Senate's Property Tax Cut May Stall in House

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While the Texas Senate easily approved a $2.4 billion plan to provide property tax relief to homeowners Wednesday, the measure may lose momentum when it reaches the House, where leaders appear more interested in cutting the sales tax.

“We’re going to present our plan here soon, and you’ll see what we’ll be driving for,” House Ways and Means Committee Chairman Dennis Bonnen, R-Angleton, said. “I think it’s fair to say at this time that we’re focusing on taxes that will have a more meaningful impact on growing the Texas economy, and property tax cuts are not part of the plan.”

Bonnen said he will publicly present his full proposal for tax cuts early next week. Earlier this month, he filed three tax cut bills, two similar to Senate proposals to cut the margins tax paid by businesses, and a third that would cut the state sales tax.

On the Senate floor Wednesday, Finance Committee Chairwoman Jane Nelson, R-Flower Mound, touted her property tax cut plan as a sensible and fair approach to trimming taxes amid a robust state economy. The average homeowner would see just more than a $200 drop in school property taxes under her measure. 

“When we have billions of dollars in our coffers that the taxpayers have given us because property tax values are so high right now, I feel like we ought to give some of that back to the people that sent it to us,” she said.

Hovering over the debate on tax cuts are concerns about the spending cap, a complicated provision in the Texas Constitution that limits how much part of the state budget can grow from one session to the next. A strong state economy has given lawmakers billions of dollars to spend beyond the cap this session. But busting the cap requires a politically difficult majority vote in both chambers.

Normally, a property tax cut plan like the one the Senate passed Wednesday would count against the spending cap because it involves paying school districts to cover their losses in local tax revenue. However, the Senate also passed Senate Joint Resolution 1 which, if approved by voters, would exempt the spending related to that property tax cut from the spending cap. House Speaker Joe Straus has dismissed that approach as weakening the state’s “fiscal discipline.”

Since the margins tax and the state sales tax are revenue streams to the state, cutting either of them would automatically not count against the spending cap. It would just mean less revenue would come into state coffers.

“They’re really not cutting government spending,” Bonnen said, referring to the Senate’s property tax cut. “They’re simply paying the public schools. They’re not shrinking the growth of government. What we want to do is give a return to Texas taxpayers and shrink government.”

Both House and Senate leaders have said they have no interest in calling for a vote to break the cap, meaning that a final version of the state budget would need to leave enough room under the cap to account for the cost of property tax cuts, unless the House goes along with the Senate plan to exempt the property tax spending from the cap.

House budget writers approved a $209.8 billion budget this week that leaves about $2 billion in available spending under the spending cap, already less than the Senate’s $2.4 billion property tax cut. On Wednesday, Appropriations Chairman John Otto, R-Dayton, and other House leaders announced plans to put an extra $800 million into public education, a move that would eat up nearly half of the spending left under the cap in the House budget and raises questions about how budget writers would find room for the Senate's property tax cut.

Otto warned Wednesday against reading too much into the school funding announcement. Both the House and Senate will complete their budgets, and then a conference committee made up of members of both chambers will hash out a compromise, he said.

“The bill still has to go to conference so those things can change or fluctuate greatly,” Otto said. “I’m waiting to see what Chairman Bonnen brings out on the recommendations for tax cuts. I’m not trying to predict or determine what those should be.”

The Senate Finance Committee is expected to finish up its budget on Thursday and vote it to the Senate floor next week. It already includes $4 billion set aside for property and margins tax cuts.

Gov. Greg Abbott has called for cuts to both business taxes and property taxes. In February, he vowed to veto any budget sent to him if he did not include tax cuts for businesses.

Correction: A previous version of the story did not explain that if voters approve the referendum called for by Senate Joint Resolution 1, property tax relief would not count against the state spending cap.