Deal struck on property tax relief

AUSTIN – Texas property owners will receive tax relief through a $18 billion tax-relief plan deal that saves face for each of the “Big Three” GOP leaders, Lt. Gov. Dan Patrick and Speaker Dade Phelan announced on Monday.

The $18 billion compromise – which includes more than $5 billion approved for relief in 2021 – between the Texas House and Senate would give increased tax relief for the state’s 5.7 million homeowners and create a tax-credit pilot program for non-homesteaded properties. 

It would also cut taxes to small businesses and send billions of dollars to school districts so they can cut their tax rates across the board, according to details made public by state leaders Monday.

The proposal must clear both chambers before it heads to Gov. Greg Abbott’s desk.

Over the next two years, the proposed rate cut would cost more than $12 billion, as the state gives money to school districts to offset their loss of property-tax revenue.

In a news release, Patrick and Phelan stressed business as well as homeowners would benefit from the rate cuts.

In a separate statement, Abbott noted that in his re-election campaign last year, he vowed to apply at least half of a projected $33 billion state surplus into property-tax relief.

“Today’s agreement between the House and the Senate is a step toward delivering on that promise,” Abbott said.

For Patrick, the deal vindicates his push for increasing homestead exemptions, which experts agree concentrate a greater share of the relief on homes of modest value.

Under the proposal, the mandatory homestead exemption on school taxes would go up to $100,000, a $60,000 increase, assuming voters approve a constitutional amendment on Nov. 7.

As the lieutenant governor has noted, that affects 5.7 million homeowners in Texas.

For Phelan, who has championed tightening an existing cap on appraisal creep for homesteads so that it applies to commercial property, the deal gets his foot in the door:

“Non-homesteaded properties, valued at $5 million and under, including residential and commercial properties, will receive a 20% circuit breaker on appraised values as a three-year pilot project,” Patrick and Phelan’s news release said.

It’s not clear how much real-world effect the pilot project would have.

In testimony before the House Ways and Means Committee on Friday, Shannon Murphy of the state comptroller’s office shared a chart showing the highest one-year leap in market value for commercial real estate was 15.55% in 2022. The category includes apartments and commercial properties, she said.

Absent from the compromise were relief for renters, such as annual rebates of 10% proposed last week by Dallas Democratic Rep. John Bryant; and higher salaries for teachers.

Abbott has signaled he plans to call a special session this fall on school choice. In the regular session, educator raises were tied to a proposed education savings accounts program, which would allow families to spend public dollars on private school tuition or other services.

Without providing details, Patrick and Phelan’s release stated the legislation, “will also include savings on the franchise tax for small businesses and create newly elected positions on local appraisal boards.”

In this year’s regular session, the Senate passed Senate Bill 5, which among other things created an “inventory credit” on the state business-franchise or “margins” tax costing the state $1.05 billion over two years.

Under the bill, which died in the House, 20% of the property taxes a business pays on inventory could be applied as a margins tax credit. 

Statewide, the credits’ cost would have been capped at $525-million a year, according to a fiscal note.

Currently, the boards of county appraisal districts are appointed by the taxing jurisdictions such as cities, counties and school districts that rely on the appraisals to calculate tax rates and revenues. 

It’s unclear precisely how the proposed legislation would change the districts’ governance.

“The deal represents a significant win for providing relief to Texas property owners and reflects the commitment of Texas leaders to address the concerns of taxpayers and provide significant relief from the burden of escalating property taxes,” Patrick and Phelan’s release said.

Phelan gave credit to Dallas GOP Rep. Morgan Meyer, the chairman of Ways and Means, and House Administration Committee Chairman Will Metcalf, R-Conroe, saying they “worked tirelessly behind the scenes” in recent days to hammer out the deal with the Senate.

For 20 years, Patrick has been pressing the Legislature for lower property taxes, he noted in the release.

“It has been a long road, but this is a great day for all property owners,” Patrick said. “Speaker Phelan and I worked diligently together over the last week on the final bill. It made the difference. It may have taken overtime, but the process has produced a great bill for homeowners and businesses.”

Later today, an omnibus property tax relief bill and a franchise tax relief bill, which will originate in the Senate, will be filed, the release stated.

The constitutional amendment will start in the House, it said. The goal is “passing the bills later this week,” it concluded.