Huge property tax cut finally passes in Texas

The Texas Legislature took final action Thursday on a massive property tax cut after beating back attempts in the House to include teacher pay increases and other measures in the bill.

Senate Bill 2, which passed the Senate in a 31-0 vote, cleared the House in a 133-4 vote.

Texas Governor's Office

"The Texas House and Senate fulfilled our promise with an agreement that delivers a comprehensive, long-lasting solution to increasingly burdensome property tax bills," Gov. Greg Abbott said in a statement.

The legislation reflects a deal announced Monday by leaders of the Republican-controlled legislature.

The $18 billion package would reduce school property taxes for homeowners and businesses by $12 billion through rate compression, while raising the homestead exemption to $100,000 from $40,000.

Non-homestead properties valued at $5 million or less would get a 20% circuit breaker on appraised value under a three-year pilot program and small businesses would get some relief from franchise taxes.

With the state projected to end its fiscal 2022-23 biennium on Aug. 31 with a record $32.7 billion budget surplus, Abbott and lawmakers 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 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.

When the regular legislative ended May 29 without a deal, Abbott immediately ordered a special session, which failed to resolve differences.

After a second special session called by the governor began June 27, the Senate passed a tax cut bill June 28 that included $3.2 billion in supplemental payments to teachers over two years. That bill was not taken up by the House.

"Billions of dollars to keep teachers in the classroom — at a time of record shortages — was stripped away without any explanation all while school districts in every corner of Texas are dipping into reserves or spending money they don't have to keep teachers in the classroom," a statement from House Democrats said.

In a report this week on the education sector and inflation, Moody's Investors Service said tapping reserves to cover growing costs would be a credit negative for school districts.

Attempts by Democratic House lawmakers Thursday to amend SB 2 to include teacher raises and tax relief for renters were defeated.

The final passage of a tax cut plan may clear the way for the reconsideration of dozens of bills that Abbott vetoed to put pressure on lawmakers.

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. 

Abbott has said his goal is to eventually eliminate school maintenance and operating taxes, which total nearly $33 billion this year. School property taxes pledged for debt service on bonds would remain in place.