Gov. Greg Abbott and the Texas Legislature made school finance reform and property tax relief the signature issue of the 86th legislative session.
The final result was HB 3, a monumental school finance bill that dedicated $5 billion in state tax dollars to local maintenance and operations (M&O) property tax relief. That’s important because maintenance and operations taxes are for school district operations and make up around 50 percent of many Texans property tax bill.
Some are saying the tax relief provided by HB 3 is not enough. But what makes HB 3 such a significant achievement is not just the M&O property tax cut. What makes HB 3 special is the inclusion of measures to ensure M&O property bills stop rapidly rising.
First, a little history.
In 2006, Texas attempted to lower skyrocketing tax bills by reducing maintenance and operation tax rates by one-third from $1.50 to $1. While reducing tax rates was a significant move in the right direction, many homeowners did not see a property tax cut, and their M&O property tax bills continued to rise as their property values increased. Today, property tax bills of many families year-over-year are rising much faster than their income or ability to pay, causing some to lose their homes.
HB 3 is a different and better property tax relief plan.
First, 2019 tax bills for most Texas homeowners will be slightly less than they were in 2018 as M&O tax rates are reduced. Even if slight, this is an actual property tax cut.
Second, the average Texas homeowner will see their M&O tax bill decrease only a few dollars per year. This is because HB 3 puts a complex 2.5% limit on the property tax revenue that a district can raise locally without a taxpayer election and automatically lowers M&O tax rates. TPPF estimates that the average Texas homeowner will save approximately $900 in property taxes between 2019 and 2022 alone.
But that is not the only taxpayer protection included in HB 3. Additionally, HB 3 requires Tax Ratification Elections (TREs), which increase maintenance and operations tax rates, to be conducted on uniform election dates; that prior to M&O tax rate increases, school districts undertake a public efficiency audit; and requires the voting ballot to say, “THIS IS A PROPERTY TAX INCREASE” for school district tax increases associated with bond elections.
High praise goes to the governor and the Legislature for learning the lessons of past efforts and giving taxpayers relief they deserve, along with other protections.
But is Texas’ property tax problem solved? Not quite. As mentioned, M&O tax bills will continue to grow slightly over time and many want M&O tax burdens eliminated altogether.
One long-term solution posed by the Texas Public Policy Foundation is to eliminate the maintenance and operation tax burden. The concept is fairly straightforward. The TPPF plan would use state surplus dollars to buy down M&O property tax burdens over time, while ensuring that schools are still properly funded. After about a decade, the M&O tax would disappear.
Public education and good schools are a major priority in Texas. But so is improving prosperity, opportunity and economic stability for individuals, families and businesses throughout the state. Texas officials took a strong step forward this session, and we can build on that in 2021 and beyond.
We can have all of the above, and that is the very definition of the Texas Model.