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House Speaker Dade Phelan and Lt. Gov. Dan Patrick, the two top Republicans in the Texas Legislature, have dug in their heels on how to reduce property owners’ tax burden — with dueling proposals on how to get it done and a path to a potential compromise unclear.
Patrick wants to raise the state’s homestead exemption — the dollar amount of a home’s value that can’t be taxed — on school district property taxes, with an additional boost for seniors. Phelan favors tightening the state’s “appraisal cap” on how much the value of a homeowner’s main residence taxed by school districts can rise each year. Each says the other’s proposal wouldn’t cut taxes meaningfully.
Patrick has been forceful in his opposition to Phelan’s appraisal cap proposal and drew a line in the sand this week, vowing not to compromise with the House on the idea.
“I can’t compromise on something I know is not the right policy,” Patrick, a Houston Republican, told The Dallas Morning News. “There are other things we can work with the House on, but this … I would say is not one of those things because the math is the math.”
In a statement, Patrick spokesperson Steven Aranyi said the lieutenant governor "is willing to go to a special session on property tax relief" if the current legislative session ends without major property tax-cut legislation passing both chambers.
Meanwhile, Phelan doubled down on his proposal. The Beaumont Republican hasn’t written off raising the state’s homestead exemption like Patrick wants, but he questioned how much relief property owners would actually get from it. Phelan argues that tightening the cap would do more to slow or cut homeowners’ tax bills by guarding them against skyrocketing property values.
“It is our job at the Texas Legislature to do what we can to maximize tax savings for Texas taxpayers,” Phelan wrote in an op-ed published Wednesday in The Houston Chronicle.
The standoff between the two chambers comes with high stakes. Cutting the state’s property taxes, among the highest in the nation, was a cornerstone of Gov. Greg Abbott’s reelection bid last year — and Abbott has promised to spend at least half of the state’s nearly $33 billion surplus on property tax cuts.
Abbott has been mum on which idea he favors, but noted during a San Antonio Chamber of Commerce event earlier this month that he heard "countless times on the campaign trail" that home appraisals are too high.
Observers think Abbott won’t let lawmakers leave Austin without putting a tax cut bill on his desk and could call a special session if the two sides can’t resolve their differences.
“Republicans don't want to go back on those promises,” said Brandon Rottinghaus, a political science professor at the University of Houston. “Property tax relief was the number one issue in the campaign. If they can't deliver on this, it's going to make them look not only foolish for not being able to get it done, but also like they broke their promise to Texans.”
Abbott’s office did not respond Friday to an email requesting comment.
Raising the state’s homestead exemption is a key component of the Senate’s $16.5 billion property tax package this session. The proposal — carried by state Sen. Paul Bettencourt, a Houston Republican — would boost the amount of a home’s value that can’t be taxed by school districts from $40,000 to $70,000, with an additional $20,000 increase for seniors. A homeowner who pays the state’s typical school tax rate would pay $341 less on their annual tax bill than they would have without the increased exemption; seniors would save an additional $227.
Tax cut proponents in the Senate argue that having an exemption with a fixed dollar amount will help homeowners every year no matter what happens to home values.
“The most powerful tool that you have as a tax writer is an exemption,” Bettencourt said during a March 22 floor debate on the measure. “These exemptions are unprecedented by any measurement. This is a historic, never-had-occurred-before exemption increase for homeowners in the state.”
But the House’s tax writers are skeptical of that argument, saying that homestead exemptions won’t help homeowners in a red-hot housing market like the one Texas endured last year. If home values skyrocket, so will property owners’ tax burden, they say — and the bigger a home’s value gets, the smaller the homestead exemption’s relief will be.
Phelan and state Rep. Morgan Meyer, a University Park Republican carrying the House’s main tax bill, argue that their proposal is tailored to address homeowners’ concerns.
“No one has ever come up to me and said, ‘Morgan, man, we’ve got to do something about our homestead exemption,’” Meyer told NBC DFW on Sunday. “But what they do come and tell me is, ‘Morgan, what is going on with our appraisals?’”
Tax cut warriors in the House want to lower the state’s annual appraisal cap on a home’s taxable value from 10% to 5% — and expand the benefit to owners of commercial properties such as stores, restaurants and apartment complexes.
Tax experts and business lobbying groups such as the Texas Association of Realtors have warned that lowering the cap would have dire ripple effects that would create substantial inequities among property owners and upend the housing market — results that California saw in the decades after voters decided to cap how much their homes could be taxed in the late 1970s.
Experts say that enacting a tighter appraisal cap would result in bigger tax breaks to owners of homes and businesses who have held their property for a longer period, meaning the burden of paying property taxes would fall more heavily on new homeowners and business owners. The difference between what neighbors on the same block pay in taxes could wind up being drastically different, said Lynn Krebs, a research economist at the Texas Real Estate Research Center at Texas A&M University.
“While their homes may have similar market values, the new neighbor is going to be paying a significantly higher property tax bill and receiving the same public services,” Krebs said.
Tightening the cap would likely also result in an even pricier housing market, critics warn, because homeowners would be encouraged to hold on to their property in order to keep their tax benefit — leading to less churn on the market, fewer homes available and higher home prices.
And ultimately, critics say, halving the appraisal cap wouldn’t bring tax bills down because cities, counties and school districts could raise their tax rates to make up for any lost revenue.
Despite the disagreement over the homestead exemption and appraisal cap proposals, there’s some overlap between the House and Senate proposals. Both chambers have set aside $5.3 billion for school district property tax cuts in their proposed budgets for the next two years, which would benefit homeowners and business owners alike.
The Senate’s tax cut package would pump another $5.38 billion into that purpose — saving the owner of a $300,000 home who pays the state’s average school district tax rate about $210 on their annual tax bill. It also includes $1.5 billion in business property tax cuts.
The House’s main tax cut proposal would also put an additional but significantly larger sum — $12 billion — into cutting school property taxes. It would result in more than $1,000 in savings over two years for an owner of a $350,000 home, according to Phelan’s office.
House leaders haven’t shut the door on a potential compromise with the Senate.
“This is a process,” Meyer said. “We are still going to talk about homestead exemptions. We’ll still talk about different assets [and] facets of the plans because this is our job and our commitment to our constituents is to get something done.”
So far, the Senate is moving faster on its tax cut proposal, passing its package out of the full chamber last week. Two days prior, a House committee voted out the House’s main tax cut proposal by a 10-1 vote, but it’s not yet clear when the bill will make it to the House floor.
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