What is Texas doing about property taxes? And will it save you money?

AUSTIN — Since seizing control of state government in 2002, Republicans have touted their fiscal stinginess and vigilant opposition to any new taxes.

As one of only seven states not levying income taxes on individuals, Texas has just two legs of the usual “three-legged stool” that pays for public services — sales and property taxes.

Pressure from grassroots GOP conservatives to slash property taxes has been a constant during the more than two decades of Republican rule.

One thorny problem: The state only has partial control over one of the many forms of property taxes — the one school districts collect to pay for maintenance and operations.

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Through the state budget, the Legislature pays for part of the cost of local schools. Districts levy a maintenance and operations, or “M&O tax,” and another one to pay for bonds generally used to build facilities.

So a buy-down of M&O tax rates using state dollars plus restrictions on appraisals and when voters must approve a newly adopted rate are about all that the governor and lawmakers in Austin can dictate.

It’s been a formula for massive frustration.

As former Gov. Rick Perry and current Gov. Greg Abbott signed one tax-cut legislative package after another, rising property values and actions by other local taxing entities at least partially diminished the effects.

For more than a decade, GOP lawmakers have lamented that despite attempts to curtail property taxes, constituents haven’t sent many thank-you notes.

This year, GOP leaders proclaimed that with the state’s record-setting surplus, things would be different. Here’s a look at key questions raised by the property-tax relief package the Legislature sent Abbott late Thursday:

What’s in it for homeowners?

Two treats lie in store for homeowners if the deal becomes law, as seems assured — higher exemptions and lower rates.

The exemptions work this way: On school taxes, a residence declared as a homestead currently gets $40,000 lopped off its taxable value.

If a home is appraised at $388,639, which was the market value of the average single-family home in the Dallas Independent School District last year, the district must exempt $40,000. The owner pays school taxes on it as if it were worth only about $349,000.

Under the proposed package, the amount of a homestead’s value that would be excluded is $100,000. In DISD, that would take the typical home’s taxable value down to about $289,000.

Using the Dallas district’s 2022 total tax rate of $1.18 per $100 of assessed value, an additional $60,000 of exemption would save a homestead owner $708.

Statewide, the increase to the homestead exemption would save the average homeowner $681, according to Sen. Paul Bettencourt, R-Houston, author of the omnibus property-tax overhaul bill.

How much will the compromise deal cut school tax rates?

A reduction by the state of school M&O tax rates benefits all categories of property — commercial and industrial, as well as residential.

Under a 2019 law, the recent surge in Texas real estate values requires school districts to adopt lower, offsetting tax rates — a decrease of 9.9 cents per $100 of assessed value.

The GOP leaders’ recent compromise would add an additional decrease of 10.7 cents, making for a total reduction of nearly 21 cents.

Currently, the average M&O tax rate for Texas school districts is more than 91 cents with a debt-retirement tax adding nearly 23 cents, for an average total school tax rate of $1.14 per $100 of assessed value.

The bill sent to Abbott’s desk takes that total down to 93 cents.

To see approximate savings, businesses and owners of second homes or any other “non-homestead” property can just deduct 21 cents from their school district’s current rate.

I’m a homeowner. Can you help me guess my savings?

Yes. In the Dallas school district, homestead owners can factor in both the higher exemptions and lower rates with some back-of-the-envelope calculations.

Currently, last year’s rate of about $1.18 gets applied to the average single-family home worth $388,639, but after two exemptions: the $40,000 required by the state, plus 10% off, which is granted voluntarily by DISD.

Apply the district’s 2022 total tax rate of $1.18 per $100 of assessed value to the $309,775 of taxable value, and voilà!

Tax owed, before the laws are changed: $3,655

Now, assume the district keeps the optional 10% local exemption. You lop off $100,000 from the average home’s value, plus that additional $38,864. Now, you’re taxing only $249,775 of value, at a reduced rate of 97 cents per $100 of assessed value.

Tax owed, after the laws change: $2,423.

That’s a reduction of $1,232.

Seniors and disabled owners will save even more.

In May 2022, when voters approved a $15,000 increase to the homestead exemption, they were inadvertently left out of the benefits. They’ll pocket an additional $170 a year if they own an average-value Texas home of $331,000, Bettencourt said.

In Dallas County, you can find average values of single family residences on the appraisal district’s website. Tax rates for the different taxing entities can be found on a separate web page.

Is anything being done to help with appraisal creep?

Since 1997, when the Legislature proposed and voters approved an “appraisal cap,” a homestead’s taxable value can’t grow by more than 10% a year.

The cap applies to city, county and other taxes — not just those levied by schools.

This year, House Speaker Dade Phelan wanted to lower the limit for annual value growth to 5%, and not just for homesteads. Under a proposed constitutional amendment that the Beaumont Republican pushed through the House multiple times, the appraisal cap would apply for the first time to all categories of real estate.

Phelan got pushback from two influential sources.

Business groups objected. For years, they’ve criticized appraisal caps as shifting the burden of property taxes in Texas. Their argument: If you lower someone else’s values, you have to raise rates on the rest of the tax roll.

For generations, Phelan’s family has owned and developed commercial properties. Yet his move to bring those and industrial properties under the cap failed to move the lobby’s needle.

Also vehemently opposed was Lt. Gov. Dan Patrick, who once supported lower appraisal caps.

The 2019 law has made them unnecessary, Patrick argued this year. Revenue-growth caps of 3.5% on most cities and counties, and 2.5% on school districts, have required localities to lower tax rates as appraisal values rise, he said. Lowering caps on appraisals would distort real estate markets, Patrick argued.

In the recent negotiations, Phelan did win from Patrick a concession: The property-tax bill includes a “circuit breaker” experiment. It should help small businesses, Phelan and his allies said.

For tax years 2024, 2025 and 2026, the annual cap on growth of appraised values for “non-homesteads” — commercial property and second homes, for example — would be 20%. Only properties worth $5 million or less would qualify. The program would expire Dec. 31, 2026.

What about renters?

The proposed deal does not provide direct financial relief to renters.

Statewide, 37.4% of Texans do not own the homes where they live. Nearly half of Dallas County residents rent, while 57.2% of residents within Dallas city limits rent their home, according to 2021 figures from the U.S. Census Bureau.

GOP leaders have said they hope landlords would pass along some of their savings on property taxes to tenants. Competition in hot apartment rental markets would force them to do so, argued Dallas GOP Rep. Morgan Meyer, the House’s top tax-policy writer.

Democrats scoffed at such arguments as naive. Saying considerations of profit would drive the decisions of most real estate investors, the House’s most progressive Democrats proposed using some of the state surplus to provide 10% annual rebates to renters. The idea received a cool reception from GOP leaders.

Progressives say the Texas tax system is regressive, that the top one-fifth of households by income pay less than their fair share of state and local taxes.

Will the entire property-tax process become more transparent?

In urban counties, the plan would create three newly elected positions on local appraisal districts’ board of directors. They’d be expanded to nine members, from five members plus the county tax assessor-collector, who doesn’t vote.

The boards hire a chief appraiser and set the office’s budget.

In counties with populations of 75,000 and under, there would continue to be five voting directors — all appointed by the taxing jurisdictions such as cities, counties and school districts that rely on the appraisals to calculate tax rates and revenues.

Also, in the more populous counties, the directors, not the state district judge who’s the local administrative judge, would name the people who sit on panels that hear appeals.

Though Bettencourt, a former Harris County tax assessor-collector, has said the moves are needed to apply sunshine and accountability to appraisals, some tax experts fret the process may become more subjected to political pressures.