Senate Finance met on July 12 to discuss SB 2 (Bettencourt) and SB 3 (Bettencourt/Parker) relating to property taxes. Both bills were unanimously voted out of committee.
This report is intended to give you an overview and highlight 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.
SB 2 (Bettencourt) Relating to providing property tax relief through the public school finance system, exemptions, limitations on appraisals and taxes, and property tax administration; authorizing the imposition of a fee.
- Bettencourt – This is the $18b plan
- Reduces maximum compression rate 10.7 cents
- Includes $100k residential homestead exemption
- State will hold harmless school districts including any funding deficits resulting from the exemption
- Have one change from Perry about debt packages which will be included in an amendment on the floor
- Includes a catch-up provision for the 65 and disabled exemption holders
- Creates a circuit breaker pilot project 20% limitation on appraisal value increases for non-homesteaded properties under $5m; which will expire December 2026
- Substantial changes to appraisal boards; includes 3 new elected appraisal board members starting May 2024; re-elected for four-year terms in November 2026
- Have
- Selection of ARBs goes back to county board of directors; to hire an ARB, two citizens will have to approve of the members as well as a majority
- Prohibits local options homestead exemption for four years; was happening in Pasadena ISD
- Whitmire – What parts of the plan will be permanent?
- Expecting HJR 2 from the house to be the constitutional amendment; 100k for homestead exemption, 20% circuit breaker, and the fund that puts this into motion
- Everything else will
- Whitmire – Will have to be funded each year?
- Correct
- Whitmire – Would depend on a surplus?
- Will depend on the total source of funds; mechanism is to pull down extra cash by voter approval
- Whitmire – If we do not have surplus in the future what would be the option? Cut taxes or school funding?
- Would have to be considered by future legislatures, both and all would be on the table
- Zaffirini – Impact of 20% circuit breaker?
- Analogous to the 10% homestead; three-year pilot program requested by the House to have enough data to see if we should continue this
- Zaffirini – Why do we not have the teacher pay raise in this bill?
- House leadership decided they did not want it to be part of the property tax bill
- Believe the intent is to handle that in another session, but will not speak for the Governor
- Zaffirini – What are we doing for renters in this bill?
- Rents are already coming down; this will only help push rents down
- Hinojosa – How does the circuit breaker work in practice?
- Is a negotiated agreement; $5m limit captures 78% of accounts
- Are calling it a circuit breaker because it is temporary; house will put an amendment on their HJR this provision will expire December 2026
- Hinojosa – Mechanism for the local tax assessor to only look at the actual amount projected and excluded contested taxable value?
- Not currently; notes Neches County has long-term disputes over appraisals of large refineries
- Hinojosa – Harris County has been adjusting taxable value to provide wiggle room for school districts; is a grey area and no one has questioned it
- Have tried to use that formula for Neches County, but it would not work in this situation
- Huffman – Clarifies that any property under $5m appraised value can only go up 20%
- Correct; this is no means tax; all real property that is not a homestead
- Huffman – State is covering that cost as well?
- Correct
- Huffman – What is the cost of that part of the bill?
- First year less than $50m
- Huffman – Getting funds to districts –
- No mechanism to get funds to counties/cities; just holding the schools harmless
- Will be adding Perry’s amendment to address FGSCs
- Hancock – Tarrant County one of the fast growth districts; circuit breaker should be helpful for small businesses
- Hancock – Will be interesting to see if they push revenue stream to properties over $5m
- Hancock – Concerned about the significantly raised appraised value of apartments; rent significantly increases
- Hancock – Anything to prevent them from segregating apartment buildings to get them to $5m or under sections?
- Did this in the past for grocery stores; do not have that in this bill yet, but the legislature will take action if it happens
- Cannot segregate by size because it is very obvious
- Perry – Concerning the amendment concerning debt change; some districts have debt authorized, but not issued; authorized debt will be held harmless
- Perry – Is confusion that if we do not get teacher pay raise done by August; teacher pay raises are not attached to a constitutional amendment; expectation to have that vote sometime in the fall
- Huffman – $5b for public ed in a rider; not all for teacher pay
- To get anything additional to that, would have to be constitutionally dedicated; so would need an amendment in that case
- Perry – Circuit breaker could make more predictability if is continued; know some are saying they are going to lose money
- Perry – Will get your intent and clarity on the candidate selection on the floor
- Have an amendment from the Secretary of State to make technical corrections
- Kolkhorst – Circuit breaker tied to inflation?
- $5m is tied to inflation; is an inflation factor established based on a number by the controller’s office annually
- Kolkhorst and Bettencourt discuss ARB board member requirements for 75k population or above?
- Kolkhorst – Revenue cap for school districts in this legislation?
- No, traded off for the circuit breaker in terms of cost
- Will continue to talk about that
- Kolkhorst – Compression of 10.7 is real or average?
- Budgeted maximum compression rate; some school districts will not get that right away due to other complexities
- May need to let go of some of the archaic code which makes that happen
- M&O 80.48 cents on maximum compressed rate right now
- Kolkhorst – Compression will go down into the 70s?
- Correct, we do not know how far into the 70s though
- Kolkhorst – Compression drive up I&S rate or drive up value for homeowners?
- I&S is separate; when the state steps in and pays for the exemption have a debt rate component
- State is picking up $642m going straight into schools debt rate
- Huffman – Circuit breaker applies to all taxable entities? Including MUDs
- Correct
- Kolkhorst – If someone has a chain of businesses under $5m, would be a part of the circuit breaker?
- This is by all real property parcels
- TTARA estimated we have saved taxpayers $11m; this focuses more on specific problems rather than macro
- Hinojosa – Circuit breaker across the counties and cities?
- Yes; counties, cities, all taxing units
- It is a value limitation; have less value, but the same control point
- Hinojosa – Who pays for that? Seems like you are cutting off revenue to cities/counties
- Is load leveling, everyone in the district ends up paying for it
- Have decoupled values and rates; liability of the individual taxpayer is limited, not the entire pool
- Springer – Mineral owners could see a large switch as a result of the circuit breaker; like the three years to be able to handle this
- Springer – Does the constitutional amendment include the expiration date for the circuit breaker?
- The house will be adding that expiration date to the HJR on the floor on Thursday
- Springer – Have an amendment concerning the breaking up of property in order to apply to the $5m to consider –
- Realistically would have to have a re-plat and would be largely impractical
- Hancock – Last time we bought down M&O, were a lot of bonds going out that said if they voted on the bond, then they would see a reduction in their taxes
- Hancock – Could prevent them from promoting bond packages that do this?
- Think we have already taken care of that problem
- Had a bill that would make that apply to cities/counties that died on a POO I believe
SB 3 (Bettencourt/Parker) Relating to the amount of the total revenue exemption for the franchise tax and the exclusion of certain taxable entities from the requirement to file a franchise tax report.
- Bettencourt – Doubles amount to revenue exempted from franchise tax to $2.47m; will remove 67k businesses from the tax roll
- Eliminates requirement for taxable entities who do not have to pay tax to file a zero-tax form
- Perry – Getting some flack from the comptroller as they like the data from those zero tax returns; are not elimination PIR part of the franchise tax reporting?
- No
- Perry – Would suggest we have a separate box in franchise tax reporting that they have receipts over 2.5% to help the comptroller with a way to pursue those committing fraud
- Will look at that in the future
- Kolkhorst – Goal is to help small businesses
Vote Outs
- SB 2 voted out to the Senate floor (14-0)
- SB 3 voted out to the Senate floor (14-0)
Closing Comments
- Huffman – Will have one more meeting this special session tomorrow to pass out the HJR