A landmarkย $18 billion tax cutย for property owners in the state is headed to Gov.ย Greg Abbottโ€™s desk late Thursday, ending a monthslong stalemate among the stateโ€™s top Republicans with a deal that drew near-unanimous support from legislators.

Both chambers adjourned sine die Thursday evening, ending the second special session Abbott had called this summer to hammer out an agreement on property tax relief.

โ€œWe knew โ€ฆ the most contentious issue that we faced was how to return these dollars to the taxpayers,โ€ House Speakerย Dade Phelanย told House members after they approved the bills Thursday evening. โ€œCongratulations to you, but more importantly, congratulations to the taxpayers of Texas. They are the big winners.โ€

During floor debate Thursday, Democrats attempted to insert benefits for renters, teacher pay raises and more money for public education into the tax-cuts package in a series of floor amendments but were unsuccessful.

A cheer went up on the chamber floors upon the passage of theย three billsย that make up the package:ย Senate Bill 2, which details the proposed property tax cuts;ย Senate Bill 3, a franchise tax relief bill; andย House Joint Resolution 2, a constitutional amendment required to authorize the tax cuts.

โ€œWe now have a record-setting plan that will affect every family, every individual, every business, every operation in this state pretty much, for the next several decades,โ€ said Houston Republican Sen.ย Paul Bettencourt, an architect of the package. โ€œEvery Texan deserves it because itโ€™s their money.โ€

The package puts $12.6 billion of the stateโ€™sย historic budget surplusย toward making cuts to school taxes for all property owners, dropping property taxes an average of more than 40% for some 5.7 million Texas homeowners, and offering brand-new tax savings for smaller businesses and other commercial and non-homesteaded properties. The voters would need to approve the package in November for the cuts to take effect this year.

At a time when the state has some of the nationโ€™s highest property taxes and lawmakers face massive political pressure to ease the financial suffering of their constituents, Abbott said he will sign the legislation โ€” a cornerstone of his 2022 reelection campaign and that of most state lawmakers for several cycles now.

โ€œThe Texas House and Senate fulfilled our promise with an agreement that delivers a comprehensive, long-lasting solution to increasingly burdensome property tax bills,โ€ Abbott said in a statement after the bills passed. โ€œI thank my partners in the Texas Legislature for coming together to honor the best interests of hardworking Texans who want to own their propertyโ€”not rent it from the government.โ€

The packageโ€™s marquee item is a $5.3 billion expansion of the stateโ€™s homestead exemption from $40,000 to $100,000. Bettencourt said the new exemption combined with the school tax cuts would save homesteaders โ€” Texans who live in a residence they own โ€” an average of $1,300 a year in property taxes.

It also offers additional cuts for seniors and property owners with disabilities, averaging about $170 more per year, Bettencourt said.

The most novel part of the plan, an idea introduced publicly for the first time on Monday, is a first-ever temporary 20% cap on appraisal increases for properties valued at $5 million or lower that arenโ€™t considered homesteads. Those would include second homes, vacation properties, rental houses, or commercial retail or business properties.

Leaders have referred to that part of the bill as a โ€œcircuit breakerโ€ program, but itโ€™s somewhat of a misnomer. Unlike programs in other parts of the country with the same name, the Texas proposal does not calculate property taxes based on a personโ€™s income or ability to pay, nor does it specifically seek to benefit lower-income taxpayers.

School funding and other issues

Including more than $5 billion approved four years ago, the legislation also allocates nearly $12.6 billion to reduce the school property tax rate by 10.7 cents per $100 valuation for all homeowners and business properties.

Those billions are being sent to school districts so they can cut their taxes for all property owners and shift a portion of their maintenance and operations costs to the state.

But the package would give no new funding to schools, a sticking point with critics who note that, compared to other statesโ€™ spending, Texas is ranked near the bottom in per-student funding for education.

$4 billion in new public education funding has been tied up since the regular legislative session amid an ongoingย political battleย over school vouchers. In response to the calls for more money for schools and raises for teachers, senators proposed a one-time teacher pay bonus late last month as part of their tax-cut legislation. But that proposal ultimately didnโ€™t end up in the final compromise, with House members saying teacher pay should be considered in separate legislation.

The idea was intended to pacify an increasingly angry and impatient public school community โ€” who have been expecting a pay raise since last yearโ€™s campaign season โ€” until lawmakers can agree on an education package in another special session expected for later this year.

The passage of the tax-cuts package this week without any nod to new school funding โ€” which depends mostly on property taxes in many districts โ€” triggered criticism from public education advocates inside and outside the Capitol dome, who said thereโ€™s more than enough money in the state surplus to bump up the districtโ€™s funding.

While the plan won applause from a variety of advocacy groups and organizations across the political spectrum, few agreed it was a perfect plan.

โ€œThere is no bill that is perfect, but this one is pretty damn good,โ€ state Rep.ย Richard Raymond, D-Laredo, said Wednesday.

And while businesses applauded the overall lowering of taxes, some taxpayer groups and conservative economists said the resulting share of the tax burden would be even larger now for businesses.

The plan shifts the school-tax burden by about three percentage points toward businesses, raising the share of the school property taxes paid by businesses from 52% to 55%, while homeownersโ€™ share drops from 48% to 44.8%, said Jennifer Rabb, president of the business-backed Texas Taxpayers and Research Association.

โ€œAt the same time, everybodyโ€™s getting a tax cut so Iโ€™m not here to look a gift horse in the mouth,โ€ Rabb told the House Ways and Means committee Wednesday. โ€œBut I do think itโ€™s important for you to understand that this shift is occurring. Texas businesses already pay a high property tax or rather tax burden overall relative to other states.โ€

Targeted tax relief for the stateโ€™s 3.7 million renter households has been left out of proposalsย that have passed both chambers.

House Democrats last week unveiled their ownย tax-cut package, sponsored by Dallas state Rep.ย John Bryant, that wouldโ€™ve given tenants a cash refund equaling up to 10% of the rent they paid the previous year. It also would have made the homestead exemption $200,000, doubling the exemption in the current bill, included a teacher pay raise and added more school funding. Their proposal did not make it into the final package.

Bryant tried to replace SB 2 on the floor with his plan on Thursday, but the planโ€™s authors said it would jeopardize the deal the House made with the Senate. Bryant said that while the owners of โ€œskyscrapers and refineries and oil wells and other big businessโ€ would be bringing home thousands in tax cuts, homeowners wouldnโ€™t see enough of a cut on a monthly basis to make any real impact โ€” and renters would see none at all.

โ€œI urge you to join me in doing something meaningful,โ€ Bryant told his colleagues.

The effort failed on a 51-79 vote.

Republicans and some tax policy experts argue that renters, who include about 3.8 million households in the state, will benefit from lower school taxes because landlords who benefit from the tax cuts wonโ€™t pass as much in property taxes onto their tenants โ€” thus resulting in smaller rent increases.

But skeptics of that idea say demand for the stateโ€™s red-hot rental market and a dearth of supply to meet that demand, not property taxes, have driven rent increases in recent years โ€” a problem that a tax cut will not remedy.

This article was written by Karen Brooks Harper of the Texas Tribune. This article originallt appeared at : https://www.texastribune.org/2023/07/13/texas-legislature-property-tax-cuts/