87th LegislatureState HouseTaxes & Spending$175 Annual Homestead Exemption Approved by Texas Legislature as Property Tax Reform

After disagreement on the form this property tax reform should take, the Texas legislature settled on increasing the mandatory homestead exemption.
October 19, 2021
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After a few revisions, the Texas legislature approved property tax reform before it adjourned sine die on the third called special session. The final version took the form of an increased homestead exemption for school districts from $25,000 to $40,000, amounting to an estimated $175 per year savings in perpetuity.

Additionally, the legislature set aside $3 billion in federal coronavirus aid from the American Rescue Plan Act (ARPA) for future tax relief during the 88th legislative session.

“Both the Senate and House offered up separate proposals for one-time property tax relief through either compression of tax rates or checks sent directly to homeowners,” Lt. Governor Dan Patrick and House Speaker Dade Phelan (R-Beaumont) said in a joint Tuesday morning statement. “After further discussion, the two bodies agreed to create perpetual savings by increasing the homestead exemption.”

Rep. Matt Schaefer (R-Tyler) criticized the exemption, saying, “If your tax appraisal value goes up by $15,000, this ‘property tax relief’ is a complete wash. And that is not improbable.” 

“So I will not be calling it property tax relief. I will take it, but I won’t make much of it when I explain it to folks back home.”

The Texan Tumbler

Property tax relief was a late addition to the third special session call by Governor Greg Abbott. The legislature had some money with which to play on its various avenues. There’s $16 billion in federal coronavirus aid that must be allocated — which has a fiscal note attached prohibiting its use for tax cuts that is currently being challenged in court.

The first iteration of the relief, proposed by the Senate, was a $2 billion to $4 billion compression of school district Maintenance & Operations rates — similar in function to the legislature’s 2019 reform. It would have provided an estimated $200 in savings to the average homeowner in a one-time reduction.

The Texas Comptroller of Public Accounts estimates a $7.85 billion surplus for Fiscal Year 2022-2023. Either the ARPA avenue or the savings route would have provided more than enough to finance that compression. The Senate proposal’s total amount range is due to a provision that would’ve added an up to additional $2 billion compression contingent upon the fiscal state of the June 2022 biennial revenue estimate.

On the other side of the capitol, the House’s proposal was a blueprint for one-time rebates sent directly to homeowners. The Senate balked at this proposal, along with the conservative Texas Public Policy Foundation whose CEO Kevin Roberts said, “Proposed checks that would provide some relief will likely be taxable under IRS regulations and will end up hurting many Texans come tax time.”

“Even more concerning, there are no permanent changes to the system that would compress rates over time.”

Eventually, both of those proposals were scrapped, and the homestead exemption route was chosen. To cement it in the state constitution, the House successfully suspended the rules, a rarity in the lower chamber, to pass Senate Joint Resolution 2  that voters will have to approve in a statewide vote.

School district Maintenance & Operations rates constitute the lions’ share of the overall property tax burden in Texas. School financing is balanced between the local districts and the state government. Like a seesaw, when the share of one side rises the other lowers.

Compression, in the legislative jargon, is simply the state increasing its share to decrease the localities’ and thus reduce the amount billed to local taxpayers. But a homestead exemption is an automatic reduction in the taxable value of a homeowner’s property.

After a tumultuous, chaotic summer the legislature has adjourned and will likely not return this year — but rumblings about a January 2022 special session to do “some cleanup on some items.”

But there’s no word on whether the legislature’s property tax reform is included in that.

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Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.