes in Texas."

To keep the pressure on lawmakers, the governor ordered lawmakers back into a special legislative session May 29 and vetoed dozens of bills lawmakers had passed in the regular session, saying they can be reconsidered after the legislature passes property tax relief or school vouchers.

Among the vetoed bills was one aimed at limiting local governments' use of tax anticipation notes and certificates of obligation in lieu of bonds, along with several measures to create municipal utility districts and authorize them to issue bonds. 

The governor is encouraging the two chambers to work towards a solution, Renae Eze, Abbott's communications director, said Friday.

"The governor has been clear that his goal is to put Texans on a pathway to eliminate their school (maintenance and operations) property taxes, and the best way to do that is to devote all property tax relief to cutting property tax rates," Eze said.

Maintenance and operations taxes levied by school districts in 2023 total nearly $33 billion, according to state Legislative Budget Board data cited in a Senate press handout. 

"Schools would become completely reliant on state funding, without the ability to raise local taxes if their community was willing to invest more in their schools," said Dick Lavine, senior fiscal analyst at public policy group Every Texan.

He noted that school property taxes pledged for debt service on bonds would be unaffected "so it's a misstatement when some talk about 'eliminating all property taxes.'"

While the state government is currently flush with cash, that could change in the future. 

Growth in sales taxes, the Texas budget's biggest revenue source, is slowing. State Comptroller Glenn Hegar reported May collections totaled $3.84 billion, up 4.1% from the prior year.

"The rate of sales tax revenue growth continues to moderate, with the increase in May – compared with a year ago – representing the lowest annual rate of increase observed in the 26 months since the end of pandemic restrictions," he said in a statement.

With Texas projected to end its fiscal 2022-23 biennium on Aug. 31 with a record $32.7 billion budget surplus, Abbott and legislative leaders want to use a chunk of that money to fund a historic reduction in property taxes that would be put before voters in November in the form of a proposed constitutional amendment. 

The state ranked sixth among states for the highest property taxes paid as a percentage of owner-occupied housing value in 2020 at 1.66%, according to a September Tax Foundation report.

The legislative chambers took different paths during the regular session, with the Senate favoring raising the homestead exemption for school district taxation and the House wanting to lower the cap on appraisal increases for all property. As the session ended May 29 with no bill on his desk, Abbott immediately ordered lawmakers back for a 30-day special session.

With the governor's goal and plan in mind, the House on May 30 passed a bill focused on compressing school tax rates to provide $17.6 billion of state-funded cuts to property owners, according to House members.

"This unprecedented push toward elimination of school taxes is too important not to get right, & we won't stop until we get it done," State Rep. Ellen Troxclair tweeted June 12.

Instead of taking up the House bill, the Senate passed tax legislation last week that its sponsor, State Sen. Paul Bettencourt, called "eye-popping" at $18 billion.

The bulk of the cut would come from compression, while the homestead exemption would rise to $100,000 from the current $40,000. Due to the larger exemption, the bill also allocates about $600 million over the coming biennium to hold schools' debt service property tax levies harmless for bonds outstanding as of Sept. 1, 2023, according to Bettencourt's office.  

"Taxpayers are waiting for their tax cut and the clock is ticking," Lt. Gov. Dan Patrick, who heads the Senate, told reporters last week, noting the legislature only has six weeks to pass a tax cut plan in time to get it on the statewide ballot.

The same day the Senate unanimously approved the bill and a proposed constitutional amendment, House Speaker Dade Phelan formed a 13-member House Select Study Committee on Sustainable Property Tax Relief to identify long-term solutions. 

"The House is the only chamber to have passed property tax relief in a way that is germane to Gov. Abbott's special session call — and we have voted on the largest property tax cut in state history three times now," he said in a statement. "As we wait for the Senate to follow the House's lead, I have established this select study committee as a proactive step toward tackling what comes next."

In Colorado, a plan to prevent growing property values from raising property taxes is also facing a bumpy road due to litigation that is now before the state Supreme Court.

In May, Gov. Jared Polis signed legislation to place a measure on the November ballot to allow the state to retain and spend revenue in excess of its TABOR (Taxpayer's Bill of Rights) cap, make temporary assessment rate reductions for residential property, incrementally reduce the assessment rate for commercial property, and create a limit for local property taxes that excludes school districts and home-rule cities and counties.

"This common-sense proposal cuts taxes for property owners, seniors and businesses and ensures the funding for local service providers," the Democratic governor said in a statement. "This money-saving plan builds upon our work to deliver real results for Coloradans by providing over $1 billion in property tax relief over the past two years."

The legislation was sparked by big rises in assessed value. Assessors in the nine-county Denver area reported in April that residential property values increased by 35% to 45%.

The plan, which reimburses local governments and schools for lost property tax revenue, would reduce TABOR refunds by an estimated $166.6 million in fiscal 2024, rising to $358.6 million in fiscal 2025, according to a Colorado Legislative Council fiscal note. 

Fearful the ballot measure, if passed, would end TABOR refunds to taxpayers in just a few years, a lawsuit was filed by the conservative advocacy organization Advance Colorado and others claiming the legislation violates the state constitution's single-subject requirement and the wording of the ballot question fails "to provide a clear, detailed and politically neutral explanation of its contents." 

Denver District Court Judge David Goldberg on June 9 ruled against the plaintiffs, while questioning whether he had jurisdiction over the matter. 

The state Supreme Court agreed to hear an appeal and set a briefing schedule for June and July, according to Michael Fields, Advance Colorado's president.

Colorado's quarterly economic forecast released last week forecast TABOR refunds to taxpayers at $3.5 billion in fiscal 2023 and $536 million in fiscal 2024, with the decrease due to "tightening financial conditions that limit firm profits, reduce consumer demand, and lead to falling wage and job growth." The fiscal 2024 forecast did not incorporate passage of the ballot measure.