Balance the Budget Without Raising Taxes
The 86th Legislature passed groundbreaking property tax reforms, which require voter approval if a taxing unit increases its year-over-year property tax revenue by more than 3.5 percent. The 87th Legislature built upon these reforms by enacting several more property tax relief bills.
Reform of Texas’s Spending Limit – Senate Bill 1336 is a landmark accomplishment for the Legislature and implements a measure TCC has supported for years. Under current law, the biennial rate of growth of appropriations from state tax revenues not dedicated by the constitution cannot exceed the estimated rate of growth of the state's economy. This spending limit has three notable flaws. First, the limit applies only to non-dedicated general revenue (GR) spending. Second, the constitutional limit is somewhat “toothless” in that it may be overridden by a simple majority vote of the Legislature if it finds that an emergency exists. Third, and perhaps most importantly, the growth of the state economy is based on estimates of future personal income growth, which have historically been inaccurate and subject to severe fluctuation. SB 1336 addresses all three of these issues by capping the growth of appropriations from the general revenue fund, dedicated general revenue funds, and general revenue-related funds at a rate equal to population plus inflation. The bill provides that the Legislature may override this limit only with the approval of a 3/5ths supermajority of both the House and Senate.
SENATE BILL 1438 addresses the ability of local governments under current law to increase year-over-year (YoY) property tax revenue by up to 8 percent following a disaster without holding an election. This ability is an exception to the general rule that most local governments must hold an election before increasing YoY property tax revenue by more than 3.5 percent. SB 1438 clarifies that a pandemic (e.g., COVID-19) is not a “disaster” for purposes of the disaster exception to the cap on property tax revenue growth. The bill also specifies that the increases in property tax revenue beyond the usual cap that are implemented without an election must be of limited duration.
HOUSE BILL 1869 narrows an exception to the general rule that YoY property tax revenue increases beyond a certain extent must be approved by voters. Prior to the bill’s passage, a local government could increase property taxes without regard to the usual cap to pay down debt that was issued without the approval of voters. HB 1869 restricts this ability of local governments.
SENATE BILL 1449 implements a long-overdue increase in the exemption amount from the business personal property tax (BPPT). In contrast to most states, tangible personal property used in business in Texas (e.g., inventory and equipment) is subject to property tax in Texas. SB 1449 increases the exemption from $500 to $2,500, the first time the exemption has been increased since the tax was authorized in 1995.
SENATE BILL 63 reforms the property tax appraisal system in several respects. These reforms include term limits for the board of directors for appraisal districts, deadlines for responding to taxpayer requests to remove appraisal review board members for cause and to process applications for property tax exemptions, and prohibition of a chief appraiser offering evidence against property owners that was not previously provided to them.
HOUSE JOINT RESOLUTION 125 validates provisions enacted by the 86th Legislature (HB 1313) by proposing an amendment to the constitution to permit the surviving spouse of a person who was disabled to continue to benefit from a freeze on school property taxes on their homestead if the surviving spouse is 55 years of age or older at the time of their spouse’s death. The resolution will be submitted to the voters for approval in November 2021.
SENATE BILL 8 corrects a glaring oversight in Texas law. Under current law, to benefit from the homestead property tax exemption, a person must own the applicable property as of January 1st of the tax year. The bill would allow property owners who acquire a property on a date other than January 1st of a tax year to benefit from a prorated homestead exemption if the property would otherwise qualify for the exemption under current law.
SENATE BILL 12 makes the property tax compression under HB 3 (86R), the landmark school finance bill, applicable to a group of property owners, some of whom did not benefit under HB 3. This group consists of certain property owners whose school property taxes are subject to the property tax ceiling as a result of the owner being age 65 or older, or disabled.