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A $12 billion proposal to provide property tax relief to Texas homeowners and businesses cleared a major hurdle Thursday at the Texas House, setting up a showdown with the Senate over their property tax reduction programs. taxes at war.
House Bill 2 — backed by House Speaker Dade Phelan and carried by State Rep. Morgan Meyer, both Republicans — passed the entire House by a 140-9 vote. He has yet to return to the House to a final vote.
The bill proposes to inject $12 billion into Texas school districts so that they, in turn, can lower their property taxes on home and business owners. For the owner of a $350,000 home, the package would translate to more than $1,000 in savings over two years, according to Phelan’s office.
Reducing the state’s high tax burden has been a top priority for Texas Republicans during this legislative session. HB 2 is a key part of the House’s proposed $17 billion package of how the legislature should go about it.
But HB 2 contains a provision that has drawn widespread criticism from housing experts, business groups and even some tax-cutting proponents like Lt. Gov. Dan Patrick, who predict dire consequences. if it comes into force.
The controversial idea is to tighten the state’s “assessment cap” on a home’s assessed value that can increase each year. The House proposal would lower the cap from 10% to 5% – and extend the benefits to owners of commercial properties like grocery stores, restaurants and apartment complexes.
Phelan and Meyer say the lowering of the ceiling is intended to allay homeowners’ concerns about the dramatic increases in property valuations in recent years – a symptom of rapid economic growth and the pandemic-era real estate market, which cools down.
“We want to have caps so there’s predictability and stability for our owners,” Meyer said on the House floor.
If the idea was to wipe out both chambers, the question of whether to tighten the cap would fly before voters at the November polls.
But tightening the assessment cap would lead to major inequities between homeowners and drive up housing costs, experts warn. Such were the effects in California in the decades following a landmark vote in the late 1970s that capped the amount of homes that could be taxed.
On Thursday, House Republican leaders dismissed those concerns.
“You can’t compare the California tax structure to the Texas state tax structure,” Phelan told reporters after the vote. “It’s apples and bowling balls.”
Republican leaders in the House and Senate have publicly opposed the assessment cap proposal. At a news conference ahead of the House vote on Thursday, Patrick said the idea was dead when he arrived in the Senate, arguing it would not benefit seniors whose assessments are already capped.
“We can trade on just about anything, but I don’t trade on bad math,” Patrick said.
Phelan remained defiant.
“That … should send a message,” Phelan said during the bill’s passage.
Under the House’s proposal, home and business owners would receive greater tax relief as they retained their properties – and as a result, more of the burden of paying property taxes would be shifted to new home and business owners. Already, the benefits of the state’s 10% cap are flowing to the wealthiest households, according to the Texas Comptroller’s Office.
Critics also warn that halving the cap would drive up house prices. Homeowners would be encouraged to keep their homes longer in order to maintain the tax advantage, which would reduce the number of homes available for sale and increase the price of homes.
Additionally, critics say, reducing the assessment cap would not significantly reduce tax bills, as cities, counties and school districts could simply raise their tax rates to make up for any lost revenue.
The Texas Senate has a different proposal. The senators want to increase the state property exemption — the amount of a home’s value that cannot be taxed by school districts — from $40,000 to $70,000; give an additional bonus of $20,000 to seniors; and granting business tax credits. These ideas are part of the Senate’s $16.5 billion property tax plan, which passed the room last month but did not get a hearing in the House.
Some House Democrats also fell short of HB 2 on Thursday, trying to provide further relief to landlords.
State Rep. Trey Martinez Fischer, a Democrat from San Antonio who leads the House Democratic Caucus, tried to strengthen the homestead exemption that mirrors the Senate’s proposed increase. He also proposed reducing the assessment cap to 7.5% – from 10% – for home and business owners. Another of his amendments would have dropped the idea of tightening the assessment cap altogether and instead raised the homestead exemption to $100,000.
“Homestead exemptions do a lot better for working families, middle-class families,” Martinez Fischer said, adding that lawmakers don’t need to choose between increasing the homesteading exemption or a stricter assessment cap. “We can do both.”
The idea died by a vote of 77-65.
House leaders have argued that the benefits of the idea are being snuffed out at a time when property values are rising rapidly. But Phelan signaled on Thursday that he was still open to increasing the homestead exemption. A similar proposal was approved in the House two years ago.
“We can have this discussion,” Phelan said. “We’re not closing it at Texas House. But let’s look at all the taxpayers. Let’s look at the tenants, look at the timber owners, look at the farmland owners, look at everyone who pays taxes.”
Both chambers agreed to spend $5.3 billion to continue paying tax cuts approved in the past. Like the House, the Senate also wants to inject additional funds into school tax cuts, but it would allocate $5.38 billion for that purpose instead of the $12 billion proposed by the House.
The House also killed an amendment by state Rep. Chris Turner, a Democrat from Grand Prairie, to lower the assessment cap from 10% to 5% but keep the benefit only for homeowners.
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