Texas House, Senate agree to ‘biggest property tax cut in Texas history'

After weeks of quarreling, the Texas House and Senate say they have agreed in principle on an $18 billion plan that will "deliver the biggest property tax cut in Texas history."

The offices of Texas Lt. Gov. Dan Patrick (R) and House Speaker Dade Phelan (R) released a joint statement Monday morning saying they've come up with legislation that not only reduces the school property tax rate and increases the homestead exemption, but also includes relief for small businesses.

The deal represents a significant win for providing relief to Texas property owners and reflects the commitment of Texas leaders to address the concerns of taxpayers and provide significant relief from the burden of escalating property taxes.

Joint statement of the Texas House and Texas Senate

Patrick and Phelan said the legislation is expected to be filed Monday in the Senate and passed later in the week. From there it's headed to Republican Gov. Greg Abbott's desk, who is expected to sign it.

"I promised during my campaign that the state would return to property taxpayers at least half of the largest budget surplus we have ever had. Today's agreement between the House and the Senate is a step toward delivering on that promise," Abbott said in a statement Monday. "I look forward to this legislation reaching my desk, so i can sign into law the largest property tax cut in Texas history."

Following the end of the regular session in May, Abbott called the state legislature into special session and tasked them with providing property owners with tax relief. That session expired without the House or Senate agreeing on any new legislation and with both sides firmly mired in a public spat about how to go forward.

The House was pushing for property tax relief through compression of the school tax rate and included relief for small business owners but didn't include an increase to the homestead exemption, a nonstarter for the Senate. The Senate insisted any approved legislation must raise the homestead exemption from $40,000 to $100,000.

The additional exemption could save homeowners several hundred dollars per year on their property tax bill, though that amount varies because tax rates vary across the state.

With the House and Senate at a stalemate, Abbott said he'd continue to call special sessions until the chambers sent legislation to his desk. The governor called a second special as soon as the first expired and contained two action items -- the governor wanted lawmakers to create a pathway to eliminating the school district M&O taxes (not all property taxes) and to use compression to reduce the school district property tax rate.

According to the joint statement, Phelan and Patrick met in Austin last week with members of both chambers and hammered out a consensus.

HIGHLIGHTS OF THE $18 BILLION TAX CUT LEGISLATION

• Over $12 billion will be spent on reducing the school property tax rate for all homeowners and business properties.
• Every homeowner who homesteads their home (approximately 5.7 million homeowners) will get a $100,000 homestead exemption.
• Non-homesteaded properties, valued at $5 million and under, including residential and commercial properties, will receive a 20% circuit breaker on appraised values as a 3-year pilot project.
• The legislation will also include savings on the franchise tax for small businesses and create newly elected positions on local appraisal boards.

"Reducing property taxes, providing relief to small business owners, and reforming our appraisal system will ensure economic growth and prosperity, and this agreement is a significant victory for all Texans,” said Phelan.

The speaker said negotiations with Patrick were "extremely productive," and that they were able to come together and find common ground to provide "much-needed, much-deserved relief."

Patrick had been especially critical of the speaker after the House gaveled out of the first special session without hearing any of the Senate's proposed legislation. Patrick called on the House to return to the capitol and continue working saying in June, "We don't even have anyone to send a bill to right now. So the House members and Speaker Phelan, they need to get their butts back to work in Austin."

Patrick said he Speaker Phelan "worked diligently" over the last week, crafting the tax relief plan.

“It made the difference. It may have taken overtime, but the process has produced a great bill for homeowners and businesses,” said Patrick.

In their joint statement, the House and Senate said both the omnibus property tax relief bill and the franchise tax relief bill will originate in the Senate and the constitutional amendment will be introduced as a House Joint Resolution (HJR). By state law, any changes to the state constitution must first be approved by both chambers and then go before voters.

Matthew Wilson with SMU political science says the length of time required to reach a deal will not be what Texas homeowners remember when they open tax bills next year.

Jennifer Parker is President Elect of the Collin County Area Realtors. The organization took a front-row seat during months of disputes over property tax cuts.

“It’s very important to us to make sure that we’re protecting homeowners’ property rights,” Parker said. “And a part of that is the cost of their property taxes.”

She said it all adds up to significant relief.

“The market has been historic and now this legislation has been historic,” said Parker. “What it means is we’re going to see savings on an average between $1200 to $1500 per household.”

Small business owners also have reason to celebrate. Massey Villarreal is Chairman of the Board for the Texas Association of Business. They, too, kept a close on eye on the debates happening between lawmakers.

“Having a property tax support of any type helps those small business owners who are working out of their home,” he said. “It gives them the property tax break to reinvest in their businesses.”

He said it’s a win across the board for economic growth, and an incentive for businesses eyeing Texas as place to put down roots.

“If you come in here and you employ people that pay school taxes, we’ll give you an abatement. So, for us it’s like a property tax deal but it’s an incentive for major corporations to relocate to Texas,” said Villarreal.

"Most people are going to end up seeing somewhere between $1,000 and $2,000 of property tax reduction," Wilson said. "And that’s something that will be noticed. This is not just nibbling around the edges, this is major property tax relief."

Officials with the Texas Realtors Association said calculating your exact savings won't be known until the final details of the deal are worked out.

"Have a little bit of patience," said Julia Parenteau, Director of Public Policy for Texas Realtors Association. "Know that this is an enormous deal. There are significant tax reforms contained in this proposal, but it's not going to be tomorrow that you get a notice about your upcoming tax bill."

Last month, Phelan's office announced the creation of the House Select Study Committee on Sustainable Property Tax Relief. The 16-member committee is made up of 13 House members and three public members. The group will be tasked with considering issues that broadly affect property taxes and make recommendations for long-term, sustainable property tax relief for Texas property owners.

Phelan's office said the committee will evaluate the dynamic effects of compression, limits on taxable value, and homestead exemption increases to maximize savings. The committee will also study the viability and sustainability of eliminating the school maintenance and operations taxes by 2035; examine the historical rates of appraisal increases and recommend methods to reduce the tax burden of those increases on real property; and examine the long-term value of homestead exemptions in conjunction with the impact of appraisal increases.