88th LegislatureEducationElections 2022Taxes & SpendingAbbott Backs Eliminating Largest Component of Property Tax Bills in Texas

Governor Greg Abbott told KPRC 2 Houston this week, “I strongly support using the state surplus to reduce the amount of property taxes owed.” 

He then stated the Texas legislature should eliminate the school district Maintenance and Operations (M&O) tax rate in a lasting manner, not a one-time buydown.

“This has to be done in a way so mathematically it can be calculated so if we put in a billion or five billion whatever, it will be enduring for every year into the future,” he added.

Put together, this outline of a policy is essentially the Texas Public Policy Foundation (TPPF) plan called “Lower Taxes, Better Texas.”

That plan calls for the state to use $0.90 of every surplus dollar to buy down the M&O rate to elimination by 2033.

“By returning most if not all of the surplus dollars to taxpayers through lowering school district M&O property taxes, Texans can pay lower property tax bills now until they are eliminated in a timely manner,” TPPF Chief Economist Vance Ginn said in a release.

“Local property taxes are too high and growing too fast in Texas. I applaud Governor Abbott’s proposal today to help mitigate this challenge that’s at the top of the minds of homeowners, renters, and businesses across the state.”

The school district M&O rate accounts for about half of Texans’ property tax bills.

To date, the Texas legislature has taken various measures to stem the burden of property tax growth. In 2019, they capped year-to-year property tax increases for school districts at 2.5 percent and other localities at 3.5 percent without voter approval. They also spent $5.1 billion to buy down school property tax rates, supplemented by another $1.1 billion of compression in the 2021 session.

The legislature also earmarked $3 billion of its federal coronavirus aid for “property tax relief” in the 2023 session.

Texas’ school finance system is funded by both state money and local property tax collections and acts like a seesaw — when the proportion paid by one side increases, the opposite decreases. That is tax rate compression in functionality.

A 2022 report by the Texas Taxpayers and Research Association estimates the 2019 reforms have saved taxpayers upwards of $6 billion across the state than they otherwise would have paid.

The legislature has also increased homestead exemptions with voters approving two constitutional amendments this past weekend doing just that.

But each of those reforms, as one of the architects of the 2019 reforms, state Rep. Dustin Burrows (R-Lubbock), has described, was meant to stem the growth of property taxes.

Eliminating the M&O rate, however, would substantially reduce property tax bills. The measure is among the Senate’s interim charges, increasingly indicating Lt. Governor Patrick’s openness to it.

Meanwhile, the House’s interim charges do not include that, but focus on earmarked funding and appraisal reform.

During his primary, Governor Abbott’s property tax plan omitted M&O elimination, instead calling for continued compression every year, appraisal reform, and raising the bar for voter approval of local government bonds.

After previously dire projections, the state may enter next session with as much as a $25 billion budget surplus after its tax collections rebounded significantly from the pandemic.

The legislature reconvenes in January, and Republicans in both chambers have extolled their desire to provide property tax relief in some fashion. And if the governor holds tight to his support for M&O elimination, that item will have the support of the biggest political hitter in the state.