House Enlarged Tax Relief Proposal's Price Tag by $400 Million

The ball is in the Senate's court on a major tax relief deal after the House unexpectedly increased the price tag by $400 million. Last week, Gov. Greg Abbott, Lt. Gov. Dan Patrick and House Speaker Joe Straus announced a $3.8 billion agreement that included property tax relief and a cut to the franchise tax rate paid by businesses. 

On a 131-6 vote Sunday evening, the House agreed to tack an expensive provision from state Rep. Senfronia Thompson, D-Houston, onto Senate Bill 1, one of three bills central to the tax relief deal. The House then approved the bill unanimously and sent it back to the Senate, which can choose to concur with the House’s changes or call for a conference committee to update the compromise.

After months of negotiations and jockeying for position, state leaders had agreed to ask Texans to approve amending the state constitution to increase the homestead exemption from $15,000 to $25,000. The change is expected to save the average homeowner about $125 annually. Budget writers have set aside $1.2 billion over the next two years to cover the loss of local property tax revenue to school districts, a provision known as “hold harmless.”

Thompson's provision deals with an optional homestead exemption that cities, counties and school districts can implement under state law. More than 200 school districts provide local exemptions ranging from 1 percent to 20 percent of a home’s taxable value, yet the state does not properly factor that lost tax revenue when calculating how to distribute state funds for public schools, Thompson said.

The amendment would freeze those school districts' local exemptions in place through 2024 and have the state cover part of the costs of the lost property tax revenue for those districts. Without the amendment, Thompson warned lawmakers Sunday, the tax relief deal would effectively transform those districts’ optional local exemptions into mandatory ones, yet the state would not be properly covering the costs of the lost revenue.

“We need to not lock them in without looking out for them,” Thompson said.

The amendment was projected to cost $400 million, House Ways and Means Chairman Dennis Bonnen told lawmakers. According to data provided Monday by Thompson’s office, more than half of that money would probably go to five urban or suburban school districts, all of which offer local homeowners an additional 20 percent exemption: Houston, Cypress-Fairbanks and Spring Branch ISDs in the Houston area and Dallas and Highland Park ISDs in Dallas.

Bonnen, who has led the House’s tax cut negotiations with the Senate and is the House sponsor of SB 1, urged House members to think carefully about how their school districts would be impacted by the bill if Thompson’s amendment wasn’t included. 

“The reality is they already have these homesteads locally put into place. They have beared that burden locally,” Bonnen said. “If it’s being frozen in, should we be paying for part of that burden?”

The bill’s author, Senate Finance Chairwoman Jane Nelson, R-Flower Mound, did not immediately respond to a request Monday for her position on the Thompson amendment. But late Sunday evening, following the bill's passage, Bonnen said he assumed that a conference committee was forthcoming.

“It’s a decision that the Senate and I will have to work out in conference,” Bonnen told The Texas Tribune on Sunday. “That’s how this process works.”