Texas House approves property tax bill with changes the Senate might not like

A construction crew works on a new home on March 14, 2022 in Midland. (Eli Hartman For The Texas Tribune, Eli Hartman For The Texas Tribune)

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The Texas House passed Friday a revamped version of its $16.3 billion proposal to cut property taxes — but it’s unclear whether the Senate is going to like it, and time is running out for lawmakers to act on one of their biggest priorities this year.

The House gave final approval to Senate Bill 3 by a 147-0 vote, including a vote from Speaker Dade Phelan, who usually abstains from voting while leading House business but participated Friday as an additional show of support for the legislation. The bill would send $12 billion to school districts to drive down tax rates, significantly boost the state’s homestead exemption on public school taxes and — to the chagrin of critics and tax policy experts — tighten the state’s appraisal cap.

The bill “provides immediate and permanent property tax relief and improves the predictability of the property tax system,” state Rep. Morgan Meyer, a Dallas Republican and the House’s point person on tax cuts, said Thursday.

The House must vote on the proposal before sending it back to the Senate, where lawmakers from both chambers will try to hammer out their differences.

How to deliver property tax relief to Texas homeowners and business owners has proven to be one of the most divisive fights of this year’s legislative session. The state’s top Republicans have been deadlocked on the issue for weeks.

[Why tax policy experts fear the Texas House plan to lower property taxes could have dire ripple effects]

At the heart of the dispute is Phelan's proposal to lower the state’s cap on annual increases to a home’s taxable value from 10% to 5% and to extend the benefit to businesses, which don’t have such a cap. Phelan has backed the idea in response to complaints from homeowners and business owners about their rising appraisals, which they fear will result in higher tax bills.

But tightening the appraisal cap could have all kinds of nasty side effects. Tax policy experts and critics of the proposal have warned it would create vast inequities among homeowners and drive up housing costs while disproportionately benefiting wealthier households.

For all that, local governments and school districts could easily keep their tax rates higher than they otherwise would have to make up for revenue lost because of the tighter cap — a possibility acknowledged by a House document assessing the financial impact of the idea.

If House lawmakers had those concerns, they didn’t express them during minimal floor debate on the measure. State Rep. Trey Martinez Fischer, a San Antonio Democrat who heads the House Democratic Caucus, lauded the proposed boost in the homestead exemption.

“Regardless of where your ZIP code is, this will have a tremendous homestead exemption for modest communities that I think will give folks more bang for their buck,” Martinez Fischer said.

Lt. Gov. Dan Patrick and property tax warriors in the Senate have declared the House’s appraisal-cap proposal dead on arrival in that chamber — refusing to even bring it up the for a committee vote.

Meanwhile, the signature feature of the Senate’s $16.5 billion package to cut property taxes is a proposal boost to the state’s homestead exemption for school districts — the amount of a home’s value that can’t be taxed to pay for public schools — from $40,000 to $70,000, plus an additional $20,000 bump for seniors. That benefit will provide some aid to property owners no matter what happens with property values, Patrick and proponents of the Senate proposal have said.

The Senate’s tax-cut package would send an additional $5.38 billion to school districts and also provide tax credits for businesses.

But the House appears to be taunting the Senate with its counterproposal. The House’s version of the Senate bill ups the ante by boosting the homestead exemption to $100,000 for most homeowners and $110,000 for seniors. And it also tacked on the appraisal cap proposal as well as more than $12 billion for school districts — $6.6 billion more than the Senate’s proposal — to lower tax rates.

Representatives for Patrick and state Sen. Paul Bettencourt, a Houston Republican and chief tax-cut writer in the Senate, did not immediately respond to requests for comment.

Under both the House and Senate proposals, Texas voters would ultimately decide at the ballot box whether to cut their own taxes.

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