87th LegislatureState HouseTaxes & SpendingElimination of Main Property Tax Rate Component Considered by Texas House Committee

The Maintenance and Operations rate is the main factor in the property taxes citizens pay, and a new bill aims to eliminate it for school districts.
April 13, 2021
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Property taxes accounted for almost half of all tax collections across the state in 2019. Since 2012, the annual property taxes collected have grown 57 percent. 

A proposal by Rep. Andrew Murr (R-Junction) would significantly curtail that portion of taxation in Texas.

Ad valorem taxes, the technical name for property taxes, are only levied at the local level as the State of Texas relies only on various types of consumption taxes.

Localities — whether cities, counties, school districts, or special districts — have two components to the ad valorem rates their citizens pay: 1) the Maintenance and Operations (M&O), which finances run-of-the-mill costs part of everyday operations like salaries and supplies, and 2) the Interest and Sinking (I&S) rate which pays for new facility construction or existing facility renovation.

In 2019, school districts accounted for over half of the ad valorem tax collections and that segment has grown 57 percent since 2012.

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Murr’s legislation, House Bill (HB) 59, aims to eliminate entirely the M&O rate from school district property tax collections. While the degree varies from entity to entity, the M&O rate accounts for the lion’s share of the district’s total rate. For example, Austin Independent School District’s (ISD) M&O rate makes up 90 percent of its total rate.

The bill was considered in the House Ways & Means Committee on Monday.

Should HB 59 pass, starting in 2024 school districts would be prohibited from issuing an M&O tax to its taxpayers.

The legislation permits schools to issue an “enrichment” tax rate not to exceed $0.17 per $100 of taxable value to “educational opportunities of students enrolled in the district.” That total is roughly on par with many I&S rates.

To use an Austin ISD taxpayer under this scenario, the annual property tax bill for a median homeowner would decrease over $4,000. Taxes to fund schools would still be paid, however, as the M&O rate would be replaced with something to be determined.

Murr’s bill would also create an interim committee consisting of both Texas House and Senate members to evaluate that switch to some combination of consumption taxes. This is where the bill drew the most criticism, namely that no replacement had already been identified.

Rep. Trey Martinez Fischer (D-San Antonio) was critical of the proposal for that reason during the hearing. He also expressed concern for what he sees as a transition toward a system more burdensome on low-income individuals than the current one.

Property taxes are directly burdensome on property owners, who, cumulatively, tend to be higher earners. But that is neither always the case nor is it true that low-income individuals aren’t affected by ad valorem taxes. They drip into rent payments.

Proponents of a switch to consumption taxes maintain that rent payments would eventually become less burdensome, or even reduced in proportion to the reduction in their landlord’s tax bill. Martinez Fischer questioned how much of that would come to fruition.

The San Antonio Democrat then questioned the wisdom of dropping the current system with no alternative in place.

“For these heavy lifts, sometimes you have to lock us all in a room and force us to hammer it out,” said Murr in rebuttal. “Unless we’re highly motivated to change the system, it seems we’re okay with a system that doesn’t really work for our constituents.”

Vance Ginn, chief economist with the Texas Public Policy Foundation, told The Texan, “This will be a good step in the right direction provided it is part of a permanent move to a sales and use tax.”

Ginn testified in favor of the bill in front of the committee and advocated a 7.4 percent state sales tax rate paired with a 1.1 percent max local sales tax rate. Martinez Fischer dug in opposition to Ginn’s suggestion, criticizing the proposed state sales tax rate that would eclipse California’s as the highest in the nation.

But when coupled with the local sales tax rate, Texas would rank 11th while drastically reducing its property tax burden.

Ginn sees the transition as a positive because it is responsive more to an individual’s ability to pay. “Property taxes are highly burdensome and they’re growing much faster than population plus inflation,” he told the committee, stating that property values have been increasing regardless of the income trajectories of their owners.

Dale Craymer, president of the Texas Taxpayers and Research Association, testified against HB 59, mainly wary that it has no replacement plan. He did, however, support the commission for review the bill creates.

Craymer told The Texan, “We believe it is healthy to review our tax system periodically as the economy and business changes over time. However, we oppose the bill because it would repeal the property tax without a replacement identified. That creates a crisis where none exists now. It would also make it impossible for businesses (and individuals) to do financial planning for the coming years.”

Per typical procedure, HB 59 was left pending by the committee.

Property taxes will remain an issue in Texas for as long as they’re collected, and the debate over their efficacy, or the efficacy of a replacement, will continue to rage.

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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.