CRAYMER: The (HB) 1 2 3 of School Property Tax Relief

School Property Tax Relief is in HB 3 not HB 2 because HB 3 restructures School Finance & thats where it belongs

By Dale Craymer

Texas Insider Report: AUSTIN Texas Its hard enough to tackle property taxes in Texas without confusing the issue with misinformation but those criticizing lawmakers for removing the School Property Tax language from House Bill 2 (HB 2) are in fact doing just that. They want you to think that the legislature is turning its back on school tax relief.

Hogwash!

Yes there is no school property tax relief" in HB 2 BUT what theyre not telling you is that there never was any School Property Tax Relief is in HB 3 the bill that restructures school finance. Thats where it belongs.

Though we all get one appraisal and at the end of the year one tax bill Texas essentially has two different property tax systems:

  1. One is for schools (your ISDs) and
  2. is another for Cities Counties & Special Districts

How you control the property taxes of each is very different.

Under current law cities counties and special districts can raise however much in property taxes they want but if they adopt a tax rate that raises over 8 more money than last year (excluding taxes on new construction) voters may petition for an election to roll back" the tax hike to 8 (a number set in 1981 when the rate of inflation was north of 10.)

The petition process is burdensome especially in the larger taxing jurisdictions where most of us live. This is the system HB 2 and SB 2 strive to fix.

School property taxes work differently because funding schools is a shared responsibility between the state and local school districts. The state guarantees each district will have a certain dollar amount of revenue per student. If the school district cant raise enough property tax revenue to meet the guarantee the state makes up the difference.

If a school raises more than what the state guarantees it is subject to recapture" and shares the excess with the state or other school districts.

Unfortunately that highly equalized system doesnt always work well from one year to the next. With normal economic growth a districts property values rise. The state sees the district is now wealthier" and it cuts its state aid accordingly.

Consequently the district keeps its tax rate high to offset the impending loss of state aid.

Given this the state has established a different system of property tax constraint for schools. It simply requires schools to go to voters for approval to adopt a tax rate above $1.04 per $100 of value (with an absolute cap of $1.17).

These two systems produce different results as property values rise. Cities counties and special districts can cut their tax rates as values rise (though few do) and still raise the same amount of revenue they collected last year. Schools could cut their tax rates as values rise and collect the same amount of property taxes as the year before but they would end up with less money overall because the state would cut its funding.

An initial attempt at a one-size fits all solution was included in HB 2 and SB 2 as introduced but however well-intentioned the school language didnt work. Instead of constraining future school tax increases it inadvertently made it easier for schools to raise taxes! It allowed school districts to raise their tax rates above the current $1.04 threshold without voter approval as long as the rate increase was less than 2.5. That means in 5 years a district could levy the $1.17 maximum tax rate without ever having an election!

State Representative Dustin Burrows the House author removed this flawed provision from HB 2 and instead the House tackled the issue in their school finance bill HB 3. That bill passed by the House earlier this month requires school districts to cut their tax rates without losing state aid. It then lowers the voter-approval tax rate accomplishing both tax relief and tighter constraints on future tax increases.

Senator Paul Bettencourt the Senate author has crafted corrective language as well.

Some have erroneously criticized the House for gutting" or watering down" property tax relief by removing the flawed school provision from HB 2. They couldnt be more wrong.

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The fact that the bills as introduced produced zero School Property Tax Relief is confirmed by the fiscal note prepared by the Legislative Budget Board. And the $2.7 billion set aside for school tax relief is still in the Budget Bill HB 1. That number has remained constant as HB 2 and HB 3 have traded provisions.

Ultimately Im confident the 86th Legislature will pass a package of bills that constrains future property tax increases by all types of taxing jurisdictions.

Whether its in HB 2 or HB 3 really doesnt matter to the bottom line of your tax bill.

The Texas Taxpayers & Research Association will be closely monitoring all the activity and advocating for sound and responsible fiscal and tax policy that ensures fairness for all taxpayers.

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Dale Craymer is President of the Texas Taxpayers & Research Association.

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