Did Patrick deliver a win for average Texans?
How high are Texas property taxes? Just ask Google. Looking for a fresh way to explain the lopsided burden on homeowners in this state, we started typing in a related query and got some interesting auto-complete options.
They’re so high ... “you throw up.”
They’re so high ... “you pass out.”
We’ll add one to the list: they’re so high that state leaders who have been at each other’s throats for months now on how to address the problem finally, actually agreed on a solution.
And somehow, homeowners appear to have come out ahead. And somehow, arch-conservative Lt. Gov. Dan Patrick seems to have prevailed as a defender of the average Texan.
We’ve been pointing out for months that Patrick’s plan in the Senate favoring regular homeowners was superior to House Speaker Dade Phelan’s, which favored more affluent property owners and businesses. We weren’t sure who would prevail in a stalemate that seemed to only deepen when Gov. Greg Abbott began a vetoing spree to force a compromise.
This week we got our answer: there’s something for both sides, but, basically, Patrick was successful in expanding one of the few avenues of relief that Texas homeowners have from property taxes: the “homestead exemption.” In the Houston area, the typical home jumped in value 18 percent and 9 percent over the last two years, but the homestead exemption lops off $40,000 of the taxable value and caps the annual growth in taxes to 10 percent. For businesses, though, there’s no limit to annual increases.
The new proposal would raise the homestead exemption to $100,000 as Patrick had wanted. Some homeowners won’t end up paying any property taxes. Even so, the bulk of the cuts are through “compression,” which reduces tax rates for all properties, including high-rises, shopping centers and refineries. Phelan and Abbott favored an approach that only used compression, which would given a larger share of the cuts to big businesses.
The deal also includes an exemption for medium-sized businesses from “franchise taxes” on their revenue as well as a pilot “circuit breaker” that would cap the increase in taxable value for any property worth less than $5 million dollars to a maximum of 20 percent per year between 2024 and 2026.
Of course, big corporations aren’t thrilled with this result. This Tuesday, when the House budget committee held a hearing on the proposal, Jennifer Rabb, who represents the likes of H-E-B, Chevron and Amazon as the president of the Texas Taxpayers and Research Association, raised some concerns.
She said her group doesn’t oppose a homestead exemption but that its “dramatic increase” will shift “the school property tax burden by about three percentage points from homeowners to businesses.”
She pointed out that in 397 of the state’s 1,014 school districts, the average home value is less than $100,000. Those homeowners, often in rural areas, wouldn’t pay any property taxes at all while businesses “provide the jobs that make homeownership possible in the first place.”
We agree that balance is needed and employers are critical to Texas prosperity, but it’s typically the businesses that can afford tax lawyers and lobbyists that come out ahead. If this property tax cut is basically a done deal in the Legislature, we’re glad that for once the scales have tilted somewhat toward ordinary homeowners and small businesses.
What concerns this editorial board is the sustainability of these cuts. Most states rely on a mix of sales, property and income taxes. Texas doesn’t have income taxes and by cutting property taxes, state finances are vulnerable. If a recession hits, it may well be that Texas schools are left dry. The state won’t be able to pay for public education because it will be relying too much on sales taxes that disproportionately impact the most vulnerable Texans and big businesses that will only put with so much before wielding their full influence. If a recession hits, it may well be that Texas schools will be in a dire situation.
The new tax plan must be accompanied by an amendment to the Texas Constitution. To get that amendment on the ballot, two-thirds of the House must approve it.
We don’t know what negotiations took place behind closed doors, especially as the impeachment of Attorney General Ken Paxton loomed over the last days of the regular Legislative session, but Democrats have failed to get many of their priorities included in the tax deal. Last week, they put forward their own proposal which would have increased the per-pupil funding for school districts and provided rebates to renters. More than half of Houstonians don’t own their homes. They likely won’t benefit directly from property tax cuts. If the rental market remains competitive, landlords can pocket or reinvest their tax savings. The Republicans’ deal also does nothing for teacher pay and the basic per-pupil allotment for school districts. Education funding remains ensnared in the fight over school vouchers.
If the property deal passes and gets approved by voters in November, those who live in and own a $315,000 house in Houston ISD would see a savings of roughly $1,050. That’ll be welcome relief but not the stable and sensible long-term foundation Texas needs.
Sizable savings are a welcome relief, but not enough to address needs.