When property tax relief was approved by 86 percent of voters in last week’s election, you can bet Texas politicians noticed.
Calling the lopsided result a mandate for additional action, Lt. Gov. Dan Patrick vowed to make property tax reform a priority when the Legislature convenes in 14 months. Any reasonable idea will be on the table, Patrick said, although his initial concepts focus on reining in budget increases for local governments, particularly cities and counties.
“I have the opportunity to put my shoulder behind those issues and push, and I don’t intend to sit on the sidelines,” said Patrick, a Houston Republican.
One important idea, Patrick said, is to require a rollback election if city or county property tax revenue grows by more than 4 to 6 percent, though the final trigger number will need to be refined. Currently, tax-rollback elections are possible with 8 percent increases, and only if 7 or 10 percent of registered voters sign a petition, depending on the size of the budget.
“We need to reduce property taxes. The way you do that is by keeping the growth of local governments — city, county and schools — below population and inflation (rates),” Patrick told the American-Statesman. “They have to learn to live with less. And if they believe they need more money, they’ll have to go to voters and make their case.”
In this year’s legislative session, a bill failed that would have required an election if cities or counties set a property tax rate that increased revenue beyond 6 percent. Mayors, county judges, police and other local government officials from across the state testified against the bill.
State Sen. Kirk Watson, D-Austin, says bold property tax relief is essential for his fast-growing district, which includes most of Travis County and all of Bastrop County.
Small-ball, piecemeal reforms of a broken system won’t make much of a dent in tax bills, he said.
And while criticizing city and county tax rates may be politically expedient, Watson added, it ignores a basic truth: State government relies heavily on local property taxes to finance the public school system. Homeowners would see instant savings if the state found other ways to fund schools, he said.
“You want to give people property tax relief? You don’t take so much money from their pockets to fund your state school system. You can give them a cut tomorrow if you properly fund the school system,” Watson said.
“The voters told us we’ve got a broken system,” he said. “Everyone who calls for property tax relief should look in a mirror and ask if they’re partly responsible for the high burden on local property taxpayers.”
State Sen. Paul Bettencourt, R-Houston, said Watson’s approach assumes there is revenue available to replace property taxes now used to fund schools.
The education budget, however, is in a time of uncertainty, he said.
First, there is last year’s court ruling that declared the state’s public school finance system unconstitutional because it does not provide enough money to allow children to succeed. The Texas Supreme Court is reviewing the decision, with a ruling that could have wide repercussions expected in the coming weeks or months.
Second, falling oil and gas prices have slowed the economy, reducing revenue for all government functions.
Third, the Legislature last session cut the margins tax on businesses by 25 percent, and Republicans are committed to ending the tax in coming years, Bettencourt said. That tax, however, generates substantial sums for property tax relief — $3.7 billion in the current two-year budget and $1.4 billion in the next budget.
As a result, Bettencourt said he expects the Legislature to direct its attention toward reforming the appraisal system and slowing the growth of local governments.
“The real problem is that (property) values go up but the tax rates never come down to offset them,” he said. “We need to slow the rate of growth on property taxpayers. This continual barrage of double-digit (tax) increases for the homeowner is simply unsustainable.”
Last week, Patrick positioned Bettencourt to drive the discussion by naming him chairman of the Select Committee on Property Tax Reform and Relief, which will hold hearings across the state before crafting a plan for the 2017 legislative session.
Watson, a finance committee member who asked to be placed on the new panel, was excluded — sending a political message that his ideas on property tax overhaul are a cry in the wilderness.
Dick Lavine, senior fiscal analyst for the left-leaning Center for Public Policy Priorities, said he expects a spirited fight over efforts to limit the financial options of local governments.
“One thing that isn’t mentioned: There is ultimate local control now, because city councils and county commissioners have to set a tax rate every year. It’s an open process. People testify on the budget and tax rate, and people can vote them out if they don’t like the result,” Lavine said.
“It’s not the state’s role to make it more difficult for local communities to decide for themselves,” he said.
Patrick disagrees, saying local governments must learn to live within their means — and the public agrees, he said, as shown by Tuesday’s 72-point election victory for increasing the homestead exemption from $15,000 to $25,000 for public school purposes.
“This is a no-compromise issue for me,” Patrick said. “This is a train wreck coming. If you keep increasing people’s taxes at 7, 8, 9, 10 percent a year, you are going to force them out of their homes.”
YOUR NEWS WHEN YOU WANT IT
Sign up for our free Morning Headlines and Afternoon Update email newsletters for the latest news. Sign up at statesman.com/newsletters.