87th LegislatureTaxes & SpendingTexas Senate Eyes Elimination of ISD Maintenance & Operations Property Tax Rate

The school district M&O rate accounts for the largest portion of local property taxes collected in Texas.
April 8, 2022
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As a political issue in Texas, property taxes have lingered longer than the Texas summer heat. The legislature has approved various degrees of reform to try and lessen the burden shouldered by taxpayers — but the problem continues to appear near the top of voters’ priority lists.

But in his Senate interim charges, Lt. Governor Dan Patrick hopes to take a bigger swing at the issue than at any previous point. Among the items is the exploration of eliminating the school district Maintenance & Operations (M&O) rate, the largest component of the largest portion of Texans’ property taxes.

School districts account for over half of the local property taxes collected every year, dwarfing the totals from cities, counties, and special districts.

Data from the Texas Comptroller

The two components of a property tax rate are the M&O rate and the Interest & Sinking rate — the former funds day-to-day operations and salaries while the latter funds capital expenditures like building new schools.

The specific proportions of both vary from school district to school district, but the M&O rate encompasses the largest portion of the total rate.

The Texan Tumbler

Also pivotal to the process is the tax rate versus appraisal dynamic. Appraisal districts set values for properties every year, which have been rising constantly and this year are expected to jump between 20 percent and 50 percent across the state. Local officials have in front of them the appraisal information when they set the tax rate. The option is there to adopt the no-new-revenue rate.

In 2019, the legislature approved $5.1 billion to buy down school property tax rates which was supplemented by another $3 billion in continued rate compression approved last year using a portion of the federal coronavirus relief funding that will be taken up next year.

Rep. Dustin Burrows (R-Lubbock), who carried the property tax buy down bill, said during the 86th legislature, “The bill does not cut property taxes. It was never intended to cut property taxes.” He further said that cuts to property tax bills by the state must come through reform to the education code.

Also part of those reforms was lowered caps on local property tax increases without voter approval, reducing the school district cap from 8 percent to 2.5 percent. And during the third special session last year, legislation was approved that will be up for a statewide vote next month to increase the homestead exemption from $25,000 to $40,000 — amounting to about $175 saved per year in ad valorem tax payments per homeowner.

In a new report, the Texas Taxpayers and Research Association estimates the 2019 reforms shaved off about $6 billion in collective property taxes across the state.

Last session, a bill to begin the process of scratching the M&O rate was introduced by Rep. Andrew Murr (R-Junction). While it emerged through the committee process, it died at the body’s second-reading floor deadline on May 13.

If approved, the state would have to find the $25 billion collected with the M&O rate from somewhere else. The conservative Texas Public Policy Foundation has mapped out a plan to accomplish this using 90-cents of every state surplus dollar to replace the current M&O funding.

Governor Greg Abbott has his own slate of property tax-related proposals for the 88th legislature, which includes more compression of rates but doesn’t include scrapping the M&O.

Because of the current school financing system, the state and school districts operate opposite one another like a seesaw. When the funding proportion on one side goes up, its opposite lowers — functionally how compression works. The state injects more of its own funds while reducing the amount needed for the school districts to collect themselves.

In November, Comptroller Glenn Hegar pegged the estimated budget surplus for next year at $12 billion. Both Lt. Governor Dan Patrick and House Speaker Dade Phelan (R-Beaumont) have stated their intention to provide “property tax relief” next session. The House’s interim charges name the continued compression as an item of importance along with revising the appraisal process.

While Murr’s bill stalled quickly last session, the item’s place on the Senate’s list of interim charges indicates its chances are growing, even if modestly, compared to years past.

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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.