THE TEXAS TRIBUNE – A $12 billion proposal aimed at giving property tax relief to Texas homeowners and businesses cleared a major hurdle Thursday in the Texas House, setting up a showdown with the Senate over their warring tax-cut packages.
House Bill 2 — backed by House Speaker Dade Phelan and carried by state Rep. Morgan Meyer, both Republicans — passed the full House by a 140-9 vote. It still must come back before the chamber for a final vote.
The bill proposes pumping $12 billion into Texas school districts so that they, in turn, can lower their property taxes on home and business owners. For the owner of a $350,000 home, the package would result in more than $1,000 in savings over two years, according to Phelan’s office.
Cutting the state’s high property tax burden has been a top priority for Texas Republicans this legislative session. HB 2 is a key part of the House’s $17 billion proposed package for how the Legislature should go about doing it.
But HB 2 contains a provision that has drawn substantial criticism from housing experts, business groups and even some tax-cut proponents like Lt. Gov. Dan Patrick who predict dire consequences if it goes into effect.
The controversial idea is to tighten the state’s “appraisal cap” on how much a home’s taxable value can rise each year. The House proposal would lower the cap from 10% to 5% — and expand the benefit to owners of business properties like grocery stores, restaurants and apartment complexes.
Phelan and Meyer argue lowering the cap is meant to ease property owners’ concerns over eye-popping property appraisal increases in recent years — a symptom of rapid economic growth and the state’s red-hot pandemic-era housing market, which is cooling.
“We want to have the caps so that there's predictability and stability for our property owners,” Meyer said on the House floor.
If the idea were to clear both chambers, the question of whether to tighten the cap would go before voters at the November ballot box.
But tightening the appraisal cap would lead to major inequities among property owners and drive up housing costs, experts warn. Those were the effects in California in the decades following a landmark vote in the late 1970s that capped how much homes could be taxed.
Republican leaders in the House and Senate have publicly clashed over the appraisal-cap proposal. In a press conference ahead of the House vote Thursday, Patrick said the idea is dead on arrival in the Senate, arguing it wouldn’t benefit seniors whose appraisals are already capped.
“We can negotiate on just about everything, but I do not negotiate on bad math,” Patrick said.
Phelan remained defiant.
“That … should send a message,” Phelan said upon the bill’s passage.
Under the House’s proposal, owners of homes and businesses would get bigger tax breaks the longer they’ve held to their properties — and, as a consequence, more of the burden of paying property taxes would shift to new owners of homes and businesses. Already, the benefits of the state’s 10% cap flow to wealthier households, according to the Texas comptroller’s office.
Critics also warn that halving the cap would drive up housing prices. Homeowners would be encouraged to hold on to their homes for a longer period in order to keep the tax benefit, resulting in fewer homes available for sale and higher home prices.
What’s more, critics say, cutting the appraisal cap wouldn’t meaningfully bring tax bills down because cities, counties and school districts could just raise their tax rates to make up for any lost revenue.
The Texas Senate has a different proposal. Senators want to raise the state’s homestead exemption — the amount of a home’s value that can’t be taxed by school districts — from $40,000 to $70,000; give an additional $20,000 bump to seniors; and give tax credits to businesses. Those ideas are part of the Senate’s $16.5 billion property tax package, which passed the chamber last month but haven’t gotten a hearing in the House.
Some House Democrats on Thursday also took a failed run at HB 2, trying to give homeowners more relief.
State Rep. Trey Martinez Fischer, a San Antonio Democrat who heads the House Democratic Caucus, tried to tack on a boost in the homestead exemption that mirrors the Senate’s proposed increase. He also proposed cutting the appraisal cap to 7.5% — instead of 10% — for home and business owners. Another amendment of his would have scrapped the idea of tightening the appraisal cap altogether and instead boosted the homestead exemption to $100,000.
“Homestead exemptions do much better for working families, middle-class families,” Martinez Fischer said, adding that lawmakers don’t need to pick between a bump in the homestead exemption or a tighter appraisal cap. “We can do both.”
The idea died by a 77-65 vote.
House leaders have maintained that the benefits of the idea get washed out in times of rapidly rising property values.
Both chambers have agreed on devoting $5.3 billion to continue paying for tax cuts approved in the past. Like the House, the Senate also wants to pump additional funds into school tax cuts, but it would allocate $5.38 billion for that purpose instead of the House’s proposed $12 billion.
The House also killed an amendment by state Rep. Chris Turner, a Grand Prairie Democrat, to lower the appraisal cap from 10% to 5% but keep the benefit just for homeowners.
Disclosure: The Texas comptroller of public accounts has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.
This article originally appeared in The Texas Tribune.