Overall, Texas is a relatively low-tax state, being one of only nine states that does not have an individual income tax. Unfortunately, that does not mean that Texas families pay little property tax. In 2018, Texas had the third-highest effective property tax rate on single family homes (2.18 percent), with only New Jersey (2.25 percent) and Illinois (2.22 percent) having higher effective rates. In 2019, the 86th Texas Legislature enacted key reforms in House Bill 3 and Senate Bill 2. These reforms were intended to slow growth in property taxes over time by using state revenue to “buy down” school district property tax rates and by requiring voters to approve rates proposed by a taxing jurisdiction if those rates would result in the jurisdiction’s year-over-year growth in property tax revenue exceeding certain limits.
These legislative reforms have yielded significant benefits. The state’s ranking in terms of effective property tax rates on single family housing improved to ninth and tenth in 2021 and 2022, respectively. Over time, the mechanisms in HB 3 and SB 2 should improve the state’s ranking still more, but that process will take years. Texas families deserve additional property tax relief now, particularly given the dramatic increase in the price of homes in the years prior to the recent cooling of the housing market.
Fortunately, an opportunity for the Legislature to offer additional property tax relief materialized in early 2023 when the Comptroller projected that the state would end the 2022-2023 biennium with a record $32.7 Billion budget surplus. Governor Abbot promised to reduce property taxes for Texans and this surplus created a perhaps once in a generation opportunity to do so. After a lengthy debate on the specific manner in which to deliver property tax relief, the 88th Legislature adopted HJR 2 in the second called special session. But to become law, that measure, in the form of Proposition 4, must be approved by voters in November.
Proposition 4 would increase the homestead exemption from school district property taxes from the current $40,000 to $100,000. The homestead exemption is the amount of an individual’s primary residence which is not subject to school district property taxes. For example, assuming a homestead exemption of $40,000 and a primary residence worth $300,000, school district property taxes apply only to $260,000 of the residence’ value. The approval of Proposition 4 would exempt another $60,000 of homestead value from school district property taxes.
If approved by the voters, the proposition will deliver three additional benefits to taxpayers. First, owners of non-homestead real property, such as property owned by businesses, would benefit from a cap of 20 percent in the year-over-year growth in the appraised value of their property (a cap of 10 percent already applies to homestead properties). This would ensure that all property owners- not just homestead owners- are protected from eye-popping increases in property tax appraisals when they live in an area with rapidly appreciating property values. This provision, though, is temporary and would sunset in 2026.
Second, Proposition 4 would also provide for an easier path to property tax relief in future biennia by amending Article VIII, Section 22 of the state constitution, sometimes referred to as the state’s “tax spending limit”, which limits the biennial rate of growth in state appropriations of state tax revenue not dedicated by the constitution to the projected rate of growth in the state economy. While the spending limit is a critically important bulwark against excessive government spending, it poses a problem when the state wishes to use surplus state tax revenue to buy down local property taxes. Proposition 4 would make clear that appropriations made for property tax relief are not subject to the tax spending limit. This measure is consistent with the spirit behind the tax spending limit; the limit is intended to restrain the growth of government, not prohibit tax relief.
Lastly, the proposition includes a provision that would permit the Legislature to provide that members of an appraisal district’s governing body (i.e., its board of directors) in mid-sized and large counties may serve terms of up to four years. Along with already-enacted companion legislation, this aspect of Proposition 4 would allow voters to elect some members of the appraisal district’s directors to four-year terms. Traditionally, the governing bodies of the taxing units located within the appraisal district choose its directors. But to ensure accountability, voters should have a say in appointing the people who govern the appraisal of their homes, and ultimately, their tax burdens.
Proposition 4 should be supported by all Texans as an example of how good government works. The economic performance of Texans as a whole generated a massive amount of tax revenue for the state. Rather than using this windfall revenue to justify the creation of expensive new government programs, the state’s leaders wisely chose to offer the bulk of it to Texans in the form of tax relief. Texans of all economic classes and political persuasions have sought relief from property taxes for years. Voting “yes” on Proposition 4 this November will ensure they get that relief.