It can be fun for state officials to impose a tax cut or tax cap on other levels of government. It’s less fun when they’re partially responsible for making up the revenue loss.
That’s the dilemma Texas lawmakers are facing. State law allows local property tax revenues to rise by 8 percent a year. If they grow more, voters can call for an election to roll them back. Average property tax collections come pretty close to reaching that level most years, due mainly to appraisals, not rate hikes.
GOP Gov. Greg Abbott has made property tax relief one of his top priorities. The idea has gained serious momentum. During their last session, the Senate and House couldn’t agree on an appropriate level for a local property tax cap. The two chambers started this year’s session on the same page, calling for a 2.5 percent cap on annual property tax collections on existing properties. Exceeding that figure would trigger an automatic popular vote, forcing local officials to justify increased revenues to their constituents.
State and local officials have been engaged in a rhetorical war about which level of government is most responsible for fiscal problems. Abbott likes to point out examples of excessive or needless local spending, such as the $316,000-per-year lease Dallas holds on a mostly unused parking lot. City and county officials counter that much of their spending is driven by unfunded state mandates.
But the big problem state lawmakers face is the reality that half of the property tax collections in the state belong to school districts. There’s tremendous pressure on those districts to come up with more dollars, and they maintain that the quality of their education will be severely diminished if their supply of property tax dollars is cut short.
Back in 2006, the state limited local property tax rates to $1 per $100,000 in value. Lawmakers assured schools that they wouldn’t be affected, promising to make up the difference by expanding the business franchise tax. That tax consistently underperformed, however. The state ended up cutting public school funding by $5.4 billion in 2011. Not surprisingly, schools are wary about seeing their own funding sources cut if they can’t be certain the state will come through. “We’re not opposed to caps fundamentally,” says Dax Gonzalez, communications manager for the Texas Association of School Boards, “as long as they’re coupled with some sustainable funding from the state.”
Where can the state find the money? Raising taxes is clearly a no-go in Texas, particularly when the overarching goal is to provide tax relief. Transferring money from other programs, such as health care, would make the whole arrangement more complicated. Tap-ping the state’s huge rainy day fund is a potential option. Perhaps lawmakers will go for a combo of all three -- surplus funds, some fee increases and some program funding transfers.
Or it might end up being easier to exempt school districts from the new property tax cap altogether, which would certainly limit its effect. But then, lawmakers have already shown themselves willing to carve out large parts of the state from the proposed new cap. The first version to pass out of a Senate committee did not apply to entities with less than $15 million in combined sales and property tax revenue. That’s not a lot, but it would be enough to exempt 154 of the state’s 254 counties and 1,082 of its 1,222 cities.
It’s possible that taxes will end up being capped only in large cities and counties, most of which are now governed by Democrats. Surely a coincidence in this reddest of state governments.