The Growing Property Tax Burden in Texas



By Tom Wolfe, February 2, 2022




Property taxes are imposed by a variety of local taxing units in Texas, including cities, counties, school districts, and community college districts. Property taxes imposed by each taxing unit can be divided into two categories: maintenance and operations (M&O) taxes and interest and sinking (I&S) taxes. Generally speaking, M&O revenue is used to pay the day-to-day operating expenses of a local taxing unit, whereas I&S taxes are used to pay down bonds that the taxing unit has issued for large capital projects (e.g., expanding a school facility). All taxing units have M&O expenses, but some do not have I&S expenses because they have not issued bonds for projects. School district M&O taxes are the single largest component of the average Texan’s annual property tax burden.


In a December 2020 report, the Comptroller listed the striking growth in property tax revenue over the last two decades. Total property taxes levied for the 1998 tax year were $19.06 billion; for the 2019 tax year, the corresponding figure was $67.29 billion.[i] Thus, in this 21-year period, property tax collections grew at a 6.2 percent annual rate. A homeowner facing 6.2 percent annual increases in property taxes would see his or her property tax bill more than double every 12 years. To make matters worse, some Texans who live in fast-growing areas have seen their property taxes go up at even higher rates. As people have flocked to Texas, property values—and the associated tax burdens—have gone up. For example, the Texas Association of Realtors reports that, from 2011 to 2020, the median home price in Dallas shot up from just under $150,000 to $291,100.[ii]


If you are a property owner in Texas, rising property tax bills are old news to you. In response to the increasing property tax burden on their constituents, the state has enacted several measures over the years. In 1997, the Legislature provided that the appraised value of homestead properties for property tax purposes could not increase by more than 10 percent year over year. In 2015, voters approved a constitutional amendment to increase the homestead exemption for school district property taxes from $15,000 to $25,000. Senate Joint Resolution 2 (SJR 2), which will go before the voters in May 2022, would increase this amount again, to $40,000. This increase from $25,000 to $40,000 would save the average homeowner about $175 in taxes annually.


But the biggest property tax reform in Texas in recent years was undoubtedly the work of the 86th Legislature in 2019. Prior to 2019, if a taxing unit’s proposed rates would have yielded a certain year over year increase in property tax revenue (typically, 8 percent), voters could call for a “rollback” or tax ratification election in which they could reject the proposed tax increase. Through the 2019 reforms, the trigger for a tax ratification election for most taxing units was reduced to 3.5 percent, although a few taxing units, such as community college districts, continue to operate under the old 8 percent standard. Perhaps more importantly, school property taxes are now subject to ongoing “compression,” which means that the state has committed to an ongoing buy-down of property taxes. Essentially, school property taxes are automatically adjusted downward as property values in school districts and across the state rise over time. Increased state funding will replace the forgone property tax revenue. At the same time, voters are now empowered with the ability to approve or reject significant property tax increases. It is hard to overstate the importance of these reforms after years of skyrocketing property taxes.


But a key property tax problem remains: while the 2019 reforms will help to restrain the future growth of property taxes, current property taxes are still high throughout the state. Indeed, Texas has some of the highest property taxes in the nation. In 2021, the Tax Foundation reported that (based on 2019 data) Texas ranked 6th in the country in terms of property taxes as a percentage of owner-occupied housing.[iii] A 2021 report by Attom Data Solutions found that, based on 2020 data, Texas’s effective property tax rate of 2.15 percent ranked third in the country.[iv] Texans need property tax relief now.


There is little question that Texans are looking to policymakers to offer solutions that build on the 2019 reforms. A February 2020 University of Texas/Texas Tribune poll found that 54 percent of Texans thought property taxes were too high.[v] And this is likely an understatement because 16 percent of respondents answered that they did not know if property taxes were too high. In other words, of Texans who expressed an opinion on property taxes, 64 percent thought they were too high. Similarly, a survey of Texas registered voters released in July 2021 by WPA Intelligence found that 82 percent of them believe property taxes were an important issue in Texas, and that 71 percent of them would be upset if the Legislature did not address property taxes.[vi] Assuming it is approved by voters, SJR 2 will be a good start to providing tax relief.


But SJR 2 exclusively benefits homeowners, and as the next blog post in this series will highlight, other parties need property tax relief too. Moreover, policymakers should address how they can provide even greater relief than SJR 2’s promise of $175 in annual tax savings to the average homeowner. There is certainly cause for optimism: the Texas economy has rebounded so strongly from the COVID-19 pandemic that in November 2021 the Comptroller projected that the state would have a surplus of $12 billion at the end of the current biennium (i.e., on August 31, 2023).[vii] Plus, the state’s Rainy Day fund is projected to swell to $12.6 billion by that date.[viii] Leaders in the Legislature have announced that they will study ways to deploy $3 billion in unspent federal COVID-related aid to provide property tax relief.[ix]


Given numerous factors—the resurgence of the Texas economy, hefty projected budget surpluses, voter discontent over property taxes, and political leaders’ acknowledgement that property tax relief is imperative—now is the time to thoughtfully examine ways to re-structure the Texas property tax system.

[i] Comptroller, Biennial Property Tax Report, 2018 and 2019 (December 2020). [ii] https://www.texasrealestate.com/wp-content/uploads/DecadeReport.pdf [iii] https://taxfoundation.org/high-state-property-taxes-2021 [iv] https://www.rismedia.com/2021/04/09/atom-data-solutions-2020-property-tax-analysis/ [v] https://www.texastribune.org/2020/02/17/most-texans-want-lower-property-taxes-and-more-school-spending-poll-fi/ [vi] https://www.texaspolicy.com/wp-content/uploads/2021/07/TPPF_June_Survey_Property-Taxes_Memo_210708.pdf [vii] https://comptroller.texas.gov/transparency/reports/certification-revenue-estimate/2022-23/ [viii] Ibid. [ix] https://www.ltgov.texas.gov/2021/10/19/lt-gov-dan-patrick-speaker-dade-phelan-joint-statement-on-american-rescue-plan-act-arpa-funding-and-property-tax-relief/