Some conservative policy advocates have pushed to eliminate property taxes entirely, arguing they are “immoral” and force Texans to “perpetually rent [their homes] from the government.” But doing so would require lawmakers to cut vital state services or nearly quadruple the sales tax rate, budget analysts told the Senate Finance Committee.
What you need to know
The state does not impose property taxes on Texas homeowners, who are instead taxed by various entities such as cities, counties, hospital districts and school districts.
Ending all local property taxes would cost the state about $81.5 billion annually, according to the Texas Legislative Budget Board. The state receives about $47.5 billion each year for discretionary spending—meaning lawmakers would need to cut an additional $34 billion from the budget.
“That's foster care, [Child Protective Services], Medicaid—and a lot of this is federally mandated, of course,” Senate Finance Chair Joan Huffman, R-Houston, said. “All the money put in higher [education], all the money in public [education], all the money for Medicaid, all the money for mental health, human trafficking, all the things that the state has made priorities, we would not have the funding for ... if we didn't collect that $81.5 billion.”
Lawmakers could also make up the deficit by raising the state sales tax rate from 6.25% to 22%, according to Brad Reynolds, the chief revenue estimator for the Texas Comptroller.
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Property taxes are the largest revenue source for many cities and counties, Reynolds said.
“Everything that local governments do now to take care of their local people, we would strip them of that,” Huffman said. “We wouldn't have police and fire and so forth, because much of it is funded through the local collection of property taxes.”
Local governments also would not be able to afford to build basic infrastructure or maintain roads without property tax revenue, Reynolds said, which could lead people to move out of the state.
Shannon Halbrook, a fiscal analyst for the public policy nonprofit Every Texan, said repealing property taxes is “a non-starter.”
“Property taxes are essential for the support of our public schools, local governments and other public services. Without a state income tax or local property taxes, Texas will be left with a one-legged revenue stool,” Halbrook said. “Since 2021, many states have learned the hard way that permanent tax cuts in response to temporary surpluses are a bad idea, after they've seen huge drops in projected revenue.”
State lawmakers had a nearly $33 billion surplus to work with last legislative session, although they did not spend all of it. Texas will likely end the 2024-25 biennium with a $21.2 billion surplus, Comptroller Glenn Hegar estimated in July.
The context
It took lawmakers seven months to reach an agreement on property tax relief last year. Lt. Gov. Dan Patrick, who oversees the Senate, was a fierce advocate for increasing property tax exemptions on Texans’ primary homes from $40,000 to $100,000. Gov. Greg Abbott and House leaders pushed to cut school district taxes by funneling additional state money into schools. Both proposals made it into the final deal, which voters approved in November.
In March, Abbott called on state lawmakers to end school property taxes, which make up the majority of the average homeowner’s tax bill.
Patrick has signaled he opposes the idea, saying in a June 2023 statement that abolishing school property taxes “clearly has no support from the legislature or the people.”
Last summer, lawmakers set aside $12.7 billion to “compress,” or reduce, school property tax rates. Senate Bill 2 cut school district maintenance and operations taxes by 10.7 cents, or nearly 24%.
Reducing maintenance and operations taxes by another 10 cents next year would cost about $4.2 billion annually, Texas Education Agency Commissioner Mike Morath told the committee Sept. 4. Expanding the homestead exemption from $100,000 to $160,000 would cost $3 billion.
Due to recent property tax cuts, some public school districts are paying less to the state in recapture than in previous years, Morath said.
Recapture, also known as Robin Hood, is a funding mechanism used to provide all Texas school districts with a similar amount of money—about $10,500 per student, Morath said. “Property rich” school districts with high property values send excess revenue back to the state, which distributes the funds to “property poor” districts. The amount districts pay into recapture varies year over year, depending on enrollment, attendance, property tax rates and more.
“When property tax rates are compressed by the legislature, school systems collect less in property taxes from their taxpayers, which is the point,” Morath said. “But what that also means is if you were previously a recapture district, and your rates go down enough, you might no longer be a recapture district.”
Next steps
The finance committee will not immediately take action on the topics discussed Sept. 4 but can make recommendations for next year’s legislative session, which is set to begin Jan. 14.
Patrick asked all Senate committees to submit reports with their interim findings by Dec. 1.
