As Texas draws closer to the upcoming legislative session, lawmakers continue to hold hearings on how best to address adjusting or overhauling the state’s tax code.
The Senate Committee on Local Government, chaired by State Sen. Paul Bettencourt, held a hearing Thursday to examine how it will affect local jurisdictions.
The Senate Committee on Finance already held a hearing on the tax code in September to determine how it would affect state revenue.
The discussion focused on the effects of Senate Bill 2 of the 86th Legislature, which lowered the tax rate a jurisdiction can adopt without voter approval, and Senate Bill 2 of the 88th Legislature’s second special session, which raised the state’s homestead exemption.
The homestead exemption is the amount a homeowner can take off the value of the house they live in before it is taxed. SB 2 of the 88th Legislature raised that ceiling from $40,000 to $100,000.
James Quintero, policy director of the Texas Public Policy Foundation’s Taxpayer Protection Project, encouraged lawmakers to “go big” and “guard the gains.”
Quintero noted that school districts take on massive amounts of new debt through bonds, leading to local governments raising property taxes to pay them off.
“It’s been my experience that you have a small cadre of special interests—and I’m talking about the architects, the engineers, the construction firms, and the bond lawyers—who have really turned this into a cottage industry and have continued to benefit from the passage of bonds,” argued Quintero.
He explained that the proposed solution is to disallow anyone who contributes to a political action committee in support of a bond proposal from being awarded a contract resulting from the bond’s approval.
Quintero also warned of the unintended consequences of state-imposed property tax revenue limits in SB 2, which, he said, have not stopped local jurisdictions from adjusting their expenditures.
“So they go out there, they become subject to a revenue limit, and what ends up happening is you see an increase in fees, other tax sources go up, etc. etc.,” said Quintero. “So, when considering how to best protect all these gains, I think it’s very clear to me that we need a local expenditure limit.”
Carl Walker, a senior property tax analyst at the Texas Taxpayers and Research Association, reiterated many of the same points made by his colleague, TTRA President Jennifer Raab, at the Senate Finance Committee hearing in September regarding the burden shift from individual taxpayers to businesses.
“Single-family homes received 84 percent of the 2023 property tax relief and realized $3.67 billion in relief across the state. All state property, mostly business property, received only 16 percent of the tax relief, or $685 million,” said Walker.
Walker recommended to lawmakers that, instead of raising the homestead exemption again, they should consider exempting some business personal property and investing in more tax compression—when the state buys back local property tax decreases through the state sales tax.
During public questioning, North Richland Hills Deputy Mayor Pro Tem Blake Vaughn commented on a state law requiring that school bond notices include a section alerting taxpayers that approving any school bond will raise local property taxes.
However, Vaughn outlined, “some school districts in their messaging emphasize that the tax rate will not increase, implying that the state’s required language does not apply to their specific case.”
“By conflating tax rate with taxes owed, this messaging obscures the reality that new spending results in increased tax obligations, highlighting a need for greater transparency,” he added.
Bill Eastland, the treasurer of Texans for Freedom, proposed to the committee that the state should take steps to “completely privatize education in Texas.”
While complete privatization and elimination of property taxes is unlikely in Texas at this time, Gov. Greg Abbott is dedicated to passing some form of school choice in the upcoming legislative session, and Lt. Gov. Dan Patrick has pushed for continued property tax relief.
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