“According to Value” Taxes: Part 3

The Road to Relief

“The stage is set for Delivering property tax relief, the options are on the table. What we need now is informed
feedback from engaged citizens so we can move forward.”

Over the past two months, Colonel Terry Wilson, US Army, Retired, State Representative for Williamson County has given us some clarity on property taxes. In July’s issue we discussed how your home values and property tax bills are determined, and in August’s issue we examined why public-school maintenance and operations (M&O) costs are such a large part of your annual property tax bill. This month, he is asking for citizens’ feedback for what comes next. 

“For decades, the legislature balanced its books by pushing the cost of providing quality public education onto property taxpayers by way of local school districts. State lawmakers were able to raise taxes to pay for other priorities, local property owners paid the bill, and the school districts took the blame. It has taken a long time to undo that knot of political red tape, but the legislature has set the stage for the state to pony up, pay the bill that was always the state’s to pay, and finally provide property tax relief if we have the courage to get it done.”

BACKGROUND

In the 86th and 87th Legislative Sessions, House members passed bills to establish revenue and spending caps. Rep. Wilson explains, “In future, we can adjust the budget to serve more people based on population growth and inflation, but we can not spend any more, in adjusted money, than we did in previous sessions.”  

The question at hand, then, is what should the State do with additional revenue—i.e., if sales tax brings in more money than required for costs—if they can not spend it? 

How can the State raise money to pay for M&O and reduce property taxes? 

OPTION 1:  Using surplus state taxes to pay down the property tax share of School District M&O to zero.

Representative Wilson says, “We cannot just cut property taxes and tell the schools they have to deal with less funding; the state needs to find that revenue somewhere. House Bill 122—currently before the legislature—employs the same method and mechanism as HB3 from the previous session. HB3 increased the State share of school spending, which resulted in an 8¢ to 13¢ per $100 of value reduction of property taxes across the state from what they would otherwise have been.” 

When sales tax revenue exceeds the State spending cap—and new spending is not allowed—HB122 proposes spending 90 percent to buy down the M&O for public schools. Most property owners pay close to 50 percent of their taxes for schools so, as the state buys down that cost, property taxes will decrease. “The goal,” Representative Wilson says, “is for the state to continue buying down School District M&O costs until the state’s share reaches 100 percent and local tax is zero. Following that, we will continue to use the surplus to buy down other taxes that contribute to school funding.”  

Those other taxes include 25 percent of the tax we currently pay for gasoline, which goes toward the Foundation School Program (FSP). Once School District M&O property tax reaches zero percent, the legislature can begin buying down gasoline or other taxes. It is estimated that this buydown will take about 20 years. 

This option would require a Constitutional amendment to lock it in place until 100 percent of the schools’ M&O is paid. Representative Wilson says, “This is what any state tax surplus should be about. We will not truly have a surplus until the local share of School District M&O costs is zero.” Colonel Wilson Is working hard to encourage other legislators to pass this option during special sessions. It is a baseline to do anything else and will guarantee our surpluses are spent on tax relief.

CONSTITUTIONAL AMENDMENTS ARE BINDING BECAUSE THEY REQUIRE PASSAGE BY THE PEOPLE, BY VOTE. THIS GUARANTEES A FUTURE LEGISLATURE CAN NOT “UNDO” THE CHANGE UNLESS THEY GO BACK TO THE PEOPLE TO APPROVE THE CHANGE WITH ANOTHER VOTE. 

OPTION 2: This option incorporates changes from Option 1 but includes removing select sales tax exemptions.

“We currently exempt many categories from sales taxes. Some, like essential groceries and raw materials, make complete sense, while others, like boats, do not,” Colonel Wilson says. “If we pass HB122, removing exemptions would produce additional revenue that would help reduce property taxes in less time rather than go to special programs that do not have the same broad impact.” 

He explains, if we put Option 1 in place and begin carving away additional exemptions, we could eliminate the School District M&O costs much sooner. He adds, “We don’t want to eliminate all exemptions, like those we have for food or school supplies. There are many exemptions to include but it is not a simple thing to ‘flip those switches’ until we can be certain the benefits will be equitable for a large part of the population.”

OPTION 3: Raising the state sales tax rate. 

During the 86th session, members worked on a bill to raise the state sales tax by 2 percent, to provide for a quicker M&O buydown. The current state sales tax is 6.25 percent and, estimates show, for every 1 percent increase, the state will gain $6 to $8 billion. 

Representative Wilson says, “This seems like a good plan, but many people don’t have a lot of trust that there would not be a correlating tax ‘swap.’  On the plus side, this option would also require a Constitutional amendment, which would bind future legislators to play by the same rules.” 

KEY TAKEAWAYS

Rep. Wilson wants to know what you think about the options outlined, or if you have additional suggestions. Please call or email his office as soon as possible. Email is preferred to ensure your suggestions and comments are documented. “Eliminating School District M&O property taxes will not only help homeowners, it will also make Texas an even more attractive state for industry and commerce. Instead of having to give sweetheart deals to specific companies to relocate, we can offer every business, new or existing, the benefits once offered only to companies like Facebook or Amazon. Your input will be essential to making sure we are being fair when considering the impact of these options.” 

“We hope to pass Option 1 during our special sessions, and afterward begin interim studies on options 2 and 3… and maybe 4, 5, and 6, whatever others present from great constituent feedback.”

You can reach Representative Wilson at (512) 463-0309 or email direct to terry.wilson@house.texas.gov