Proposal Addresses Frustrations with Property Taxes

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Dick Lavine, Senior Fiscal Analyst at the Center for Public Policy Priorities

On Tuesday, Senators Jane Nelson and Charles Schwertner drew much attention when they announced several major tax cut proposals, including a homestead exemption increase.

As part of our week-long series on tax policies, today we’re looking at proposals to address frustrations with residential property taxes, such as the homestead exemption increase. While many of the proposals take Texas in the wrong direction, an increased homestead exemption can help Texas homeowners.

Increase the Homestead Exemption

Senator Nelson’s proposal (SB 1) calls for increasing the homestead exemption for school property taxes from $15,000 to 25 percent of median market value of a Texas home, or about $33,000 in the first year.  This would lower the school property tax bill for the average homeowner by about $240.

School districts would not lose revenue because of the increased exemption, because the state would replace the lost property tax revenue with additional state aid through the school finance system.  This proposal is expected to add $2.3 billion to the cost of state aid in the next biennium.

This flat-dollar-amount exemption results in all homeowners in a school district seeing the same dollar-amount reduction to their tax bill. Flat-dollar exemptions concentrate the benefit of the reduction on owners of lower-value homes, who may be more likely to have difficulty paying their tax bill. A $240 reduction in tax responsibility would make more difference to a lower-income family than to a higher-income family.

In addition to increasing the school homestead exemption, allowing local governments to offer a flat-dollar-amount exemption can make our property tax system more equitable. Both proposals benefit all homeowners, especially families who own lower-value homes.

Lowering Appraisal Cap Shifts Tax Responsibility

Another potential tax policy issue being proposed this session is the idea of lowering the appraisal cap. Current law limits the rate at which the taxable value of a homestead can increase from one year to the next to 10 percent. This appraisal cap is intended to prevent sticker shock in property tax bills, but the benefits go disproportionately to higher-value homes. Protecting high-value homes shifts local tax responsibility onto lower-value homes, renters, and businesses.

The Legislature must be smart about any changes proposed to the property tax system, which is the primary revenue source for public schools and local government services. Lowering the appraisal cap even further won’t address the real source of the problem—overreliance on property taxes to fund public services—particularly to make up for inadequate state support for public education. The $4.6 billion package of tax cuts announced this week risks Texas’ ability to invest in services and programs that all Texans need, such as quality public schools, hospitals, community colleges and emergency services.

Tomorrow: Lowering the roll back rate

At the Center for Public Policy Priorities, we believe in a Texas that offers everyone the chance to compete and succeed in life. We envision a Texas where everyone is healthy, well-educated, and financially secure. We want the best Texas - a proud state that sets the bar nationally by expanding opportunity for all. CPPP is an independent public policy organization that uses data and analysis to advocate for solutions that enable Texans of all backgrounds to reach their full potential. We dare Texas to be the best state for hard-working people and their families.

2 Comments

  • Last year both the Travis County Commissioners Court and the Austin City Council made clear that a state law will be required to force the Travis County Appraisal District to assess commercial property at 100% of its market value instead of the current 60%. The Austin city council said they were going to liaise with the Texas legislature. That’s the last I have heard of that. That is the appraisal change that I want the Texas legislature to make.

    Ray Collins 25.02.2015
    • A bill to help get all commercial property on the tax rolls for its full market value is SB 280 by Sen Kirk Watson. You can contact his office for details.

      Dick Lavine 26.02.2015

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