86th LegislatureIssuesState HouseState SenateTaxes & Spending“Big Three” Push Sales Tax Increase as Offset for Property Tax Restriction

The "Big Three" said they are close to delivering on a property tax reform promise, but it must come with a sales tax increase.
May 3, 2019
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As the 86th Legislature enters the final weeks, the pressure is on to deliver on the biggest concern facing Texans: climbing property tax rates. The “Big Three” (Gov. Greg Abbott, Lt. Governor Dan Patrick, and Speaker Dennis Bonnen) held a press conference on Friday afternoon to address this issue.

Inextricably tied to property taxes is school finance reform.

The two issues appear to be closer and closer to becoming law, although key policy details remain unresolved. “We are on the five-yard line, now we just need to get across the goal line,” Patrick said at the press conference.

Senate Bill 2 passed the Senate on April 15. It was then taken up in the House Ways & Means Committee, in which amendments were made to the bill — such as exemptions for school districts and other special taxing units.

Overall, the bill institutes a 3.5 percent property tax increase cap on all municipalities and counties above the de minimus tax rate. Going above the threshold would trigger an automatic election in which voters could approve or disapprove the increase.

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Governor Abbott called SB 2 “a landmark reform that alters the punishing property taxes in Texas by limiting the ability of school districts to increase property taxes above 2.5 percent” of what they collected the year before.

“The bill does not cut property taxes,” Ways & Means Committee chairman Dustin Burrows (R-Lubbock) emphasized repeatedly during the floor debate on April 30. The House substitute of SB 2 passed by a vote of 109 “Yeas,” 36 “Nays,” and two “present not voting.”

Having passed out of both chambers, the bill now moves to a conference committee where differences will have to be reconciled. Approval of the conferenced version of the bill would then send the legislation to Gov. Abbott’s desk for signature.

Speaker Bonnen added, “There’s not much to conference on…they’re pretty similar bills.”

One difference they must reconcile, however, is who gets exempted from the cap. Currently, HB 2 exempts hospitals and community colleges from the cap and the Senate’s version includes an indigent defense exemption for counties. And the inclusion of the “de minimis” exemption, with its potential to increase taxes for some smaller cities, may also throw a curveball into the discussion as well.

But as Burrows stated during the House debate, “meaningful property tax relief must be done in the Education Code,” since that is what dictates property tax collections for school districts — the largest aspect of property tax collection.

The “big achievement” Governor Abbott identified is “slowing the growth of property taxes in Texas.” To provide greater property tax relief, the “Big Three” have decided on a one percent sales tax increase to balance out the cost increase. The Governor touted the sales tax increase as the solution to the demands of Texans for relief.

The revenue from the sales tax, “will be dedicated to driving down property taxes,” Abbott added.

Bonnen projected the state would be able to “reduc[e] property taxes by fifteen cents for every dollar” thanks to the sales tax swap.

The Legislative Budget Board (LBB) estimate of the sales tax swap, however, shows that the plan would yield an effective increase in overall tax payments for households with incomes below $100,000, resulting in increased payments anywhere between $45 and $65 a year.

The LBB estimate also shows that households with income between $100,000 and $150,000 would have their effective taxes reduced by roughly $20. And for households with incomes of $150,000 and over, the effective tax payment reduction would come out to around $400.

To institute a constitutional amendment for the proposed sales tax increase, a two-thirds vote from each chamber is needed (100 in the House, 21 in the Senate). That means Republicans will need the support of 18 Democrats in the House and two in the Senate. If that happens, which is a tall order, Texas voters will have the opportunity to approve or deny the sales tax increase measure at the ballot box.

Speaker Bonnen said the House will take up HJR 3, the proposed amendment for the sales tax increase, sometime next week.

Abbott also stated that the maintenance and operation components of property tax bills “will be reduced by a minimum of 15 percent, maybe even 20 percent,” with the help of the sales tax increase. “We are hoping to deliver true property tax relief through property tax reductions,” Abbott added.

Patrick focused on recapture, or what’s known as the “Robin Hood Program” as another key component, saying, “the money that’s going to the school districts, is going to stay in the school districts.” Recapture is the process by which money is sent from wealthier school districts to poorer school districts.

Indicating the challenges that Republicans face over their proposed sales tax measure, Texas Democrats released a statement immediately following the press conference that said, “Despite the dire consequences and bipartisan pushback against this dangerous measure, Republican Party leaders decided to double down on their plan to increase the sales tax.”

An under-discussed topic at the press conference is the overall state of the Texas budget.

The projected budget for the next biennium showed an over 14 percent increase in spending from the 2018-2019 budget. That would amount to more than $30 billion in expenditures. That doesn’t even include the additional spending that could be added to the actual budget passed.

The Legislature has much to work out into the final few weeks of the session. And what is certain for Texans is that many details remain up in the air.

And while reform may indeed ultimately be implemented that would slow the growth of property taxes, a tax cut that would result in every Texan paying less overall to state and local governments next year does not currently appear likely.

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Brad Johnson

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 watching and quoting Monty Python productions.