The Texas Legislature has shown itself to be incapable of walking and chewing gum at the same time, prioritizing property tax relief over fully funding public education in the past several years, despite the COVID-19 pandemic, historic inflation, and record-breaking state budget surpluses. The implications for our public schools have been dire.
The Senate Finance Committee interim hearing on Sept. 4 highlighted issues with the fixation shared by some of our state leaders, politicians in the Texas Legislature, and conservative think-tanks on eliminating school property taxes and with recent actions by the Legislature that have politicized our local appraisal and property tax systems.
Property Taxes and Public Schools
Texas public schools are funded through a complex system that combines local property taxes and state funding.
Local property taxes remain a significant source of school funding, with districts relying heavily on these revenues for operational expenses such as compensation for school employees, student programs and services, classroom resources, and facility maintenance. As property values increase, so does the potential local funding for schools.
Complementing local property taxes, the state contributes a portion of public education funding, predominantly through sales tax revenue as Texas is one of nine states without a state income tax. Sales taxes are considered a more volatile and riskier source of revenue compared to property taxes, as collections are sensitive to downturns in the economy. This state contribution aims to ensure a baseline level of funding for all districts and helps mitigate some of the disparities created by varying property values across the state.
Despite this combined approach, funding inequities persist between “property-rich” and “property-poor” districts. To address these inequities, Texas implemented the “Robin Hood” plan – officially known as “recapture” – in 1993 as a response to court rulings that the state’s school funding system was unconstitutional. The intent behind recapture is to redistribute funds from wealthier districts to less affluent ones.
While originally intended to equalize educational opportunities, growth in recapture revenue collected by the state has largely been used to cover the cost of charter school expansion. Charter schools have no local tax base and receive all of their funding from the state. The cost of funding Texas charter schools has increased from $2.03 billion in 2016 to $5.3 billion projected for 2025, when they will receive 17.7% of the total state share of public education funding while only serving 8.1% of the state’s students.
Misplaced Legislative Priorities
House Bill 3 was the last major school finance bill passed by the Texas Legislature in 2019. This legislation made significant changes to the school finance system, including increasing the basic allotment to the current $6,160 and establishing a mechanism requiring that school districts spend at least 30% of the additional revenue they receive when the basic allotment is increased on raises for teachers and school employees.
Since then, the Legislature has been utterly neglectful of the evolving needs of our public schools.
Instead, the Texas Legislature has focused on providing property tax relief to property owners across the state, with a focus on homeowners. The major components of this property tax relief have included increasing the homestead exemption and using state funding to supplant local funding for our public schools to artificially drive down – or “compress” – local school district property tax rates.
The homestead exemption reduces the taxable value of a homeowner’s primary residence for school district property tax purposes. In Texas, this exemption allows homeowners to subtract a fixed amount from their home’s assessed value before property taxes are calculated.
Increasing the homestead exemption affects public schools by reducing their local property tax revenue while potentially increasing their reliance on state funding and cost of recapture. The homestead exemption is considered a more equitable way of providing property tax relief.
Unlike the homestead exemption, school district property tax compression provides property tax relief by directly reducing the tax rates that school districts can levy, supplanting local revenue with state revenue.
Despite the $32.7 billion budget surplus and $14.2 billion Rainy Day Fund available to the 88th Texas Legislature, only $4 billion was ultimately appropriated for additional school funding and raises in the final version of the 2024-2025 budget – an amount that came nowhere near the estimated $14.5 billion it would have cost to adjust the basic allotment to account for inflation. To make matters worse, this $4 billion has not been provided to our schools, as it was held hostage for Gov. Greg Abbott’s ill-fated voucher scam. Providing this funding to schools and updating the school finance formula would have provided property tax relief to taxpayers and reduced the recapture revenue paid to the state by many districts facing budget deficits.
Instead, the state spent $12.7 billion on additional property tax relief, primarily through further compression and an increase in the homestead exemption, on top of the billions required to sustain the property tax rate compression passed in previous legislative sessions. Senate Bill 2, the omnibus property tax relief bill that ultimately passed in the second special session, was the result of months of negotiations and political posturing between our state leaders and both chambers of the legislature. In addition to the moderate property tax relief provided through the homestead exemption, property tax rate compression, and a temporary “circuit breaker” for properties valued at under $5 million, the 57-page bill made other significant changes to the property tax system in Texas.
One change in particular has threatened to have a detrimental effect on our public schools. SB 2 changed the way that local appraisal districts’ boards of directors are chosen in counties with a population of 75,000 or more to include three who are directly elected in local nonpartisan elections. Previously, all eight members of these boards of directors were appointed by the local taxing units, including school districts, that assess property taxes in their jurisdiction in order to provide crucial services to residents. These board members are responsible for overseeing the appraisal district’s operations, adopting annual budgets, appointing the chief appraiser, and ensuring fair and accurate property valuations for tax purposes. As you will read later, introducing elections for these important positions has politicized the appraisal process.
There is a saying that “the budget is a moral document.” Where the Legislature decides to spend Texans’ taxpayer dollars reflects the priorities and values of the institution and its members. Despite the rhetoric of many politicians in the Texas Legislature and our state leadership, public education has not been a priority; rather, it has been used as a political football for advancing the cause of taxpayer-funded vouchers.
The Politics of Property Tax Relief
Over the past several years, a movement has developed in the right wing of the Republican Party to eliminate local property taxes altogether, including school property taxes. While this idea may sound appealing to some, it could be devastating for public education funding and local services.
Eliminating property taxes would require a massive overhaul of Texas’s tax system and could have far-reaching consequences.
Property taxes are a major source of revenue for public schools and local services such as fire departments, police, and infrastructure maintenance. Eliminating them would create a substantial funding gap that would need to be filled through other means and threaten the quality and availability of these crucial services.
Public schools are also particularly sensitive to changes in the makeup of their local and state funding. Relying more heavily on state funding, which can fluctuate with economic conditions, could lead to less stable funding for schools. There is also an increased risk of underfunding. Without the direct link between local property values and school funding, there is a risk that state allocations might not keep pace with the growing needs of school districts.
According to testimony from the Legislative Budget Board (LBB) in a recent interim Senate Finance Committee hearing, replacing the more than $80 billion in property tax revenue collected by local taxing entities statewide would require increasing the state sales tax from the current 6.25% to approximately 22%, giving Texas the highest rate in the nation by far. Such a dramatic increase would disproportionately affect lower-income residents and harm local businesses.
Shifting from local property taxes to increased state-level funding would also result in a loss of local control over schools and other community services.
Fortunately, members of the Senate Finance Committee, Democrats and Republicans alike, were skeptical about the feasibility of eliminating property taxes due to the impact on the state’s finances, crucial public services, and local control.
The Texas Legislature’s recent actions have already impacted the property tax landscape.
The LBB testified in the Senate Finance hearing that the total amount of school property taxes collected has declined in recent years – largely due to compression efforts and increases to the homestead exemption – and that school property tax revenue has been surpassed by the combined property taxes collected by other local taxing units.
Finally, the newly implemented election of appraisal district board members came up in the hearing as senators discussed changes adopted by the Tarrant Appraisal District board of directors to its appraisal plan.
In an effort led by newly elected members to the Tarrant Appraisal District board of directors, the board approved changing the burden of proof required to increase the appraised value of a property by more than 5% and transitioning the appraisal of residential properties to a biennial process rather than an annual process.
Tampering with the appraisal process threatens to harm public education funding even more than other local taxing units. If the local appraised value of the property in a school district is 10% lower or more than the appraised value calculated by the state, the district loses state funding. Instead, the state uses its own values to determine the school district’s funding entitlement and requires that the school district assume more of the funding burden. These changes also risk harming districts’ ability to meet their long-term bond obligations, potentially requiring them to raise their tax rates in order to make their bond payments.
Multiple Republican senators were critical of these actions, and Sen. Paul Bettencourt (R-Houston) – the author of SB 2 – even suggested that they are against the law.
Similar changes were also recently proposed by newly elected members of the Bexar Appraisal District’s board of directors, following in the footsteps of the Tarrant Appraisal District.
Understanding the threat to funding for our public schools, Texas AFT’s local leaders and other stakeholders engaged in outreach to members of the board of directors to communicate their concerns. Fortunately, the newly elected members pushing the changes did not secure enough support to pass them. A compromise was reached instead, rolling over the property values from the previous year for homeowners who successfully challenged their appraised values.
What Comes Next
While property tax relief is popular and affordability is a critical issue for many Texans, the complexities of school finance and local government funding require careful consideration and treatment. Any major changes to the property tax system must be balanced against the need for stable, equitable funding for public education and essential local services. Further, any meaningful and sustainable property tax relief must come from the Texas Legislature and should not come without significant additional state support for our public schools, nor should members elected to appraisal districts’ boards of directors seek to take matters into their own hands.
As the debate continues, it’s crucial for educators, parents, and community members to stay informed and engaged in these discussions to ensure that any reforms do not come at the expense of Texas’s public schools and the students they serve.
