88th LegislatureTexas House ‘Sends a Message’: Appraisal Cap Reduction, Expansion Proceeds to Senate

“That, too, should send a message Mr. Meyer,” Speaker Dade Phelan (R-Beaumont) said Thursday on the dais after his chamber passed its priority property tax plan by a vote of 140 to 9.

The plan — House Bill (HB) 2 and House Joint Resolution (HJR) 1 — would set a 5 percent appraisal cap on the taxable value for all properties, apply $12 billion for a 15-cent compression of school district property tax rates, and reduce local payments into the Foundation School Program.

The total fiscal note for its property tax relief plan is $17.1 billion; the additional $5.1 billion in rate compression is in the state budget.

HB 2 had 89 joint authors or coauthors in the House, and HJR 1 eclipsed the required 100 votes by a wide margin. Constitutional amendments must receive two-thirds support from both chambers. 

The Senate’s plan passed 31 to 0.

There were multiple amendments filed to HB 2  — none of which were added, including Rep. Chris Turner’s (D-Grand Prairie) attempt to decrease the homestead cap to 5 percent but strike the expansion to all real property. Turner was the lone “no” vote on the bill in committee and was one of the nine “no” votes on the floor.

Rep. Tony Tinderholt’s (R-Arlington) proposal to increase the compression amount from $12 billion to $20 billion was also shot down.

As the House convened, Lt. Gov. Dan Patrick made his feelings clear about the lower chamber’s blueprint. He said the appraisal cap plan is dead on arrival in the Senate.

After the vote, Phelan addressed Patrick’s message, saying, “We’re willing to work with the Senate on any issues regardless of if it’s tax nature or the budget — there’s nothing that’s dead in the Texas House and there shouldn’t be anything that’s dead in the Senate.” 

“We sent a clear message that our proposal is just as popular as the Senate proposal, and I think what we need to do is what’s best for all Texans and that is sit down and hammer out a compromise.”

Patrick responded in kind afterward on Twitter, saying, “I can negotiate on anything but bad House math. In terms of popularity, it may be popular with House members, but appraisal caps are not popular with seniors, the business community, realtors, and tax experts. A recent poll clearly shows homestead exemption is [number one] with voters.”

That poll Patrick referenced, released by the Texas Association of Property Tax Professionals, purported to show more support for the Senate’s plan than the House’s. Its results — and the phrasing of its questions — caused a stir among legislators in both chambers.

“Going into this session, we have this huge surplus that was created on sales tax revenue,” Phelan added. “And so we have to look at how we can impact all Texans.”

That treasury surplus is estimated to be $32.7 billion, spurred largely by an economy rebounding from COVID-19 closures and inflation driving up the costs of goods and services.

Phelan and Rep. Morgan Meyer (R-Dallas) — the author of the bill and chairman of the Ways & Means Committee — have decided that expanding the cap to include businesses is the direction they prefer to ensure businesses see a material benefit from the property tax relief, not just homeowners.

The speaker added that he’s not opposed to another homestead exemption increase. Two were approved in the last few sessions. 

“But,” he said, “let’s look at all taxpayers — let’s look at renters, let’s look at people own timber, let’s look at people on farmland. Let’s look at everybody who pays taxes.”

Meyer stated, “That’s the great thing about HB 2 and HJR 1 — it certainly provides the largest tax cut in the history of the State of Texas, but it also increases the public education share of the state to over 50 percent for the first time in over a decade.”

“It also reduces recapture which is important to a number of districts throughout the State of Texas — [which] includes those over 65. … Our bill and HJR 1 provide the most property tax relief to the most Texans and that’s why we fully support them.”

Both Phelan and Meyer said discussions over the bill and its details will continue.

Opponents of the House’s plan, including Patrick and Sen. Paul Bettencourt (R-Houston), have cited the appraisal cap’s effect in California, which they say has wreaked havoc on the housing market as the market value of properties moves further and further away from their taxable values.

Phelan countered, “You cannot compare California’s tax structure to the Texas tax structure. Those are apples and bowling balls.”

He then cited Florida’s experience, saying, “It didn’t distort the market when Florida went down to 3 percent in the 80s. They’re still building homes in Florida. Last time I checked, that’s one of the fastest growing states in the country and they’re building homes left and right. So I don’t buy that argument.”

California’s Proposition 13 from 1978 capped the taxable value of property at 2 percent and limited tax increases without voter approval to 1 percent every year. Meanwhile, Florida — which also doesn’t have a state income tax — has a 3 percent appraisal cap on homesteads and a 10 percent cap on all other forms of property. Florida has no voter approval limit on property tax increases.

Two different blueprints with wildly different outcomes.

Should the House plan pass, the State of Texas would have a 5 percent appraisal cap as well as a tax increase limit of 2.5 percent for school districts and 3.5 percent for cities and counties without voter approval.

The appraisal reform issue is but a small component of the Legislature’s larger plans for property tax relief.

Both chambers have stuck to their guns on the issue, as yet another game of legislative chicken plays out. Both plans passed overwhelmingly, and as currently constructed, there is no bridging the gap between the two.

Patrick and the Senate have largely focused their messaging on their plan’s $100,000 exemption for elderly and disabled homeowners.

For its part, the House’s messaging has focused on passing the broad reform that will put every property on the same appraisal cap playing field.

Phelan concluded, “Like Chairman Meyer said, we raised the homestead [exemption] twice since I’ve been here and not a single voter has come and thanked me for raising the homestead [exemption]. All I hear about are their appraisals all the time.”