How is the state reducing property taxes? KSAT Explains

State lawmakers made a deal in legislative ‘double overtime.’ But could it ultimately hurt public schools and cost Texans more in the long run?

SAN ANTONIO – In the middle of a second special legislative session focused solely on property tax relief, lawmakers reached a deal.

Here’s what it includes:

  • Lowering school property tax rates through compression
  • Increasing homestead exemptions to $100,000
  • Offering a tax credit to properties without a homestead exemption through a three-year pilot program
  • Savings on franchise tax for small businesses

The House and Senate struggled for months to find common ground on property tax relief, which spurred two special legislative sessions after lawmakers couldn’t get a bill passed in the regular session that ended in May.

What’s compression?

House and Senate lawmakers fought for their own versions of a property tax relief plan, but there was at least one giant similarity -- tax compression.

Both plans proposed compressing the school property tax rate, which is how that rate will be lowered in the deal struck by the House and Senate.

The school tax rate accounts for the majority of what you pay on your property tax bill. If that rate is lowered or compressed, you pay less.

But Texas public schools still need the money. So lawmakers plan to use roughly $12 billion in a current state surplus to make up the difference for schools.

Before a deal was reached, the House proposal included only compression and applied to residential and commercial property owners. It was the plan Governor Abbott supported.

The Senate plan, however, favored homeowners by combining a school tax rate compression and an increase in homestead exemptions.

Both plans aimed to send roughly $12 billion from state surplus money to public schools to make tax cuts available to property owners.

This won’t be the first time lawmakers have compressed school property tax rates. They did so in 2019, too.

“There’s already $5 billion tucked into the budget for property tax relief,” said Scott Braddock, editor of The Quorum Report. “So when you hear the numbers ‘$17 billion for property tax relief,’ really what’s being debated in Austin is more like $12 (billion) to $13 billion.”

A one-time surplus

The concern is that $12 billion - $13 billion is coming from a current surplus in Texas.

“The concept of what they’re doing isn’t bad. It’s just that the math doesn’t work long term,” said Josh Sanderson, deputy executive director of The Equity Center.

The Equity Center represents more than 600 Texas school districts in the legislative process, especially when it comes to funding.

“That surplus is completely unprecedented,” said Sanderson. “Think of it as one-time money because it’s not a regular occurring thing, and they’re applying it to an ongoing cost.”

Sanderson uses this example: using a one-time bonus to buy a more expensive car.

You get the extra cash one time, but your car payments come around every month.

“For everybody who works on the budget, you know, this is glaringly obvious,” said Sanderson.

“There’s no way taking money out of, in essence, a savings account to pay for an ongoing reduction in taxes is going to work,” said David Macpherson, Trinity University economics professor.

Income Tax? Fat chance

In the 1990s, the Texas Lt. Governor Bob Bullock floated the idea of creating a statewide income tax.

“But that proved to be politically unpopular,” said Jennifer Rabb, president of the Texas Taxpayers and Research Association. “He pushed through a constitutional amendment prohibiting a personal income tax in Texas. It’s even referred to as the Bullock Amendment.”

Then in 2019, voters strengthened that amendment.

“It made it even harder to get an income tax going,” said Machpherson. “You need two-thirds of voters to pass it. It’s not going to happen.”

The rates on your tax bill

The amount you pay in property taxes is based off your property appraisal, which is determined by your local appraisal district.

In Bexar County, appraisal values shot up by roughly 28% in 2022. Then in 2023, they increased by an average 15%.

“Property taxes, at the end of the day, are actually local taxes,” said Rabb. “The real answer to controlling the property tax burden lies at the local level.”

The different taxing entities listed on your property tax bill set their own tax rate.

“They’re going to determine the budget. What is it that the city of San Antonio or the County of Bexar want to accomplish this year? What’s it going to take to get there,” said Albert Uresti, Bexar County Tax assessor-collector.

The state limits those entities to a rate increase of no more than 3.5% a year, but that percentage can be banked.

“So you can go above 3.5% if you only say you spent 2.5% last year,” Uresti said.

That limit does not apply to the Hospital District or Alamo Colleges District. They can increase rates by as much as 8%.

But some local entities are making moves to lessen the burden.

Alamo Colleges approved a new homestead exemption of 1%, or a minimum of $5,000.

The City of San Antonio doubled its homestead exemption from 10% to 20%.

“If we didn’t have the property tax, government would not be able to function,” said Uresti.

Abbott’s plan to ‘eliminate’ property taxes

Gov. Greg Abbott has suggested pushing property tax relief even further by eliminating the main portion of school property tax rates. It’s called the Maintenance & Operations tax, or M&O.

The tax pays for day-to-day expenses like teachers salaries, utilities and maintenance.

The Texas Public Policy Foundation has been talking about a plan to wipe out property taxes for years and now Abbott has endorsed it.

The plan calls for the state to continue compressing property tax rates over 10 years and restrict government spending and growth to create future surpluses in order to buy down the school property tax rate.

A representative from TPPF declined a request for an interview or comment for this story.

Lt. Gov. Patrick called the idea of eliminating property taxes “a fantasy” and one that would require an increase in sales tax.

“If what was done in the year 2023 was to take one time money to buy down local property taxes, there’s nothing to keep them from going up two and four years from now,” said Braddock.

“Eventually we’re going to get to a point to where you can’t pay for this anymore because the state just doesn’t have the money to do it long term,” Sanderson said. “The dog is going to catch this car.”

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About the Authors:

Myra Arthur is passionate about San Antonio and sharing its stories. She graduated high school in the Alamo City and always wanted to anchor and report in her hometown. Myra anchors KSAT News at 6:00 p.m. and hosts and reports for the streaming show, KSAT Explains. She joined KSAT in 2012 after anchoring and reporting in Waco and Corpus Christi.

Valerie Gomez is lead video editor and graphic artist for KSAT Explains. She began her career in 2014 and has been with KSAT since 2017. She helped create KSAT’s first digital-only newscast in 2018, and her work on KSAT Explains and various specials have earned her a Gracie Award from the Alliance for Women in Media and multiple Emmy nominations.