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Writer's pictureTom Wolfe

Property Tax Relief: House Committee on Ways & Means

The Legislature should use the state's projected budget surplus for additional property tax relief.

The Texas Legislature has enacted several key property tax reforms since 2019. Pursuant to House Bill 3 (86R, 2019) the state used surplus revenue to reduce, or “compress,” school district maintenance and operations (M&O) tax rates. In addition, HB 3, along with Senate Bill 2 (86R), lowered the percentage by which a taxing unit’s year-over-year tax revenue, subject to certain adjustments, may increase without the approval of local voters in an election (2.5 percent for school districts and 3.5 percent for most other taxing units). Furthermore, HB 3 implemented a mechanism by which school district M&O tax rates are automatically further compressed if local or statewide property values increase beyond 2.5 percent. In 2021 the Legislature adopted a resolution increasing the homestead exemption from school district taxes from $25,000 to $40,000 (approved by voters in 2022).


The effects of these reforms and the 2023 reforms discussed below are becoming increasingly evident as time passes. In 2018, only New Jersey and Illinois had higher effective property tax rates on single family homes than Texas (2.18 percent). In 2023, Texas had the twelfth-highest effective property tax rate as determined using the national median home value ($430,321).2 Notwithstanding the reforms described above, it is still possible for property tax revenue raised in the state to grow over time as property values increase and new properties are built. But due to the enacted reforms discussed in this testimony, preliminary data for 2023 indicates that school district tax revenue actually declined in absolute terms.


The Comptroller’s most recent projection is that the state will end the 2024-2025 biennium with a healthy budget surplus of perhaps $20 billion. In addition, the Economic Stabilization Fund is expected to have a balance of approximately $23.8 Billion at the end of FY 2025; moreover, the ESF balance is expected to reach its constitutional limit in FY 2026, and as a result some funds that would normally be transferred to the ESF will remain in GR.5 Thus, the state will have the funds necessary to provide additional property tax relief in the 2026-2027 biennium.


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