Property Tax Elimination

Abolish school maintenance and operations property taxes

The Issue

Texas has the sixth most burdensome property tax system in the nation. Property taxes in Texas keep Texans from ever truly owning a home. The best way to reduce the burden of local property taxes is to eliminate them by reducing spending.

Republican voters in the 2018 primaries agree that something must be done; 70 percent agree that property taxes should be replaced with a sales tax, and 94 percent agree with putting in a property-tax trigger to limit their growth.

Higher property tax bills negatively affect all Texans by limiting investment decisions especially in the case of home ownership, discouraging economic activity, and affecting job creation.

But property taxes tend to put the most burden on low- and middle-income individuals by forcing many of them out of their homes as their tax bill increases faster than their income. Property taxes do not just affect homeowners they are also a detriment to renters.

In fiscal 2016, more than 4,100 local governments hit homeowners and businesses with tax bills totaling $56.1 billion, or more than $8,000, on average, for a family of four.

From 1996 to 2016, local government tax levies grew by more than 230 percent to $56.1 billion in Texas. Among the different taxing units, special district taxes increased the most at 373 percent to $8 billion, followed by counties up 256 percent to $9 billion, cities up 239 percent to $9.2 billion, and school districts, which includes maintenance and operations taxes and debt taxes, up 201 percent to $29.9 billion. In comparison, personal income increased just 199 percent. This imbalance is an indication that taxes are growing faster than Texans’ ability to afford them.

By strengthening state and local spending limits, the state could offset property taxes with state revenue. A good place to start would be school maintenance and operations property taxes, which is roughly half of the property tax burden, because schools are essentially funded by state-determined funding formulas. Until then, all political subdivisions of the state should be required to seek voter approval for adopting tax rates that allow property tax revenues to grow in excess of lesser of either 2.5 percent or population growth plus inflation compared with the previous year. Additionally, a two-thirds supermajority vote should be required to ratify any higher increase.

Structured in this way, the proposal would place the onus on local officials to convince a broad cross-section of voters on the need to excessively increase already-high property tax bills.

Recommendations

  • Start eliminating property taxes by first buying down the school maintenance and operations property taxes (almost half of the property tax burden) through stronger state and local spending limits and replacement with state surplus dollars over time.
  • Until elimination, grant local voters a louder voice in the property tax-setting process by requiring local voter approval when property tax revenue increases by more than 2.5 percent or population growth plus inflation, whichever is less. Additionally, a two-thirds supermajority vote should be required to ratify any higher increase.

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