86th LegislatureIssuesState HouseTaxes & SpendingVIDEO: Rep. Martinez Fischer: Texas’ New Property Tax Proposal May Increase Taxes

The inclusion of a new "de minimis" exception could leave smaller cities and towns subject to higher taxes.
May 3, 2019
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On Tuesday, the House passed Senate Bill 2, this session’s highly anticipated property tax reform legislation.

However, the passage of SB 2, otherwise known as the “Texas Taxpayer Transparency Act,” didn’t occur without its share of debate.

The Senate sent the bill to the lower chamber with a $15 million threshold. This meant that a taxing unit that collects less than $15 million of combined property tax and sales tax revenue would be exempt from the 3.5 percent cap. These taxing units would remain beholden to the current 8 percent cap.

The $15 million threshold was removed when the bill arrived in the House’s Ways and Means committee on April 25, and a mechanism called the “de minimis rate” was added in its stead.

The de minimis rate is intended to act as a buffer space that would allow smaller taxing units the ability to raise taxes above the proposed 3.5 percent rollback rate without triggering an election.

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This means that there would now be two ways to trigger a rollback election. The taxing unit would either have to raise its effective rate past 3.5 percent, or the taxing unit would be able to raise their rate more than 3.5 percent if their increase does not raise more than $500,000.

For some taxing units, a 3.5 percent raise in taxes could mean millions of additional dollars in tax revenue, while a 3.5 percent raise for smaller or more rural taxing units could mean only a few thousand additional dollars.

If SB 2 is enacted, these smaller taxing units would have the opportunity to raise an extra $500,000 of levy if the rate that yields $500,000 is higher than the 3.5 percent rollback rate.

Members, including SB 2’s house sponsor, Rep. Dustin Burrows (R-Lubbock), cited the de minimis exception as a way for small taxing units to pay for expenses, like firetrucks, that they might not be able to pay for under the 3.5 percent restriction.

However, there were concerns among the body that small taxing units, including units that don’t come close to approaching $500,000 in tax revenue levied, would now be allowed to raise taxes by double or triple-digit percentage increments.

Representative Trey Martinez Fischer (D-San Antonio) offered an amendment that would have completely removed the de minimis exemption from SB 2, and he explained his amendment on the floor of the house.

“I know that we always talk about the law of unintended consequences. This is not an unintended consequence.”

Rep. Martinez Fischer’s handout showing which counties would be exempt from the 3.5% rollback rate. Click to enlarge.

Martinez Fischer had distributed a handout with Texas counties and their 2017 property tax revenue data listed to his colleagues, and referenced it saying “If the de minimis exception stays in this bill at $500,000, eighty-four counties will have an effective rate of 7.42 percent all the way up to 63.25 percent.”

Martinez Fischer said that while Burrows was correct in stating that SB 2 would not reduce taxes, the property tax reform bill “shouldn’t increase taxes either.”

The argument in favor of keeping the de minimis rate is that if an election is triggered in one of these smaller cities, counties, or districts, the cost of holding the election itself would be more than raising the rate is worth.

Chairman Burrows alluded to this in his rebuttal, stating that cities shouldn’t have to forgo buying necessary items in order to pay for a rollback election if rates are raised above the threshold.

“We came up with this [de minimis exception] based on the testimony we heard that is really based on whether or not somebody needs to have an election over having a firetruck. Period. The end.”

Martinez Fischer ended his layout with a flourish, stating, “for those of you that want to go home saying that you took not a single vote to increase taxes, then I would vote to get rid of the de minimis exception.”

SB 2’s updated fiscal note, a nonpartisan document issued by the Legislative Budget Board, goes as far as to state that, “For taxing units with low taxable values, the de minimis rate is much higher than the current-law rollback rate, offsetting part of the estimated costs that would otherwise occur.”

In other words, the de minimis rate could greatly minimize the potential tax relief proposed in SB 2, particularly for rural Texans and those in smaller cities.

Based on numbers from the comptroller’s office from 2017, The Texan estimates over 1,100 cities would be exempt from the new 3.5 percent automatic election threshold, and over 1,000 cities would actually find their rollback rates increased. 1,214 cities total were listed in the report.

Four Republican House members — Reps. Kyle Biedermann, Briscoe Cain, Mayes Middleton, and Tony Tinderholt — supported Martinez Fischer’s amendment to remove the de minimis exception, while eight Democratic House members — Reps. Terry Canales, Bobby Guerra, Ryan Guillen, Art Fierro, Oscar Longoria, Poncho Nevárez, Richard Raymond, and Erin Zwiener — voted with the rest of the Republican caucus and successfully tabled the amendment.

According to the House journal, Reps. Jonathan Stickland (R-Bedford), Steve Toth (R-The Woodlands), and James White (R-Hillister) all changed their votes afterward to reflect they intended to support Martinez Fischer’s efforts.

All the numbers referenced by lawmakers during this debate were based on 2017 numbers from the comptroller’s office, as 2018 data has yet to be released. The $500,000 de minimus rate, if enacted, is set to change with inflation.

SB 2 now awaits its conference committee assignment, where appointed conferees from both chambers will determine which portions of the bill remain and which portions will be struck. The bill will then return to each chamber for a final vote on the final version of the bill.

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McKenzie Taylor

McKenzie Taylor

McKenzie Taylor serves as Senior Editor and resident plate-spinner for The Texan. Previously, she worked as State Representative Kyle Biedermann’s Capitol Director during the 85th legislative session before moving to Fort Worth to manage Senator Konni Burton’s campaign. In her free time, you might find her enjoying dog memes, staring at mountains, or proctoring personality tests.