As Texas home values skyrocket, state officials wrestle with how to slow property tax increases
Texas school districts, cities and counties rely heavily on property taxes to pay for roads, libraries, police, firefighters and public schools. But lowering tax bills has long been a difficult endeavor.
DALLAS — As Texas’ exploding real estate market dramatically drives up home values, homeowners are getting sticker shock after receiving notice of their properties’ new appraised values — which help determine how much they pay in property taxes.
The growth rate of home values in the state’s major metropolitan areas has surged by double digits. In Harris County, the state’s most populous county, residential values have risen between 15% and 30%, according to Roland Altinger, the county’s chief appraiser.
In Bexar County, the median value of a home appreciated nearly 25% to $265,540.
And in Travis County, where the state’s housing crunch has been most apparent, the median home value has skyrocketed — climbing more than 50% since last year to $632,208.
“We have never seen anything like this,” said Marya Crigler, chief appraiser at the Travis County Appraisal District. “This is unprecedented for us in Travis County. And I think that same unprecedented appreciation is being seen statewide.”
But an increase in value doesn’t necessarily guarantee a dramatically larger tax bill, appraisers and property tax experts caution.
“Many factors complicate how property taxes are calculated,” said Adam Perdue, a research economist at the Texas Real Estate Research Center at Texas A&M University.
It’s likely that at least some local governments will have to cut their property tax rates in order to fall in line with recent state laws meant to slow property tax growth. And the state’s top elected officials are already making new promises to bring down Texans’ property tax bills. But recent laws haven’t stopped property tax growth altogether.
Property tax collections have risen more than 20% since 2017, according to data from the Texas Comptroller’s office. Texans paid an estimated $73.2 billion in property taxes in 2021, which went to school districts, cities, counties and other taxing entities that then use the revenue to fund everything from public schools and police departments to road maintenance.
Facing reelection, Gov. Greg Abbott has deemed property tax reduction a top priority when state lawmakers reconvene next year.
"One of my top goals this coming session is to reduce property tax substantially, and that will reduce the cost of doing business," Abbott said during a March event for the U.S. Chamber of Commerce in Austin. "It will also reduce the cost of living."
Democratic opponent Beto O’Rourke, a former El Paso congressman, sees an opportunity to lay the blame for the state’s rampant growth in property taxes at Abbott’s feet. In a new line of attack, O’Rourke has pointed out that the amount of property taxes paid by property owners has grown by more than $20 billion since Abbott took office in 2015. (Abbott’s campaign has said the Legislature has spent $18 billion since 2015 to limit how much school property taxes grow.)
“He (Abbott) is the single greatest driver of inflation in the state of Texas, and it's causing real pain to our fellow Texans right now,” O’Rourke said at a Wednesday press conference in southern Dallas.
Here’s a quick primer on how Texas got here:
Why are property taxes in Texas so high?
Texas’ local governments rely heavily on property taxes to pay the salaries of police officers and firefighters and for government services like roads, libraries, parks and public schools. Coupled with the fact that Texas has no state income tax, Texans’ property tax bills are among the highest in the nation.
Texas homeowners pay a higher proportion of their home value toward property taxes than most homeowners in other parts of the nation, according to the Tax Foundation. Texas depends more on property taxes than almost any other state to pay for government services — edged out only by New Hampshire, Alaska and New Jersey.
In no arena is that more apparent than in Texas’ public schools — which depend greatly on property taxes for funding.
School districts use local property tax revenue to cover as much of their base budgets as possible — then the state chips in the rest. Over time, that formula has often resulted in fewer state dollars paying for public education as local property values have grown.
In any given year, revenue from property taxes makes up more than half of the state’s pot of funds to pay for public schools, the rest of which comes from state and federal sources. Of the $69.3 billion that went to public education in fiscal year 2020, property taxes kicked in $38.4 billion while the state provided $23.3 billion. The rest came from federal funds.
As a result, school property taxes make up the bulk of a typical Texas homeowner’s tax bill. More than half of all property tax revenue in the state comes from school property taxes, according to data from the Texas Comptroller’s office.
“The only way to really institute meaningful property tax reductions would either be to find some other revenue source or to substantially cut education budgets,” said Dr. Charles Gilliland, a research economist who studies property taxes at the Texas Real Estate Research Center at Texas A&M University. “Neither one of those options is palatable in today's political atmosphere, so that's how we got into this situation.”
Has anyone tried to fix this?
Texas legislators have tried numerous ways to limit property tax growth.
Lawmakers have raised the state’s homestead exemption — the portion of a homeowner’s home value exempt from taxation — to $25,000.
State law also limits the taxable value of a home from rising more than 10% in a given year on an owner’s primary residence. In Travis County, the median market value of a home grew nearly 54%. But the median taxable value of a home in Travis County rose by about 11% after also accounting for the construction of new homes just coming onto tax rolls for the first time.
In 2019, lawmakers passed a pair of laws aimed at slowing growth. House Bill 3 was an $11.6 billion school finance bill that included $5.1 billion to lower school district taxes, $6.5 billion in new school spending and caps on school districts’ tax rates. Senate Bill 2 required many cities, counties and other taxing units to get voter approval if they want to raise the property tax revenue they collect from all property owners by 3.5% or more than the previous year.
According to a study by the Texas Taxpayers and Research Association, the bills worked — sort of. The study says Texas taxpayers would have shelled out $6 billion more in property taxes than they did in 2021 if not for the two bills — the result of falling tax rates.
But that doesn’t mean everyone’s paying less in taxes. School tax rates dropped by 13% since the bills passed in 2019, but taxable property values rose by 23%, according to the study.
“Values are still rising faster than school tax rates,” said Dale Craymer, president of the Texas Taxpayers and Research Association. “But taxpayers now at least benefit as their values rise. They benefit from falling tax rates. That didn't happen before 2019.”
Meanwhile, ideas like making the sales prices of properties public — which advocates say would ensure properties aren’t exorbitantly valued and that owners of expensive properties are paying their fair share of taxes — have gone nowhere.
What’s on the table now?
With campaign season comes new promises to cut property taxes.
Abbott has touted a “taxpayer bill of rights” that includes proposals to further reduce school property tax rates, make property appraisals more transparent and limit local governments from taking on new debt without voter approval.
On Wednesday, O’Rourke put forth a set of ideas to reduce Texans’ property tax burden. That would include making sure that the state picks up 50% of the tab for public schools, expanding Medicaid to ease the property tax bill for publicly funded hospitals, plus legalizing marijuana and taxing its sale. He also floated the idea of legalizing casino gambling and sports betting as a way of generating more tax revenue.
Texas voters will have the opportunity to cut their own taxes at the May ballot box. On the ballot is a measure to raise the state’s homestead exemption from $25,000 to $40,000 for school district property taxes. The average homeowner would see about $176 in savings on their annual property tax bill, according to Republican state Sen. Paul Bettencourt of Houston, the proposal’s author.
Meanwhile, lawmakers in the state House and Senate are weighing ideas to use state and federal funds to cover some school expenses so that districts could lower property taxes. They’re looking at a $12 billion surplus in state revenue along with $3 billion in federal stimulus dollars that Lt. Gov. Dan Patrick and House Speaker Dade Phelan set aside to pay for tax relief when the Legislature convenes in 2023.
Whether state lawmakers will be able to use federal stimulus funds to pay for property tax cuts hasn’t been settled. The $3 billion comes out of the American Rescue Plan Act, the $1.9 trillion stimulus bill aimed at pandemic relief, which prohibits the use of stimulus funds for tax cuts.
Texas, joined by Louisiana and Mississippi, sued the federal government last year alleging that the prohibition is unconstitutional. A federal judge in Amarillo sided with Texas earlier this month, but the decision is likely to be appealed.
One idea that has gained momentum in Republican circles is the abolition of school districts’ maintenance and operations tax, which Patrick instructed senators to look into this year.
Craymer, the TTARA president, is dismissive of that.
“I don't think we're getting rid of the school M&O tax anytime soon,” Craymer said. “I don't think we're getting rid of the property tax anytime soon.”
Other ideas abound. During a Thursday meeting of the Texas House Ways & Means Committee, state Rep. Morgan Meyer, a Dallas Republican, asked the comptroller’s office to look into what effect lowering the appraisal cap on residential taxable values and creating such a cap for commercial properties would have on tax revenue.
But lawmakers have left little room for themselves to maneuver on property taxes, observers have said. The state’s lack of an income tax has long been a carrot to attract employers and new residents to Texas. And Texas voters won’t allow one; in 2019, they voted to enshrine a ban on a state income tax in the state’s constitution.
“Texas has kind of painted itself into a corner by now having a constitutional prohibition against what is a major source of funding for other states by concentrating on reducing property taxes, rather than expanding the people who pay their fair share,” said Dick Lavine, senior fiscal analyst with the liberal-leaning Every Texan.