Tax cuts are coming for Texas homeowners and businesses.
On Thursday, the 89th Texas Legislature put the final touches on its roughly $10 billion tax relief package, sending the last remaining elements to the governor for approval. Assuming a favorable reception, the Legislature’s completed package will include 4 separate pieces of legislation and 3 related constitutional amendments, which will need to be ratified by voters in November before the package takes full effect. The package combines several different approaches, including: further compressing school district M&O tax rates, increasing the residence homestead exemption, providing an extra exemption increase for the elderly and disabled, and raising the business personal property tax exemption.
More specifically, the measures propose the following:
- Senate Bill 1: Further compresses school district M&O tax rates by $0.06 per $100 of value over the 2026-27 biennium. For the 2024 tax year, the state’s maximum compressed rate for any district was $0.6855 per $100 of value.
- Senate Bill 4, Senate Joint Resolution 2: Increases the residence homestead exemption for school tax purposes from $100,000 to $140,000. Once fully in effect, the enabling legislation and the SJR are projected to “save the average Texas homeowner $363 off their annual school property tax bill.” There are an estimated 5.7 million homesteads in Texas.
- Senate Bill 23, Senate Joint Resolution 85: Increases the residence homestead exemption for school tax purposes “for an adult who was disabled or was age 65 or older from $10,000 to $60,000 of the appraised value of a residence homestead.” If this targeted relief is approved by voters in November, then affected households will be provided with an exemption totaling $200,000. It’s expected that 2.08 million Texas homesteads would benefit from this amendment’s approval.
- House Bill 9, House Joint Resolution 1: Increases the business personal property tax exemption from $2,500 to $125,000, as it relates to “tangible personal property a person owns that is held or used for the production of income.” An added benefit resulting from this exemption “is the reduction in time and expense businesses require to complete their rendition forms.” This initiative is expected to save the average business $2,499 annually.
For homeowners, the impact of the measures above may vary somewhat depending on their particular circumstance, but some estimates suggest that qualifying property owners may realize a tax cut totaling as much as $938.72 annually, on account of the savings yielded by SB 23 ($454.30) and SBs 1 and 4 ($484.42).
Of course, the realization of these savings is not set in stone.
As we enter the summer season, most cities, counties, school districts, and special districts are beginning to formally consider their tax rates for the upcoming fiscal year, which typically starts October 1. This tax rate-setting process will pick up speed over the next 60-to-90 days and the agreed-upon rates determined during this period will have a direct impact on the level of savings that homeowners and businesses ultimately experience. The higher the adopted tax rate, the less in savings that the average person will enjoy.
Too, many local governments are expected to announce bond elections (i.e. efforts to go into debt) and tax ratification elections (i.e. large tax increases requiring voter approval) over the next several months. If a local governmental entity decides to venture down either of these pathways—or even propose both!—then the public should expect further erosion of any forthcoming tax relief, beyond the damage done by any ordinary rate hike.
Thus, while the promise of tax cuts is on the horizon, so too is the threat of local government action, which may reverse state-level tax relief efforts either in part or in whole.
In order to prevent this situation from developing. every Texan should right now be urging their local elected officials to do the following:
- Adopt the No-New-Revenue (NNR) Tax Rate. By adopting the NNR for the upcoming fiscal year, local leaders can effectively hold tax receipts constant while “giving homeowners and businesses a chance to catch their breath.”
- Adopt the Lowest Possible I&S Tax Rate. Many taxing units set their I&S tax rates artificially high in order to retire debt earlier than is required by the bond’s covenant or payoff schedule. This action enables the government to borrow more quickly than it otherwise could, but it comes at the cost of higher taxes. Local leaders would do well to abandon this approach and instead adopt the lowest possible I&S tax rate that still allows for any debt to be properly serviced.
- Reduce Spending. Local leaders have a variety of tools at their disposal to identify and eliminate waste, fraud, and abuse in their respective budget structures. Those tools—like zero-based budgeting, third-party efficiency audits, and competitive contracting—have a proven track-record and plenty of support; they need only be applied. By lowering spending, other tax and fee pressures can also be lessened in return.
- Delay Going into Greater Debt. Government borrowing brings obvious costs with it. To avoid any new taxes associated with new debt, local leaders should forgo asking voters to approve any new bond issuances, unless it is mission critical.
These are the sorts of actions that local governments ought to be contemplating now in order to preserve everyone’s future tax cut. If local elected officials don’t move in this direction, then it’s all but certain that the tax cut we all hope for will be smaller than expected or, worse yet, gone entirely.