Legislative Legerdemain: How The Texas Legislature Plans To Pinch Money From The Pockets Of Your Local Government

Bills currently before the Texas legislature illustrate the ways in which state-level politicians and local governments sometimes don’t see eye to eye. These bills and the political and economic tug-of-war behind them are proof that taxes are nowhere near as boring as some might think.

The Texas legislature meets only every other year, so local governments in this state play an outsized role in providing everyday services to citizens. Localities may be able to pay for some of these services through the sales tax, but the lion’s share comes from property taxes. As Fort Bend County Judge Robert Hebert explained in a recent speech, “Fifty-three cents out of every dollar we spend is property tax.”

While Texas law prohibits the state government from levying property taxes, nothing prevents the state from regulating the way that communities use such taxes as well as the ability of communities to collect them. And that’s exactly what the state has done. For years, the state legislature has shifted financial burdens previously covered by state taxes to local communities and has created new financial burdens for these communities. Now the state is working to pass legislation to limit local governments’ ability to collect property taxes to cover these burdens.

Over the past 10 years, for instance, the state government has gradually diminished the amount of funding it provides to public schools, foisting the burden off on municipalities, which often make up for these costs through property taxes. According to Fort Worth Mayor Betsy Price, the amount of local property taxes devoted to public schools has increased 44 percent from 2008 to 2017. Even with these increases in local funding, however, Texas is still only 43rd in the country in per-pupil funding and spends 10 percent less per student than 10 years ago.

Besides shifting school funding to local communities, the state legislature also burdens these governments with unfunded mandates. Unfunded mandates impose requirements on communities without providing any funding to help them meet these requirements. In a survey conducted by the Texas Association of Counties, responding counties reported that, in a 6-year period, they had between 20 percent and 136 percent increases in various categories of state-required services. Wichita County Judge Woody Gossom explained, “Seventy percent of our increases have come from having to pay for jails, indigent defense and indigent healthcare.” Other states have struggled with this issue, and some have outlawed unfunded mandates.

Perhaps because local governments more and more are forced to foot the bill through property taxes, it’s become a political issue. As mentioned last week, a recent poll has shown that lowering property taxes is the top issue respondents hoped would be addressed by legislators this spring.

Enter SB 2, also known as the “Texas Property Tax Reform and Relief Act of 2017” (we’ll just shorten it to the “2017 Property Tax Act”), which the Senate approved  on March 21st. Current law lets local voters petition for a vote to “rollback” taxes if property taxes increase over 8 percent. The 2017 Property Tax Act would automatically trigger a local vote on property tax collection increases over 5 percent. Because property values have been skyrocketing in Texas, this could theoretically trigger a mandatory vote even when local governments do not increase the property tax rate.

The bill has caused an uproar amongst city officials, many of whom testified against it before the Senate Finance Committee the week before the Senate voted to approve it. City officials and local leaders worry that the 5 percent cap could limit their flexibility and ability to provide life-saving services, such as those delivered by police, fire departments, and emergency management departments.

The 2017 Property Tax Act currently sits in the House of Representatives Ways and Means Committee, where Committee Member Drew Springer, R-Muenster, says it will remain for several weeks until the House begins to look at Senate bills. While Springer states that he does not intend to include any further unfunded mandates, Gossom notes that this would not affect previously passed unfunded mandates that continue to increase costs to local government.

Although the 2017 Property Tax Act may have significant negative effects on local governments, some question whether it will have similarly positive effects on taxpayers. An article in the “Texas Bureau Watchdog” states that homeowners in only 10 of 34 surveyed cities would realize any savings. In the same article, Galvestion County Tax Assessor-Collector Cheryl Johnson says that “Twenty-one million homeowners will see no relief from SB 2.”

In the meantime, state Rep. Donna Howard, D-Austin, for the second legislative session in a row, has proposed a constitutional amendment, which would require the State to keep its share of public school spending at 50 percent or higher. This would shift about a $10.3 billion burden from school districts back to the State, allowing local communities to significantly cut property taxes. Unfortunately, the legislature cut the franchise tax, which provided funding for schools and other state programs, during the 2015 legislative session, and is currently considering another  bill, SB 17, that proposes the elimination of the state franchise tax. We’ll see if state legislators are as quick to pass Ms. Howard’s constitutional amendment.