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The Senate Finance Committee met on May 23 to hear invited and public testimony on the following interim charges:

  • Property Tax Relief: Examine and recommend ways to reduce Texans’ property tax burden. Review and report on proposals to use or dedicate state revenues in excess of the state spending limit to eliminate the school district maintenance and operations property tax.
  • Tax Exemptions: Examine Texans’ current tax exemptions and report on whether adjustments are merited because of inflation or any other factors.

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Chair Huffman – property tax relief has long been a priority of Lt. Governor Patrick and the Senate; worked on these reforms during the 86th with HB 3 and SB 2
  • During the 87th, and voters recently approved, an increase in the homestead exemption

 

Property Tax Relief: Examine and recommend ways to reduce Texans’ property tax burden. Review and report on proposals to use or dedicate state revenues in excess of the state spending limit to eliminate the school district maintenance and operations property tax.

 

Tax Exemptions: Examine Texans’ current tax exemptions and report on whether adjustments are merited because of inflation or any other factors.

 

Invited Testimony

Panel 1

Kevin Kavanaugh, LBB

LBB Presentation

  • Have a presentation for the committee to discuss some of the legislative proposals over the last couple biennium
  • Total property tax levies most recent fiscal year was $73b; half was from school districts
  • Next largest revenue source is sales tax which brought in $46b
  • Growth rates of tax levies 2020-2021 growth has slowed as a result of reforms
  • Foundation School Program sets the entitlement for school districts; state has historically fills in the gaps with the FSP
  • Three levers the state has used in statute to reduce property tax; rate reduction, exemptions, and special appraisal methods
  • Cost estimate from the fiscal notes will likely be different now; substantial changes to the FSP and estimated district property growth estimates
  • HB 1 from 79th special session M&O; estimated was a $7.1b cost per year
  • SB 1 and SJR 1 84(R) raised the homestead exemption; estimated cost was $615m annually
  • HB 3 86(R) cut district property taxes and made changes to the Foundation School Program; estimated cost $5.0b
  • SB 2 86(R) delt with non-school-district taxing entities lowered rate to 3.5% and required an election to exceed that rate; estimated it would save $1.3b
  • SB 1 and SJR 1 87(3) was just approved by voters; increased homestead exemption; estimated cost its first year was $355m
  • Notes their presentation includes ideas the committee may want to consider
  • Study for reduction of M&O was published September of 2020 and is on the LBB website
  • Chair Huffman – ARPA money cannot be used for tax relief? Texas has filed suit on that?
    • Were allocated $16b; provisions restricted from using to buy down property taxes
    • Six lawsuits have been filed and four the plaintiffs prevailed at the district county level; three have been appealed at the federal level
    • Texas won a permanent injunction at the treasury department; expect them to appeal
  • Chair Huffman – $3b from that fund is unallocated
    • Hughes and Kavanaugh discuss re-frozen over 65 and disabled school taxes
  • Hughes – Why was one $615.9m and another $355.3m?
    • HB 3 rate compression mechanism made it cheaper for state to exempt certain areas; districts with smaller growth rates get a higher tax rate
    • All non-homesteads will have a higher tax rate
  • Chair Huffman – How could we deal with an economic downturn?
    • Could use ideas like in HB 90 (Oliverson) that take some amount of dollars over spending limit and dedicating that to property tax relief
    • Could consider a discretionary mechanism
    • SB 1336 spending limits any surplus dollars would count against those amounts
  • Chair Huffman – How would it work if we exceeded the spending limit?
    • Is a mechanism where the legislature could vote to exceed those spending limits

 

Korry Castillo, The Office of the Comptroller

  • Currently in the April/May timeframe to hear protests from property owners
  • Presentation contains current exemptions in statute:
    • Residence homestead exemption for school districts linked to $40k dollar amount
    • Local option homestead exemption; amount up to 20% of the property’s value
    • Over 65 $10k partial exemption with local option; for example, Williamson County increased theirs to 5%
    • Are disabled veteran exemptions
  • Filing deadline for homestead exemptions is April 30; have extensions up to 5 years
  • Chief Appraiser decides if an applicant is qualified for an exemption; applicant can file a protest
  • Are special appraisals including value limitation (appraisal cap)
  • Tax ceiling for over 65 and disabled; is a local option for a ceiling as well
  • Overviews other property tax exemptions
  • Schwertner – Did not hear you talk about agricultural exemption
    • Is a local special appraisal; have that information in a resource provided to committee
  • Creighton and Castillo discuss PVS audits conducted by the Comptroller’s Office which are taken from cross sections of commercial and residential
  • Creighton – What happens if the audit fails?
    • Have a 5% margin of error threshold in statute; is a protest process school districts can go through if they are outside that margin
  • Creighton – What is involved in appeal? Success rate of those appeals?
    • Mostly are filed by school districts and can be in partnership with local appraisal district
    • Not personally involved with appeals; a lot are successful
  • Creighton – What statutory authority does the Comptroller rely on for this? Education code?
    • Under Government Code 403
    • Study is not under Education Code; TEA takes over with the results
  • Creighton – What happens if local appraisal district chooses to not adjust if outside margin of error?
    • If they are invalid in one year, will study in second year
    • Have a two-year grace period; by third year, the state will certify the state value
  • Creighton – Is there an opportunity to cure at that point?
    • Could still protest at that point
  • Creighton – Any data to show the average per county on rising appraisal values? Hearing 25% increase per county and Montgomery County was about a 37% increase
    • Will not receive 2022 values until fall
  • Creighton – Every school district except for 1 in Montgomery County failed the PVS audit
  • Creighton – Interesting that those from a state agency know more about the property values than the local chief appraiser
    • Will not review numbers until the roll is approved locally
  • Creighton – Is no link between 2021 PVS audits with school districts and current evaluations?
    • Statute says the link is in market activity; study is for school finance, does not change values does not have rules the chief appraiser must do anything differently
  • Creighton – Is no enforcement mechanism?
    • No; is an after the effect study
  • Creighton – Asks about a recent rule change for their study
    • Adopted changes to the property value studies rule for this; did not receive and comments
    • Aimed at aligning PVS deadlines
  • Creighton – Was adopted last July? Assuming rule changes made it more difficult to appeal?
    • Would not say that; deadlines were extended
  • Creighton – Possible to open those back up for review and general comment; not sure why the rule change was needed in the first place
    • Did open those up again and did not get feedback
    • Are happy to open those again
    • Was not spurred by changes in law; made changes based on feedback from school district agents
  • Creighton – Local chief appraiser decides if they will/will not adjust if they fail the PVS audit? No enforcement
    • Correct; since it is after the fact, those have already been paid
  • Schwertner – In the materials provided added up special appraisals for farm equal 41% of all property tax exemptions
  • Schwertner – Exemptions add up to $14b; Chapter 313 resulted in $758m not being collected
  • West – Exemptions for properties in areas where gentrification if occurring?
    • Would have to be a constitutional amendment
  • Whitmire – Large facilities and companies do self-appraisals? Do any states try to equalize taxation between major facilities and residential; suggest we look at equalizing this
    • They can; can do some research on other states
  • Whitmire – Provides an anecdote communities where there were more frequent evaluations if that community did not support local officials
  • Chair Huffman – As appraisals rise, should see relief due to HB 3 and SB 2
  • Hancock – For the first time, a majority of school districts will lower that tax rate in August; have to wait and see
  • Chair Huffman – Before next session we will be able to discuss this more completely
  • West – Are all appraisal districts on the same timeline and what properties appraised?
    • Is “at least” every three years is a reappraisal; each district has a different appraisal plan

 

Phillip Ashley, The Office of the Comptroller

  • Tax exemptions for other that property tax; publish a tax exemptions and tax incidents report annually
  • Report includes estimates of cost of exemptions based on Comptroller’s recent revenue projection
  • Estimated total value of exemptions is $58.6b
  • Of the total $44.5b in state tax; $14.3b are sales tax insurance, motor fuels, etc.
  • Largest groups of sales tax: raw materials $7.2b, food $3.3b, and over-the-counter drugs $1b
  • Handful of exemptions do have a fixed dollar amount that are subject to inflation
  • No tax due and compensation and benefits under the franchise tax are not subject to inflation as it is adjusted every two years by statute
  • Exemptions subject to inflation: sales tax holidays, religious/ed, qualified student orgs, and certain lawn services
  • Are special refund situations for telecommunications, defense readjustment, and an apprenticeship program added last session
  • Exclusions under the sales tax exemption includes a clean energy credit
  • Chair Huffman – See any the legislature should adjust for inflation?
    • Overviewed in testimony; those with a fixed dollar amount should be considered

 

Leo Lopez, TEA

  • Highlighted HB 3 tax relief provisions
  • For the first time, have an automatic mechanism for reducing M&O
  • Compression mechanism is different than SB 2; 2.5% limit is how much local share can grow by
  • Provisions ensured the state share percentage is more stable
  • Mandatory exemption to $40k
  • Chair Huffman – Any projections for what this will look like in the coming biennium?
    • Yes; may be about 1.5 pennies per year but will have great variability
  • First year 2019 uniform compression at 93 cents; compression is only on the tier one portion
  • Has not been any increase in the basic allotment, when the legislature focuses on that, it will focus on the tier two
  • Method that results in the lowest rate is the one that is used; SY 2021-2022 rate was around 91 cents
    • HB 3 included a 10% equity bend
  • FY 2022 property value estimate was at 1.8%; was a small reduction
  • Tier one tax rate state average in 2021 was 86 cents and project 2022 at 84 cents
  • Legislature can allow setting a lower compression percentage in the GAA; 89.14 cents is the ceiling
  • State compression of 87.15% and if adopted below would reduce ceiling and floor
  • Hughes – M&O excludes bonds and a local level? Any cap on I&S?
    • Yes; is a 50 cents test where districts have to meet before issuing more bonds
    • Districts can levy due to a decline in values; so may be something to consider
  • Hughes and Lopez discuss maximum M&O rates
  • Hancock – Would like to know the number of districts at cap?
    • Is either 204 or 306 around 300 at the floor; are over 1k school districts
  • Hancock – How much additional money resulted from establishing Austin ISD reflecting more of the state average?
    • Austin ISD golden penny allotment was uncoupled in HB 3
    • Do not have exact value; was a rich yield

 

Panel 2

Dale Craymer, Texas Taxpayers and Research Association

  • SB 2 and HB 3 are proving to be an effective tool in limiting increases
  • For the first time school tax rates are dropping with rising values
  • In the three tax years since HB 3 have been in effect M&O rates are down 12%
  • Savings last year alone taxpayers saved about $4.8b
  • Since the two years SB 2 levies have decreased by 2%
  • Estimate in 2021 taxpayers paid $6b less in property taxes as a result of the two
    • Will grow over time as values rise
  • Recommend continuing to fund HB 3 to accelerate the buy down of school tax rates
    • Supported that legislation in the senate that died in the house last session
  • Expect most homeowners will see a decline in tax bills in comparison to last year
  • Travis County role may be up 25%; if the tax role is above 15%, their tax bill will likely go down
  • Recommend using excess revenue above what the legislature can spend for property relief
    • Would not be an ongoing expense
  • Need to be cautious when looking at the appraisal tax cap or exemptions
  • Recommend doing something like Louisiana who provides a business tax credit for local taxes paid on inventories
  • Hinojosa and Craymer discussed HB 3 preventing the decline of state share
  • Chair Huffman – From your testimony is sounds like good news
    • Good news is that legislature has put protections in place
  • Nichols – Tax credit on inventories? How would this work for those who do not pay franchise tax?
    • On the corporate franchise tax; could make it a refundable credit
  • Nichols – Have not thought its fair to tax inventories, need to make Texas more competitive for business to come here; may be a good year to do this
    • Is one of the “sore thumps” of tax rates; is a substantial barrier
  • Chair Huffman – How much would that cost?
    • School taxes would be a $2-3b
  • Hancock – Nichols’ point something to think about now because of supplier/manufacturer issues
  • Nichols – Request the Comptroller to get the impact this would have on cities/counties/schools
    • Should look at school taxes as a beginning point

 

Vance Ginn, Texas Public Policy Foundation

  • CPI inflation makes it harder to save for a rainy day and M&O property tax is about half the property tax burden
  • Whitmire – Would you ever be satisfied with taxation considering the services they provide?
    • Cannot grow more than population growth and inflation
    • Is about the legislature setting priorities
  • Whitmire – If we keep chipping away with exemptions and going with Nichols’ ideas we will not have any revenue
    • Nichols – Is a difference between inventory and stagnant materials
  • Nichols – Your written remarks say to completely eliminate M&O for school districts and locals and broaden the sales tax base? Where would communities get the funds to run their county?
    • Plan looks at using surplus funds in order to buy down M&O; would be up to locals
  • Nichols – What about those without a sales tax base? Would they apply to the state?
    • Should not go to the state; would be up to the cities/counties to make the choice
  • Nichols noes the plan has significant holes
  • Chair Huffman – Surplus funds to buy down M&O still come from taxes; what is the cost?
    • About $30b from M&O per year; use surplus funds to lower sales tax rate
    • If there is not a surplus, we use the general revenue base; if there is a drop in GR we have the Rainy Day Fund
    • Should also look at school district reserves
  • Chair Huffman – Is what we did in HB 3 and SB 2
  • Schwertner – Broadening sales tax base in your plan; middle class renters could see an increase in their tax rate?
    • Keep the sales tax rate, just including more taxable items
    • Such as unprocessed foods; for example HEB would have their property tax in half
  • Schwertner – Sales tax incentives were put in place because of societal burdens; are proposing an abolishment of that
  • Hughes – Support this plan a framework to do this is in place; if we move forward, would you advocate in those lean years that M&O would go back up or would stay the same?
    • No, compression should be permanent
  • Hughes – Are advocating buying down M&O and then would be small enough to replace with sales tax?
    • Correct; would like to do this as quickly as possible by broadening the sales tax base
  • Hughes – If we did not broaden the sales tax base; get a sense for what the rate would have to be if replaced M&O with sales tax
    • Not advocating for that, but would be a 14% sales tax rate
  • Hughes – Have a sense how Texas compares to other states on what they tax?
    • Do not have an exact number; other states are looking at broadening their base
  • Chair Huffman – Still have a constitutional spending limit; would require a vote to “bust” that

 

Brent South, Hunt County Chief Appraiser & Texas Association of Appraisal Districts

  • Property tax code does require to re-appraise at least once every three years
  • Statutorily required to be at market value January 1; need to stay up with market value during an appreciating market
  • Average increase residential property is about 24%; may come down after the appeals process
  • Whitmire discussed the equal and uniform assessment of property; are statutorily required to assess at 100% of market value
  • Was an article that shows the trend in increasing amount of litigation coming from commercial property owners in appraisals
  • Property owners can choose comparable properties in other counties or even outside the state
  • Is no good definition on standards of these comparable properties; no guidelines
  • $24b in taxable value removed from the roll due to litigation in 2020
    • Equivalent to removing 80k homes from the tax role
  • $8.9b removed from the roll due to litigation in Chair Huffman’s district in 2020
  • $36.8b removed from the tax role from 2020-2017 due to litigation
  • Taxpayer dollars are used to defend these lawsuits
  • A local government spent $15m defending litigation in 2021 and have budgeted for $17.4m
  • Property owners are not paying the same standard as everyone else
  • In Hunt County median home value increased 51% and Walmart value decreased
    • Walmart sued Hunt County Appraisal every year and have had to settle
    • Corporations know small appraisal districts do not have the budgets to recoup attorney fees
  • Nichols – Distinguish between inventory in a factory versus inventory of finished goods in a store?
    • Allow for shrinkage in inventory in retail; account for what their inventory as a whole would cost
    • Rely heavily on the honesty of owners to report that value
  • Nichols – Is a difference between store selling products and raw materials; one is generating jobs and the other is selling the product
  • Nichols – Rely solely on property owners on these numbers? Do not even have to be on the property to verify?
    • Are required to render; is a 10% of penalty of failure to render
    • Are able to use comparable facilities
  • West – Have set up a system to contest value; is a burden on appraisal districts
  • West – What do you recommend?
    • Did fine with two options for with requires a selection of comparable in the same county and would tie equal and uniform to market value
  • West – That opinion is shared by all tax appraisers?
    • Is commonly agreed upon by tax appraisers
  • Chair Huffman – Want to ensure residential and commercial have a meaningful way to contest appraisals; would be meaningful if we got rid of that standard?
    • Yes
  • Chair Huffman – Seems to me would be difficult for those who contest to meet that standard
  • Chair Huffman – Are seeing this more now because appraisals are going up?
    • Has become more of an issue within the last 10-15 years due to rising market values
  • Chair Huffman – These are long-term businesses who are looking to stay; need to look at thus
    • Would be a legislative policy decision; would have to change the definition of “market value” or set a percentage
  • Chair Huffman – Taking away one of the ways to address this is a big step; want to understand the consequences for commercial payers including apartment owners
  • Schwertner – Uniform & equal issue has popped up in rural areas, larger plants could be 30%, would you agree that this has been utilized now as a way to lower tax burden in a wholesale matter?
    • Would agree with that statement
  • Hinojosa – There are other large retail corporations, refineries, etc. that use the uniform & equal definition to lower taxes, represents about $36b; would these $36b in losses be passed onto homeowners?
    • Taxing units don’t go back and readopt rates, still have to go back and generate some amount of revenue
    • When you see $24b in taxable value shifted, it does impact the burden on the homeowner
  • Hinojosa – Local communities don’t have funds to pay for litigation
    • This is legal, I think they understand we have limited budgets and resources
  • Hinojosa – Property owners and taxpayers have the same right to protest an appraisal, but could cost more
    • Correct, probably would spend more money as a homeowner than you would save on your taxes
  • West – When you certify appraisals for a county, and you have $10m in dispute, is that set aside
    • Disputes are at the appraisal review board level, not district court; when we go to certify 2022, as long as we have 95% not under dispute we can certify and will estimate
  • West – At the court level?
    • This all comes off later
  • West – Can you put it on for certification and then take it off? How do you certify?
    • If you take a property appraised at $10m, timely protest filed, and ARB lowers to $9m, when the appraisal district certifies in July then they will certify at ARB value, then you have 60 days to file a lawsuit
    • $9m value would be certified and this is what taxing units use to set rates and adopt budgets, if we end up having to settle at $6m, taxing units won’t get to recapture as value is already certified at $9m
  • West – What happens to the other $3m?
    • It’s gone, taxing units thought they had it, but they don’t collect on it
  • West – Appraised values contested after the ARB process that are reduced subsequent to certification is a loss to taxing units?
    • Correct, setting tax rates is based on ARB value and often lawsuits haven’t even been field yet
  • Creighton – Can you help me understand the income approach as an appraisal method for businesses; could you do your job effectively without it?
    • Cost, sales comparison, and income can determine value; typically use income approach because this is how investors gauge this
    • Looks at potential gross rents/income, deduct allowable expenses, apply appropriate capitalization rate to come up with value
  • Creighton – But you’re guessing at the income, do you use and software or service? Or is ti just potential?
    • Send out income surveys to income producing customers, you can imagine we don’t get great response numbers
  • Creighton – Imagine these vary greatly
    • We have 3rd party vendors we can purchase info from, then in appeals process, property owner or agent will bring the actual info and we will adjust
  • Creighton – Have many examples of businesses that had 150-500% increases in valuation within 1 single year, not enhancement year; is interesting because you’re using potential income to estimate, blowing performance, blowing bank loans
  • Creighton – Could you do your job without the income approach?
    • Other method is sales approach, but we don’t do this as a state so leaves us with the cost approach
  • Creighton – Do you have MLS? You used to say you didn’t use it
    • We do
  • Creighton – We’re not a sales price disclosure state, how can we not be if you have all the data from MLS?
    • 99% of MLS data is residential information
  • Creighton – Can’t get business transaction data?
    • We utilize CoStar as a 3rd party, etc., these are the tools we use to estimate; if the legislature wants us to appraise at 100% market value standard we need the data
  • Creighton – Do you use the cost approach for multi-family?
    • Majority are using the income approach, looking at how properties are bought and sold on the open market
  • Creighton You don’t use Marshall & Swift data?
    • On non-income properties, this is where cost approach is most reliable
  • Creighton – On PVS audits, you mentioned 5% margin, and the failures & that you’re forced to adjust; can you explain what you mean?
    • I’m talking to being forced to adjust to market value, we appraise to the tax code, not the study; study comes in after the fact
    • If the real estate market is aggressive, you are forced to reappraise every year, will not be at market value otherwise
  • Creighton – Is there ever a feeling that you know appraised values in your community better than outside appraisers?
    • Sure, they need to do sales samples & individual appraisals to test against appraisal district value
    • In 2 appeals right now, one issue is lot values and as Hunt County Chief Appraiser I do have a better idea of what residential lots will sell for in Celeste, Texas
    • Appraisers are doing appraisals of half of the school districts, large workload for each one & cant dig down into local market the way chief appraisers can
  • Creighton – Some feel the reverse is true, that 3-year turnaround is too much for local appraisers
    • Could always use more appraisers
  • Creighton – How much would an appeal of a PVS audit cost?
    • Depends on time and money needed, did the 2 this year in-house
  • Creighton – $30k? $50k?
    • Haven’t put a number on it
  • Creighton – Do you ask for this to be included in the budget?
    • Never have, always felt confident we pass the PVS and typically do; haven’t included line items for appeals
  • Creighton – What percentage of your membership appeals when a PVS fails in an ISD?
    • Don’t have this but can get it to you
  • Creighton – Does it vary within jurisdiction whether they would appeal the PVS?
    • IF PVS says property is 80%, that’s a red flag
  • Creighton – IF you review this and determine it is a red flag, then choose to do nothing, what happens?
    • If we determine that our values were accurate, would hope Comptroller’s PVS had the same results
    • Market value is market value
  • Creighton – Under that theory you wouldn’t be off by 5%, 10%, etc.; either made a mistake or didn’t know values in the community
    • If we agree with Comptroller’s results, then we would reappraise
  • Creighton – If you feel you were correct, what do you do?
    • Always going to appraise based on the analysis we do
  • Creighton – If the initial values were under review, but you feel the valuation was correct, is there a situation you would not appeal?
    • We would absolutely appeal
  • Creighton – Would you imagine there is a chief appraiser who would choose not to?
    • Could see situations
  • Creighton – But no reprisal or enforcement in that year itself if you don’t adjust based on Comptroller’s findings
    • Can’t go back and change values once they’re certified
  • Creighton – We aren’t a sales price disclosure state, you feel cost and income approaches are both necessary to assess value in Texas, and chief appraiser should have commercial gateway and MLS for commercial and residential? You feel like that is appropriate?
    • IF we want to meet 100%, yes
  • Creighton – So even though we’re not a disclosure state and these transactions are private, you feel we should step outside to meet the statutory standard
    • Disagrees on step aside language, fee appraisers use these same resources like MLS, CoStar, etc.
  • Creighton – Private sector appraisal comparisons aren’t a good example, can you give another one?
    • If legislature feels like 100% market value is too aggressive of a standard, then you can back it off and that’s the value we will go by
  • Creighton – There is an assumption that you are actually going out and appraising properties; 100% valuation is the goal, but the broad understanding is not that you have software, etc., haven’t heard this is common practice until today
  • Hancock – Asks after the income appraisal approach
    • Use an income approach and lowered values due to occupancy being lower
  • Hancock – Cost should equate to value of the property; should be fairly equivalent versus the income approach
    • Look at the actual value of property transfer, e.g. $50k to buy but might cost $200k to actually transfer, income approach is better suited to do this

 

Panel 3

Bob Harvey, Greater Houston Partnership

  • Should give industry the tools to reduce property tax burden on new investment
  • Should preserve pollution control equipment exemption, can also serve as an example of what to do in the future as part of the energy transition
  • Not renewing Chapter 313 is already affecting competitiveness on long lead time projects; current situation is already concerning and very concerned about new year without the tool, should think about replacement program that fixes issues but still have attractive abatement
  • Probably needs to be a jobs component & 313 didn’t always result in jobs we wanted to see
  • How to lower emissions while meeting growing energy demand, estimate say trillions will be spent on energy transition and Texas is positioned to benefit
  • Should assess current exemption and see which could be utilized or adjusted to take advantage of the transition; not a transition away from fossil fuels, but to a lowered carbon emission industry
  • Will be investing in carbon capture, hydrogen storage, etc.; should think of targeted tools to bring investment here
  • Creighton – Can you remind us what the Greater Houston Partnership is? Members?
    • GHP serves a 12-county region, companies in Houston are the major energy companies, service companies, hospitals
    • Members own the O&G infrastructure, refining, etc.
  • Creighton – A lot of members are re-evaluating 313s, important for your members to suggest ways to reform or change, also share personal testimonials if we don’t have an abatement policy
  • Creighton – Clear there is reconsideration of what we currently have, would like members to work with us
    • Appreciate that, working with other trade associations as well, and owe you ideas on where to go next
  • Schwertner – You emphasized lowering carbon, what were you speaking of incentivizing, do you have a list?
    • No list, but GHP thought about what areas Texas could incentivize to attract new investment, incl. carbon capture
  • Schwertner – Aren’t those issues federally mandated?
    • No, no CO2 program at federal level, there is an incentive that got people interested
  • Schwertner – So federal and state help?
    • And private capital, no economic penalty to take CO2 out of the atmosphere, only tool is incentives
  • Schwertner – People worry about emissions, but we’ve also burned taxpayer dollars & concerned about those
    • Has been a total reversal on having Texas lead on this issue in the next 100 years and drive investment
    • Question of inducing activity rather than mandating
  • Nichols – Have been reading on carbon capture, TX owns land out to the coast & has opportunity; no federal program?
    • There is a federal tax credit, 45(q), part of the federal tax code and provides a percentage for carbon put into the ground
    • TX has the reservoir capacity to put CO2 into the ground
  • Nichols – We as a state have a unique position to store, but currently to get the dollars you need to get the cost down; amazed there isn’t more federal support, are you asking for state support?
    • We are, asking for federal and state support
    • Also speaking on hydrogen now, new process that doesn’t use CO2

 

Annie Spilman, National Federation of Independent Business

  • Provides overview of NFIB, incl. 20k small businesses, have a chief economist who runs many surveys
  • Uncertainty has always been one of the biggest issues for businesses; small businesses don’t have cash reserves, nothing to absorb unexpected costs
  • Polled members on tax exemptions, 53% used them, 71% said increasing or broadening would help offset costs
  • Dale Craymer with TTARA mentioned inventory tax, members would like to be exempt just as they would like to repeal the franchise tax
  • Index on franchise for small businesses at $1m is helpful, indexed to inflation, but still need a CPA to figure out if they qualify so overhead is high
  • Would need to take the TTARA tax credit recommendation to members, but still a complicated process & businesses would need to hire to apply
  • Gov. Property Owners Bill of Rights suggests increasing business property tax exemption, would suggest increasing it to $250k and know it will be discussed next session

 

Tony Bennett, CEO Texas Association of Manufacturers

  • Provides overview of TAM, TX has the nation’s strongest manufacturing climate
  • Important adjustments; sales tax exemption for manufacturing, Prop 2 property tax exemptions, R&D sales & franchise tax exemption, Chapter 313
  • Chapter 313 helped elevate the state to receive numerous accolades
  • Global supply chain issues are a threat to national security, Texas security, etc.; manufacturing orgs are now looking to restore manufacturing back to the US & TX
  • Need to replace 313 with a smart, strategic incentive
  • Nichols – Should communicate with Sen. Birdwell on 313s; I’m for 313 generally, with the exception of renewables; also had issues with some ISDs having side deals
    • Grid reliability, dispatchable energy, etc. could be beneficiaries of a redesigned program
  • Hinojosa – In general there is support for something like 313, but cant reenact it the way it is
  • Schwertner – Does your organization have anything specific on 313s and renewable energy?
    • We don’t have anything specifically, no renewable members in TAM
    • Need to have dispatchable energy and need to put steel in the ground
  • Schwertner – I’m for that, but also agree with Sen. Nichols, doesn’t make sense to add more tax incentives on top of the federal incentives
  • Hinojosa – Many do support renewables, needs to be a better balance
  • West – Hope we will look long term in terms of what is best for the state, as the world moves to greener energy, TX shouldn’t lag

 

Glenn Hamer, CEO Texas Association of Business

  • Provides overview of TAB
  • TX is higher than other states on property taxes, but there are good ideas on the table to reimagine the tax structure so TX continues to be the top state for capital-intensive projects
  • Highlights importance of energy and semiconductor industry with national security implications
  • Property tax burden on new chip fabrication is high
  • World needs more TX energy, particularly natural gas

 

Public Testimony

Christy Rome, Texas School Coalition

  • Support property tax compression as an ISD subject to recapture; many districts have value increases far exceeding compression, but local districts aren’t receiving funding because recapture is pulling dollars
  • Hope that property tax compression approach will be balanced, recapture is high and property tax relief will help, but should consider ISD funding

 

James LeBas, Texas Oil and Gas Association

  • Claims that Texas relies more on businesses to pay state and local taxes than any other state; encourages Texas to keep businesses in consideration when discussing property taxes
  • Nichols – Regarding carbon capture, does TERP money qualify for those investments?
    • No, carbon capture is not on list of projects; has heard things about Prop 2 being expanded to carbon capture
    • Nichols – Something we should investigate

 

Adam Haynes, Texas Conference of Urban Counties

  • Local counties set the tax rate to implement the Legislature’s priorities
  • Transportation and infrastructure funding – Local entities match transportation related sales taxes, advocates for the State to fund transportation improvements with sales taxes to give local counties relief
  • Advocates for giving local entities the ability to increase homestead exemptions, let local officials pass property reductions at no cost to state

 

Russell Schaffner, Tarrant County

  • Advocates for flat dollar homestead exemption
  • Encourages Legislature to look at cost drivers for counties, majority of Tarrant County’s budget consists of public safety, prisons, etc., very expensive
  • Huffman – Have the criminal justice reforms passed last session giving counties more control over public safety helped the issue?
    • Yes, but it is still very costly
  • Hinojosa – Makes statement that the pandemic has caused overcrowding in our jails, contributing to the problem

 

Charles Reed, Dallas County Commissioners Court

  • Advocates for a flat dollar homestead exemptions for counties $100k exemption authority for counties; can deliver to constituents and does not cost state any money
  • Raises the issue of a disparity in the system for appraisals
  • State comptroller could put together a manual of give guidance to appraisers
  • Currently there is no standard; some guidelines are needed

 

Colin Hodges, Homeowners for Fair Taxes and Services

  • Raises the issue of property owners who do not receive city services but must pay property taxes
  • Advocates for issue and hopes Committee will consider in next session
  • Sen. Campbell introduced a bill on issue two sessions ago, did not become law

 

Chloe Sikes, Intercultural Development Research Association

  • Educational nonprofit committed to achieve equal funding in public schools
  • Advocating against eliminating M&O tax, eliminating tax means we will never achieve equitable funding
  • Recommends resolving inequities with compression, districts with more property value growth have rapid increase in taxes
  • Increase basic allotment and higher weights
  • Hughes – Confused on statements about equity
    • Eliminating an M&O tax would be devastating for districts
    • There should be more funding from state, increase basic allotment, more funding tied to lower property wealth districts, currently there is not much property tax equity with school districts
  • Creighton – Is your concern with eliminating the M&O tax regarding that there would be no replacement funding?
    • The funding must be sustainable, and the M&O tax is the sustainable option that currently exists
  • Creighton – If another sustainable source of funding was established that provided more relief than the M&O tax, would you support that?
    • Would support anything that provides sustainable funding for school districts