88th LegislatureStatewide NewsTaxes & SpendingHistoric Surplus, Property Taxes Drive Disagreement in the Texas Capitol

Inflation has spurred a record-setting influx of consumption tax collections to the state, and legislators will now debate how to spend it.
November 21, 2022
The Texas Legislature is in for a fight over how to spend its expected pot of money from inflation-driven record consumption tax collections.

Trying to direct the Legislature and the Texas House specifically often resembles herding cats — 150 members with 150 different ideas on how the $27 billion projected surplus should be appropriated.

Comptroller Hegar indicated this week that the total might grow even more by the New Year. He will provide an updated certified revenue estimate in January.

Whether it grows or not, the sum will be a large pot with which the Legislature can do a lot.

The foremost suggestion is to buy down property taxes through ramped-up compression of local ad valorem tax rates.

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Gov. Greg Abbott has called for spending “at least half” on “the largest property tax cut ever in the history of Texas.” Lt. Governor Dan Patrick first called for using $4 billion to cut taxes and then upped that to possibly more than half of the total.

The Legislature already has $3 billion earmarked for a buydown next session from holdover American Rescue Plan Act funds.

A week ago, state representative-elect Carrie Isaac told a gathering at the conservative Texas Public Policy Foundation (TPPF) that she wants to see the entire surplus put toward buying down property taxes in the state.

This drew a response from Speaker Dade Phelan (R-Beaumont), who said to the Transportation Advocacy Group, “I know there are a lot of politicians who are going around saying ‘We need to spend half this revenue’ — and I’ve got elected officials who haven’t even taken the oath of office saying we need to spend all the revenue on property tax relief.”

“Let me just remind you: none of this money came from property taxes, it all came from sales tax… So, whatever we do on property taxes … I just want to remind everyone that this money is in our coffers because of inflation, because of [financial] pain.”

He added that the state should “look at more than just property tax relief” and pointed to potential relief on sales and franchise taxes.

“Whatever we do on property taxes, we have to do it every single session or we’re raising your taxes.”

State Rep. Tony Tinerholt (R-Arlington), who is challenging Phelan for the speakership, criticized Phelan’s comments, saying, “It is honestly shocking to see Speaker Phelan speak so strongly against property tax relief and even criticize incoming conservative lawmakers for supporting bold property tax relief.”

Tinderholt then called for a shift from the taxation status quo: “The Texas Republican Platform calls for us to move away from the broken property tax system and shift to sales taxes. This year provides a historic opportunity to do just that and yet our current speaker is criticizing incoming freshmen for supporting Republican policy.”

Texas’ school finance system acts as a kind of seesaw, with state funding on one side and local property taxes on the other. Compression denotes an injection of state funds to lower the local rate side of the equation.

But that is done on a biennial basis through appropriation within each new budget, and is only so permanent as far as the Legislature is willing to appropriate the money.

A more permanent reform of the property tax system would require the state, to some degree, to replace the funding currently provided by the ad valorem taxes. One such idea has broadly received support from Abbott: to eliminate the school district Maintenance & Operations tax rate, the single largest component of property tax bills.

One way to accomplish that, floated by TPPF, is to use $0.90 of every surplus dollar to buy down ISD M&O rates until it’s eliminated entirely. A couple of bills to accomplish that have already been filed during the first week of pre-filing ahead of the 88th Legislative Session.

The caveat is that consumption taxes are more volatile.

Just as the state has seen record collections, that is not expected to last forever. Texas has a strong economic engine, but there’s no guarantee its future will come up nothing but roses — the state is only two years removed from a dire $4.6 billion budget shortfall projection caused by the pandemic and government-mandated lockdowns.

In his speech, Phelan indicated that state agencies, like the Texas Department of Transportation, will request substantially more funding due to inflation driving up the cost of materials like asphalt.

“I think this is a once-in-a-lifetime opportunity to use some of these resources for infrastructure,” he added. “If we want to be competitive and attract new companies, the job creators like we do every day, we have to invest in our infrastructure.”

Road, water, broadband, and education infrastructure are top of mind for some of the surplus, Phelan said.

When the Legislature reconvenes in January, there will be different interests competing for the sum of money. But as Phelan described in his speech, it can evaporate pretty quickly.


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Brad Johnson

Brad Johnson is a senior reporter for The Texan and 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.