Texas property taxes: Legislative efforts to address rising assessments

Tax season has just begun and property taxes are top of mind, as many have upcoming deadlines to pay property taxes.

With property valuations increasing by over 20% in many parts of DFW over the last few years, many homeowners and businesses are finding it hard to keep up.

It’s something that local tax consultants are tackling, with droves of new families and businesses moving to Texas.

"Growth drives up property valuations and, subsequently, property taxes," said Chismark Ryan Chismark, a partner at Meritax Advisors in Frisco, who helps businesses in managing the complexity of property taxes in the state.

He said lawmakers have been prioritizing the property tax burden in the Texas for years.

In 2019, Lieutenant Governor Dan Patrick, along with Senator Paul Bettencourt passed some legislation that allows the state to use surplus funds to lower tax rates when assessments increase. This mechanism has provided some relief to taxpayers by reducing the overall burden even as property values climb.

“So what happens when assessments go up, the rates actually came down, and we got relief for the taxpayers,” he said.

This year, lawmakers are working with a budget surplus of nearly $24 billion this year.

“A budget surplus provides an opportunity for lawmakers to allocate funds toward school districts or infrastructure improvements, which could offset local governments' reliance on property taxes. However, there are debates about how to balance long-term financial stability with immediate tax relief,” said Chismark. “Ultimately the goal is to incentivize more development with growth, lower the rates for everyone, and that tax liability will pass on to building owners, homeowners, and communities.”

The Property Tax Relief Act is also in full effect this year, which is supposed to lessen property tax burdens on homeowners and maintain predictable property tax rates. Some sections of the act, also known as Senate Bill 2 in last year’s session, provide additional funding to eligible schools when local property tax revenue falls short of expenses due to tax limitations, including those affecting elderly and disabled homeowners.

But lawmakers are working on more property tax solutions during the legislative session this year.

Chismark says one of the most debated topics in the Texas legislature is the concept of appraisal caps as a method to limit tax liability. Chismark warns that appraisal caps alone do not effectively address the issue.

"If assessments are capped, but city budgets continue to grow, tax rates will have to rise to compensate," he explains.

The unintended consequence can actually lead to higher tax burdens for property owners.

"We're at a critical point where if you start introducing legislation that caps values, we could be in a situation like a California and some of these other states that don't have the ability to provide relief anymore, they're in too deep. We don't want to go there,” Chismark said.

He said some potential measures under discussion include increasing state funding for schools to reduce reliance on property taxes, expanding exemptions for specific property types, and implementing stricter limits on appraisal increases for commercial properties.

As the legislative session progresses, Chismark emphasized the importance of educating lawmakers on effective tax relief strategies. He has lobbied in Austin previously and has plans to do so again in the next few weeks.

"It's important for everyone to know how the system works. So we think of it as an education series. 40% of the House are rookies this year,” he said. "It's really about debunking appraisal caps as a means for relief and educating anybody who's new to the process, or even folks that have been there for a few years, on how the process actually works. We think about property taxes and we say we just want them lower. But it's not that simple. I think educating them on how property taxes are derived, where we can provide relief that's going to make sure that it actually trickles down to the individuals that we're trying to solve for."

One key topic of discussion in Austin will be school district funding.

"It's important that the school districts are well-funded, but it's also important to know that that's the largest portion of your tax liability is the school district rate," said Chismark. "If the state can come in and provide some assistance to lower that rate so that each of these school districts isn't so dependent on local property taxes, that's another form of relief that could come down this next legislative session."

For business owners and homeowners in Texas, understanding these legislative efforts is key to anticipating future tax obligations.

"It's important to focus not just on the individual. We want to have reasonable property tax liability. But let's think about our communities too. It's a push-pull. We want to have great schools and great hospitals, great fire departments, while also having a reasonable tax liability. That has to be in balance,” Chismark said.

On Friday, reports came down that the proposed amount in the budget for lowering property taxes might fall short. According to the nonprofit Texans for Fiscal Responsibility, the Texas Senate has budgeted only $3 billion for new property tax relief this session and the Texas House has proposed $3.5 billion. Click here to read more.

Either way,  lawmakers have until June 2 to figure out how they plan to spend that money, which is the last day of the regular session. June 22 is the last day the governor can sign or veto any bills passed during the session.

“Property taxes continue to be an important issue. So our job is to educate them – appraisal caps were a great soundbite to run on, but that's really not the story. Assessment times rate, equals liability. Let's play out the implications of these different levers that we can pull and try to find meaningful tax relief that works for everyone while also making sure that our communities have good schools, good hospitals, good fire departments and things like that,” said Chismark.

For now, he said property owners should regularly review their property valuations and file protests if they believe they're being overvalued. Consulting a tax expert or lobbyist can also provide guidance on exemptions or strategies to manage their tax burden.