April 24, 2019

Property Tax Reform Can't Come Soon Enough to Texas

  • Analysis

By: José Niño

This year, Texas might be getting property tax reform.

In mid-February, Senate Bill 2, the 2019 Property Tax Reform and Relief Act, was passed by the Texas Senate. Its companion bill in the Texas House, HB 2, is awaiting a vote.

Should the House pass this bill, it’s very likely to receive Gov. Greg Abbott’s signature, given his previous support for such legislation.

SB 2 is the product of years of Texas homeowner frustration with the current property tax system. The bill’s sponsor, Sen. Paul Bettencourt, has felt tremendous constituent pressure in the Houston area he represents. In May, 2016, hundreds of Houstonians went to the Senate Select Committee at the University of Houston to air their grievances about the property tax burden they shoulder.

These complaints are warranted when one considers recent property tax trends that have emerged in Texan urban centers. According to Click 2 Houston, “Harris County has seen a 43% tax levy increase-- 26 percent in Fort Bend, and 15 percent in Galveston County,” from 2013 to 2016.

Sal Ayala of Empower Texans found that in Fort Worth, “property tax revenue is up 30 percent from 2010-2018, while population increased only 17.9 percent during that time.”

It’s become clear that Texas has property tax issues that need to be addressed, and this year’s property tax legislation, while it is a step forward, may not be enough to fully address the problem.

Debunking the Rationalizations for the Status Quo

Proponents of the high property tax status quo maintain that high property taxes are needed because Texas has no income tax. Although Texas should be praised for not having an income tax system, this argument is simplistic at best.

Ross Kecseg of Texas Scorecard exposes the fallacies behind this popular argument:

On average, “no-income tax” states impose roughly identical property tax bills on homeowners when compared to the average among states with a personal income tax. And these figures are adjusted for median home values.

Specifically, Texas property tax numbers look even worse when placed next to “no-income tax” rivals like Nevada, Tennessee, Washington, and Wyoming:

When you compare property tax burdens between Texas and the “no-income tax” states lowest on the list, the gap widens dramatically. Texas households pay 83% higher property taxes than those in Washington, 102% higher than Nevada, 213% higher than Wyoming, and over 230% higher than taxpayers in Tennessee.

Texas is often compared to New Hampshire, another low-tax state that has no income tax. Both states have some of the highest property tax rates in the nation, with New Hampshire coming in third and Texas placing sixth in terms of property tax burden.

One thing that is conveniently left out in these state-by-state comparisons is that New Hampshire does not impose a sales tax at the state or local level. In contrast, Texas has local and state level taxes, on top of its “gross margins” taxes on businesses. Outside of its property taxes, New Hampshire only features taxes on capital gains, interest, and dividends.

Some good news: policy experts, unlike the rest of the political class, are acknowledging the existence of Texas’s burdensome property tax system. James Quintero of the Texas Public Policy Foundation found that property taxes across the state have increased by 60 percent on average in the past decade. All of this has occurred when the state’s population grew only by 19 percent.

SB 2 Is Not Enough

Quintero’s solution to the property tax problem is similar to State Sen. Paul Bettencourt’s aforementioned SB 2: require voters to approve a property tax increase.

Under SB 2, all property tax increases would be sent to the voters for consideration. The bill does not, however, provide genuine property tax relief and does not strike at the root of the property tax problem, which is, of course, government spending.

In fact, bringing this subject up to a voter referendum is the wrong approach, given that it will provide politicians cover for rising property tax rates that should otherwise be under their control. Under this system, property taxes will continue to be within the purview of bureaucrats.

To bring true accountability to the political process, politicians should be forced to vote on controversial legislation that can be directly tied to them. During election season, they can then be held accountable for their bad votes. When this dynamic is separated through voter referendums, the political class cannot feel the heat for its bad behavior.

Think about it: when is the last time a bureaucrat was ever unseated for political malfeasance?

Cut Education Spending

For Texas to have genuine property tax reform, it must tackle the issue of education spending. From 2004 to 2016, education spending increased by 7.6 percent in real terms. Increased education spending has brought the inevitable bureaucratization of the Texas education system.

Vance Ginn and Trey Berthelot highlighted this:

From FY 1993 to FY 2015, student enrollment at public schools in Texas increased by 48 percent while non-teaching staff increased by 66 percent and teachers increased by only 56 percent. Public education spending should be dedicated to benefitting students, not excessively expanding administrative staff at schools.

Generally speaking, property taxes are used to finance public education in Texas.

So, the key to taming Texas’s ongoing property tax conundrum lies in bold education reforms that trim the bureaucratic fat.

Embracing school choice would be the best way to bring fiscal sanity and quality education to the Lone Star State.

José Niño is a Venezuelan-American political activist based in Fort Collins, Colorado.

 

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