Property Taxes & Local Government Spending
Focusing on M&O compression and homestead exemptions while reigning in local government spending poises a real chance to provide property tax relief.
House Committee on Ways & Means
The two most prominent options for providing Texans with property tax relief are compressing school district maintenance and operations (M&O) tax rates and increasing the homestead exemption from school district property taxes. Other options would include more targeted relief to certain taxpayers, such as businesses, which have a high average tax burden due to not benefitting from the homestead exemption and the 10 percent cap on the year-over-year (YoY) increase in the appraised value of homesteads (some commercial real estate qualifies for a 20 percent YoY cap on increased appraisal value, but that provision is scheduled to expire at the end of 2026).
Thus, while the ending certification balance for this biennium is very unlikely to reach the levels seen the last two biennia, it is quite possible that the state will end the current biennium with surplus revenue. While an economic downturn in FY 2027 could change that projection, if the current biennium does end with a surplus, the Legislature should dedicate at least half of it to property tax relief. Given the strong arguments for both increasing the homestead exemption and compression school district M&O tax rates, the Legislature should focus on these mechanisms to provide that relief.
In 2024 (the most recent year addressed by the LBB on this point), Texas local governments received remittances from the state of $13.7 billion in (local) sales tax revenue. In 2025, they imposed $89.5 billion in property taxes, although that number is only an estimate. In 2013, property tax levies were just over half of that figure ($45.2 billion).
Local governments’ spending has been fueled in part by debt issuance. As of the end of FY 2025, local government debt in Texas stood at $368.3 billion. Debt that is paid through property tax revenue accounted for about 70 percent of that amount— $256.6 billion.
Read the full testimony in the link above.
