AUSTIN — In Texas, public schools pay for a majority of their operations through property tax collections. Even so, state officials promise districts won't feel the weight of reduced funding despite lawmakers' touted property tax relief bill which reduces what districts can collect.
Senate Bill 1 passed quickly in the third legislative special session this fall after Gov. Greg Abbott added it to the agenda. Its purpose is to provide tax relief to homeowners by raising the homestead exemption from $25,000 to $40,000.
For an average homeowner whose property is worth $300,000, that translates to about $176 in temporary tax relief next year, said State Sen. Paul Bettencourt, R-Houston, who spearheaded the bill.
The bill still is pending voter approval, but if it receives a majority vote in May, homeowners will keep more of their money and the state will foot the bill by using $2 billion in surplus state funds in the first year to replace what would otherwise be collected by school districts.
“This should not adversely impact any school districts or schools' ability to to fund their education going forward,” said Rod Bordelon, senior fellow and policy director at Remember the Taxpayer.
Remember the Taxpayer is a campaign by the Texas Public Policy Foundation whose policy proposals served as a template in crafting the bill.
While a surplus each year is not guaranteed, Bordelon said if the state maintains its conservative approach to budget setting, it will continue to have enough surplus money for the initiative and maybe even get school maintenance and operation taxes down to $0 over 20 years.
Bordelon said this is possible because even accounting for inflation and population growth, Texas is projected to have a 9% general revenue growth year-over-year while its overall expenses and budget needs are projected to grow at 5%-6% year-over-year. The estimated net surplus of about 3%-4% could be used to continue reducing property taxes, he said.
“Assuming those trends continue over a long period of time, you could use that surplus or a significant portion of that surplus and buy down the property taxes in the local communities in about 20 years,” Bordelon said.
The bill also sets limits on school districts’ authority when adopting tax rates.
Per the bill, districts will not be allowed to adopt a total tax rate — including both the M&O and the interest and sinking rates — that exceeds the district’s voter approval rate for the 2022 tax year. The M&O budget pays for general operations while the I&S is used to repay debt that comes from issuing bonds. The state law would also limit school districts’ I&S rate to $0.50 per $100 valuation.
Texas lawmakers continue to chip away at school districts’ funding dependency on property taxes. In 2019, legislators passed House Bill 3, a sweeping school finance bill that compressed district’s tax rate-setting abilities as well as secured funding for higher teacher salaries.
It was once again addressed in 2021 through HB 1525 which adjusted various allotments set by HB 3 and allowed compensatory education funds to be used for social-emotional learning, instructional coaches and attendance officers. It also prohibits the reduction of teacher salaries from 2019-20 levels.
“[Parents] should absolutely not be concerned because this tax break has no impact on school district’s [ability] to operate effectively whatsoever,” Bettencourt said. “The state has not only stepped up on funding for this issue, but also on making sure that school districts produce quality results for their kids.”
Texas school district officials also said the change does not worry them in producing a balanced budget while maintaining its quality of education.
“We pride ourselves on conservative fiscal management and making the most of our limited resources to benefit all kids in Huntsville ISD,” HISD Superintendent Scott Shepard said. “We are confident we can maintain a balanced budget with the passage of SB 1, something we have done for the past four consecutive years.”