AUSTIN, Texas — This week, the Senate Committee on Property Taxes voted to send a property tax reform bill, the committee substitute to Senate Bill 2 (SB2), to the full Senate for a vote.
The bill reduces the rollback rate from eight percent to 2.5 percent for all taxing entities, including cities, counties and schools. It applies to all entities that collect more than $15 million in taxes. And the committee added an amendment to allow voters in smaller communities to opt into the provision. Any adopted tax rate that's more than 2.5 percent would automatically trigger an election.
Right now, the rate is eight percent and if an entity wants to increase taxes by more than that, they can. Voters just have the option to petition for an election. The author of SB2, Senator Paul Bettencourt (R-Houston) said that's never happened.
In Texas This Week, Ashley Goudeau sat down with Vance Ginn, Senior Economist and Director of the Center for Economic Freedom of the Texas Public Policy Foundation and Luis Figueroa, Legislative and Policy Director of the Center for Public Policy Priorities, to discuss the pros and cons of the bill.
The Texas Public Policy Foundation supports SB2
Goudeau: It is the Texas Public Policy Foundation's position that you all really support Senate Bill 2 [and it's companion bill] House Bill 2. Tell us why, why you think this will make a real difference.
Vance Ginn: "Well, it's really historic reform that would allow for like, skyrocketing, we've had skyrocketing property taxes across the state. Many people are being forced from their homes or can't even afford a home because of high property taxes and so, we think this will be a great reform to actually cut the growth rate by more than half so people can actually stay in their homes. And we think that it would just be a great opportunity for Texas to be an even better place, a better model if you will, for more economic growth and prosperity."
Goudeau: The idea here with this bill is to slow the rate of growth, as you mentioned. But homeowners are saying we're really not going to see savings on our property tax bills.
Ginn: "Yeah, so, you're right. It wouldn't necessarily lower property tax bills, but slowing the growth would give them savings over time from what it otherwise could be. In addition, I think with any sort of tax relief of lowering property taxes, this is an essential element. Because you're got to start slowing it before you can actually lower property taxes."
Goudeau: So, when we think about other things people who oppose this bill say, one of the big questions is what is this going to do to schools? If you lower the cap for how much those school districts can increase their property taxes, obviously the state — ideally, right — would have to put in more money.
Ginn: "Yeah, so, one thing about it is that it's a trigger. So, any money, the revenue increase for a school district that goes above two and half percent would trigger an automatic election that would happen in November. So, if the school needed to raise money above that, they would just go to the voters and say, 'We need this money, so we're going to go to an election' and voters could approve it. So, they could get more money that way. At the same time, I think there's a lot of school districts and other local governments that could spend more wisely with each one of their dollars. Maybe not spending money on water parks like they did down in La Joya ISD and others that are out there. Let's spend money for education, more money in the classroom. That's really what we should be thinking about."
Goudeau: What are your thoughts on the cries we're hearing though from cities and counties who say they're not going to be able to fund public safety because of this?
Ginn: "Yeah, and so, I think that's overblown. I think it's a way for them to look at it and say, 'You know, we don't want to slow the growth rate of our revenue really.' It's really about spending. You know, spending is what drives taxation and so, what we need to look at is what's in their budget, just like at schools. We should think about how is each one of these local communities budgeting. Let's make sure that fire and police and safety comes first in their budget and then if they have any other sort of waste or inefficiencies with the rest, let's really think closely and think strongly about how we can spend those dollars more wisely."
Goudeau: Early on, there was a lot of support for this idea of the 2.5 percent rollback rate. But an amendment that was added in the Senate committee has created some push back. That amendment would allow smaller communities who would not originally be included in this bill — the homeowners, the voters — to be able to vote themselves in to have this. What are your thoughts on that? Is that good, is that bad?
Ginn: "Yeah, that's a great point. It's called an opt-in provision now, where the local voters can say, you know, what, 'We want to be part of that 2.5-percent rollback.' Because right now, there's an exclusion if you have more than or less than $15 million in total revenue by a local government then your rollback rate would be eight percent. Meaning that's where the automatic election would happen, any revenue above that. And look, we've been in favor of putting everyone underneath the 2.5 percent rollback. What's good for some should be good for everyone. Why is it that if you live in a smaller community, you don't have the same sort of option to vote, right, for the 2.5-percent rollback. The eight percent is going to have property taxes going up at a faster rate. So, I think this is a good provision and it's one that will help more people have an opportunity to slow sky rocketing property taxes."
The Center for Public Policy Priorities opposes SB2
Goudeau: The Center for Public Policy Priorities has expressed that you all don't necessarily think Senate Bill 2 [and its companion] House Bill 2 is the way to go. Tell us why.
Luis Figueroa: "Yeah, so we are an organization that's devoted to a Texas that is healthier, more educated and financially secure. And we really believe that Senate Bill 2, House Bill 2 puts us in the wrong direction on that front on a couple of levels. One, it really hamstrings cities and counties, school districts, even special districts, community colleges, from being able to offer the services that they need to provide for their constituents. Whether it's the firemen and police services or whether it's libraries. And particularly on the school districts, we're concerned about any type of cap on being able to raise the revenue they need for schools. They say there's going to be some offset in other legislation, but we don't know what that is yet. So, we are very concerned about making sure that the cities, the counties and the school districts and the community colleges are not hamstrung by a provision that will prevent them from providing the services that they need for their constituents."
Goudeau: Let's dive into that a little bit deeper. When it comes to the schools, there is this thought by some at the Capitol that if the school districts are collecting less dollars in property taxes, the state has to put in more money. Wouldn't this force that?
Figueroa: "Yeah, so, what we have seen over the years is that the state funding level has gone up and down and over the past few years, it's gone way down. We're about 38 percent the state's share. And it very much depends on the economic drivers that drive the overall revenue budget. You know, oil and gas and the sales tax revenue. So, what happens when we have a recession year and sales taxes are low or oil and gas revenues are down? Are we going to; are school districts then going to have a double whammy where the state share goes down, and they won't be able to compensate it on the local level as well by being able to go in? I think it's also worth pointing out that school districts already have to go to their voters to access additional pennies in many cases. It's called a tax, it's called a TRE [Tax Ratification Election]. And when you do that, you can access additional pennies. So, really, this is not needed for school districts. But, on the county and city level, again, we're concerned that when you hamstring those cities and counties and the state isn't providing the services that are needed, cities and counties are going to be hitting it or taking the hit from both sides."
Goudeau: The author of the Senate Bill, Senator Paul Bettencourt from Houston, argues that this just slows the rate of growth. He says that the level, that eight percent rollback rate was set more than 30 years ago and the legislature hasn't really changed it since then, despite the fact that the rate of inflation has changed. He feels that the rate should be lowered because of that and that it won't necessarily hamstring cities and counties because they have money coming in from growth. What are your thoughts there?
Figueroa: "Yeah, I find that a little bit disingenuous because he was talking about millennials and how he wants to help the next generation. But at the same time we're doing that, we haven't addressed the shortages in higher education funding and in student grant program there. We haven't addressed some of the weights that we addressed in school finance, for example, the funding for English language learners hasn't been addressed since 1984. The funding for low-income kids hasn't been addressed since 1984. So, on one hand, he's saying we need to update these things based on the current environment, but there's all these other programs that we haven't updated in a long time that would do a lot more for millennials and students and for the things that working families are really concerned about."
Goudeau: The education factor in this is a very fair argument and supporters of this bill say they're going to take care of that in the school finance bill that is going to come. You know, they say it is coming and this is one half of it. So then, my question for you is what about those homeowners and those business owners who are being taxed out of their homes? What is the solution for them?
Figueroa: "Yeah, absolutely, and I think one thing that I would point out is this isn't going to really be felt by most homeowners. This cap on appraisal isn't going [to] make, isn't going to be felt by the average homeowner. What it will do though is affect the services that you need. So, for example, the police response rate may get slowed down, the fire department's rate may get slowed down, the libraries may no longer, may have to close branches. So, the services that provide for the high quality local communities have asked for may suffer. And I think, ultimately, if your local community is upset with the tax rates, then they always have the ability to un-elect those local officials. And every community is different. Some communities have been very restrictive on going up or raising the tax rate and some communities feel there is a need because they have very particular services and amenities they want to provide. So, we think that this isn't an issue where the state needs to put a mandate across the cities. If we put a little bit more money into our education system, the school taxes, which is the vast majority of people's taxes will get addressed because we're putting more money on the state funds. So, that's the solution. Putting an arbitrary cap across the state is only going to exacerbate problems on the city levels, hamstring schools and doesn't address the real issue, which is the state's share."