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Senate Finance met on March 15th to consider the following bills: SB 3, SB 4 , SB 5, SJR 2, SJR 3, SJR 4,  and to take up pending business.

This report is intended to give you an overview and highlight 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.

 

Bills voted out at end of meeting:

  • SB 341 (Springer) Relating to the applicability of the mixed beverage gross receipts tax and the mixed beverage sales tax to items sold by certain nonprofit entity temporary event permittees. 11 ayes and 0 nays (Local and Uncontested)
  • CSSB 3 (Bettencourt) Relating to an increase in the amount of the exemption of residence homesteads from ad valorem taxation by a school district, an adjustment in the amount of the limitation on school district ad valorem taxes imposed on the residence homesteads of the elderly or disabled to reflect increases in the exemption amount, and the protection of school districts against the resulting loss in local revenue. 12 ayes and 0 nays
  • SB 4 (Bettencourt) Relating to the maximum compressed tax rate of a school district. 12 ayes and 0 nays.
  • Huffman – will hold for clean up the SJRs (3&4) and SB 5 and SJR 2 will be cleaned up as well – taking up these on Monday

Committee Discussion

Property Tax Relief Bills Package

  • SB 3 (Bettencourt) Relating to an increase in the amount of the exemption of residence homesteads from ad valorem taxation by a school district, an adjustment in the amount of the limitation on school district ad valorem taxes imposed on the residence homesteads of the elderly or disabled to reflect increases in the exemption amount, and the protection of school districts against the resulting loss in local revenue
  • SJR 3 (Bettencourt) Proposing a constitutional amendment to increase the amount of the exemption of residence homesteads from ad valorem taxation by a school district and to adjust the amount of the limitation on school district ad valorem taxes imposed on the residence homesteads of the elderly or disabled to reflect increases in the exemption amount
  • SB 4 (Bettencourt) Relating to the maximum compressed tax rate of a school district
  • SJR 4 (Bettencourt) Proposing a constitutional amendment excepting certain appropriations to pay for school district ad valorem tax relief from the constitutional limitation on the rate of growth of appropriations

Bills author laid out bills

SB 3 co-sponsored by 31 Senators and increases homestead exemption

  • Triple of over 65 and disabled homestead exemption
  • 72 million homesteads will receive in 2nd year over $798 reduction in exemptions and over 65 it will be over $1k
  • “Substantial and unprecedented numbers”
  • Catch up feature in SB 3, to allow extra $15k exemption be applied to over 65
  • Committee substitute for SB 3 and SJR 3
  • Jan 1 was going to be effective date but substitute now makes it retroactive and it will be effective this year if passed by voters
  • Exemption will be lasting and homestead exemptions will follow the taxpayer
  • Huffman – are there some special jurisdiction on homestead exemptions
    • There are standard exemptions that have been increased from $15k, $25k and to $70k and there are optional exemptions with an option of a local exemption that will be on top of what the state does
    • Are talking just about school portion, 95 counties out of 254 freeze values for over 65 and over 300 cities do which is important to the other tools being discussed in the House
  • Huffman – how does cap work vs exemption?
    • Cap helps no one with a frozen value
    • Senate version of exemption has savings and important to have savings for seniors because you don’t want to tax them out of their home
    • These exemptions will be with people for the rest of their lives
  • Huffman points out hold harmless to education, its about state picking up the tab, the state takes on the burden of filing up the bucket
    • Yes, state takes over after 2.5% rollback threshold and pays for this
    • All designed to have school districts held harmless to tax relief
    • Never thought he could bring a package that would save $800 per year for 5.72 million
  • Huffman – instead of growing government with surplus, putting it back in pocketbook of taxpayers
    • Not busting the spending the cap
    • Huffman – because voter approved it is outside the spending limit
  • Zaffirini – only for school taxes
    • Correct, only dealing for school portion
  • Zaffirini – asked how district could get additional state aid as stated in section 4
    • Dedicated fund would release to hold schools harmless
    • For Tier 1 pennies, a total of 17.65 pennies and need to make sure the I&S component is a part of that
    • Section 4 is funding mechanism in the bill and schools are held harmless

SB 4 and SJR 4

  • Second step of a three-step plan
  • Three main components
  • An additional $5.38 billion in ISD tax rate compression adding 8.89 pennies of compression and 1.59 pennies in 25-26
  • Will expand the school finance band to 20%
    • Currently 698 districts at the floor and can’t compress past floor
    • So to get district off the floor so they can get more compression need to use the band technique
    • Put aggregate tax rate floor down from 80.46 cents to 72 pennies or in some cases upper 50
    • No extra funding by expanding the equity band
  • Zaffirini – notes this time people will feel the tax cuts
  • Huffman – asked about how this impacts recapture
    • Floor will be gone on maximum compressed rate, 7 pennies and combination take 19 school districts off recapture; moving away from recapture
    • Answering Huffman questions to lowering recapture, Bettencourt said Morath will be available to answer questions later in the discussions
  • Huffman – in $5.3 billion for compression, seeing some say that is from HB 3, is this amount in addition to previous compression
    • Real compression that saves real money
    • Old vs new is not the issue
    • 48 pennies of additional compression
  • Huffman confirms it does nut bust the spending limit

 

SB 5 (Parker) Relating to an exemption from ad valorem taxation of a portion of the appraised value of tangible personal property a person owns that is held or used for the production of income and a franchise tax credit for the payment of certain related ad valorem taxes

SJR 2 (Parker) Proposing a constitutional amendment to authorize the legislature to exempt from ad valorem taxation a portion of the market value of tangible personal property a person owns that is held or used for the production of income

Bills author laid out bill

  • There will be a committee substitutes
  • $1.5 billion in property tax relief in two ways
  • Nichols – asked about first come, first serve structure
    • All documentation elements go to Comptroller, once they hit the threshold there will be no longer any relief for the year
    • First come, first serve basis since there is a cap
  • Nichols – will there be a pro rata or literally look at time stamp date
    • Things they will look at time stamp date but Comptroller offices is available

Brad Reynolds, Comptroller’s Office – Resource

  • Nichols – not used to first come first serve at state level, what is plan to determine who is first
    • As bill is written it would be first time stamp
    • Discusses other funds that are capped but that one is pro-rated where everyone submits and then after reviewed and eligibility is determined and funds administered pro-rata
    • Nichols – concerned about first come first serve, thinks window and pro-rate amount sounds more fair
    • Agrees, will work with team to look at a pro-rata approach
  • Bettencourt – shell bill language, they will look at pro-rata approach
  • Nichols – did you all do any workgroups with Comptroller on how to handle
    • Bettencourt -just got the data, so they will have that discussion with Parker’s office and Comptroller
    • Parker – when substitute is out on Monday will incorporate those suggestions
  • Huffman – bill substitutes will be out on Monday
  • Zaffirini – what about renters
    • All compression components favor owners of property that have rentals

 

Dale Craymer, Texas Taxpayers and Research Association– For

  • Supports the package which provides balance relief for all tax payers
  • Strongly support rate compression
  • By 2025 avg M&O will be in low 70s
  • Inventory bill – Texas only one of 10 states that broadly tax inventory
  • Hope to work with Sen. Parker to get an idea on the numbers so there is not a cap and first come first serve provision at all
  • Equity ban allows greater variance but variance is used for further compression without impact funding per student
  • Bettencourt – before passage of package of bills, compression has been successful to the amount of $11 billion
    • Yes that is 2022 alone
    • Breaking link between rising appraisals and tax bills
  • Bettencourt – expansion of equity ban is a way to get tax relief into districts, and will take everyone off the floor of compression
    • A part of the relief is tax relief from last year so taxpayers who overpaid last year will get a refund, this mechanism will eliminate that overpaying
  • Bettencourt – will be talking about filer process and dollars in business package, completely new plan to give an inventory tax credit
  • Bettencourt – he hopes every business association is listing and comes in to testify, because we need this legislation
    • Taxing inventory creates a barrier to inventory
    • Small businesses will be saved a tremendous amount of compliance paperwork
  • Bettencourt – if you give businesses back time, that is money

 

Susan Spataro, previous Travis County Auditor – For

  • Retired and helping others
  • Property taxes three years ago were $4k but now they are $9k but where can you go if you sell, then can go to rent but rents feel out of control
  • 62% in our economy live paycheck to paycheck
  • Thinks these bills take into account everyday and real life

Christy Gessler, 2023 Treasurer for Texas Realtors – For

  • Appreciate legislature work to take off pressure of high property tax bills
  • Median sales price of home in Feb and tax bill calculation provided
  • Support any additional compression, school taxes make up largest portion and these bills could help impact recapture
  • Also appreciate inventory being addressed
  • Believe in homeownership for life

David Verseck, Retired in Sweetgrass – For

  • Fighting for lower school taxes
  • In 1995 paid taxes of $2k a year until 2007, but then retired and moved into Lamar CISD and saw an increase of $990 because of difference of over 65 homestead exemptions
  • Appreciates this staying with him until he moves out of his house

Mike Morath, Texas Education Agency Commissioner – Resource

  • Equity bands under current law, under HB 3 creating equitable funding for all students
  • Funding is based on need, not upon taxation or wealth
  • As values go up then taxable capacity goes down, keeps actual dollars spent more flat
  • Equity band is created school district by school district basis and will be 20%
  • This also overlaps with recapture districts
  • Districts still get exact same funding, regardless of wealthy tax base
  • Districts will see a slightly lower rate but will still get funding
  • Bettencourt – this has no effect on district budget
    • Shifts the mix away from property taxes
    • Plan is no district would be at MCR floor
    • No catch up compression, will need some more time to model the bill
  • There are 2 forms of equalization, budget equalization and taxation equalization
  • Still have incredibly equalized system
  • Bill does impact taxation equalization
  • Bettencourt – there are legacy issues that go back in time, we have a funding system that is equitable; the best thing to do is to get the floor down so you can expand the bandwidth, correct?
    • Correct

Paul Pennington, P.E. Pennington $ Co, Inc. Property Tax Consultants – For

  • Property tax consultant for 23 years, work with Sen. Nelson in 2019 session to pass tax reform
  • Strongly support SB 3; the 70K homestead exemption on ISD taxes provides people who are over 65 the benefit they did not receive; believe the CS is going to raise it to 100K, if passed would be retroactive for 2023

Dan Naith, Del Web Sweet Grass HOA- For

  • Community of over 1500 homes, 80% or residence are over 65
  • Likely the last homeowners will ever own, unfortunately not looking like it
  • Due to inflation and poor stock market results, homeowners are in crisis; $800 or $1000 is nice, but would prefer to stay in their home
  • Its great that a state would look at property tax and help the constituency in crisis, can’t thank you enough
  • Bettencourt – This is the fundamental crux of listening to this, hope that $1000 keeps seniors in their home for life, its exactly what the over 65 exemption is designed to do, so thank you

Adam Haynes, Conference of Urban Counties – For

  • Discussion on its not the rate, it’s the revenue
  • Will say the over 65 exemption is not languishing
  • Understand it will cost state to make school district whole
  • Allow counties to do same thing, give them a flat dollar homestead exemption

Jim Popp, Popp Hutchinson – For

  • Most major policy change in some time
  • Targeted tax relief provided, quality assessment that protects equal and uniform, etc – see this is good for his clients
  • Avoid appraisal caps which are a shift in tax burden not a reduction in tax burden

Ray Head, Texas Association of Property Tax Professionals – For

  • Homeowners will continue to see the relief
  • Believe compression is most equitable way to provide relief

Dick Lavine, Every Texan – Oppose

  • Not in favor of reducing taxes, want to have adequate funding for public services
  • Example public schools like using enrollment instead of ADA and anticipate needs into next biennium
  • But flat dollar exemptions in bills is type of exemptions they do favor
  • Equity collar between highest and lowest compression, Edgewood decision is about similar yield for similar effort
  • Now what we have is student funding is same adjusted for characteristics but drastically different tax rates to achieve same results so get tax havens which courts warned against
  • This will pull apart between fast growth and slow growth of school distircts, get different tax rates in different districts
  • Bettencourt – good to hear BPP and fixed homestead would be approved by them
  • Bettencourt – regarding the collar, believes collar is too low but when talking about loosening it will continue to discuss what it means so that we agree now some is excellent and will continue discussion on the rest

Glenn Hamer, Texas Association of Business – For

  • Very clear they are here on historic day and this is a thoughtful package
  • This is about job creation and tax relief
  • Love the proposal in SB 4 on tax compression which helps homeowners and businesses
  • SB 5 is also very important increasing both personal property tax exemption increase and inventory tax reduction and its about less to do to fill out paperwork
  • Bettencourt – loved comment about great support from chamberville, never had these types of resources to apply
    • Enthusiastic support across the board from chambers
    • Light regulatory environment and low taxation

Recess for Chamber

Public Testimony 

James LeBas, Texas Oil and Gas, Texas Manufacture and Texas Chemical Council– On

  • Have not reached closure with exemption provisions and come up with a position
  • Bettencourt – have a first time ever tried inventory tax credit that is a “Super homerun” that can’t be ignored and will be back on Monday, thinks there is a fantastic package by knocking out floor on MCR
  • Bettencourt – lets have a discussion and get everyone back here on Monday

Bill Peacock, Huffines Liberty Foundation– Oppose

  • Because they don’t put Texas on path to eliminate school M&O
  • Property taxes went up 12% and school property taxes went up 13%, don’t think bills will address
  • Within 4 years the total levy would be up by $10 billion
  • $11 billion is not enough, $16.5 billion is not the case, there is only $11 billion of new tax relief
  • Recommend five steps to eliminate M&O

Tim Hardin, Texans for Fiscal Responsibility – On

  • Current system ensures Texans will never truly own their homes
  • Commend efforts of providing relief, but bill shifts burden and renders relief moot
  • Increase homestead exemption to at least $100k

Christy Rome, Texas School Coalition – On

  • Support efforts to reduce recapture
  • SB 3 recognizes inflation that homeowners have experienced
  • Like a lot of things going on in bills but inflation has also been experienced by schools
  • Future impacts on classroom funding, bill does not increase overall funding to public education
  • Request to invest in property tax relief and public education
  • Bettencourt – homestead would have a good effect on recapture, compression
    • All bills have a positive effect on recapture
  • Bettencourt – what signal are you waiting for, you have seen Creighton’s bill, not missing much about putting funding into education
    • Appreciate greater share paid for by state but want to see a bigger bucket
    • Bettencourt – bigger bucket for retirees, property tax relief, public education and looks forward to them changing from on to for quickly

Josh Sanderson, – On

  • Concern about moving away from tax equity
  • With change in recapture there is a change those districts could see a reduction of funding
  • There are components with bouncing inside and out of recapture
  • Bettencourt – goes back to baseball analogy saying range is large, will double check that detail because that is not their intention and appreciate the discussion but believes it would be a de minimis value

JD Hale, Texas Association of Builders – For

  • Homestead tax exemptions increase to help homeowners
  • In favor of relief for homeowners

Rebecca Shanell, Dallas County Commissioner Court – For

  • Would also love to offer a flat homestead exemption on the county side

James Quintero, Texas Public Policy Foundation – For

  • Biggest tax cut in Texas history
  • Wants to see them increase amount to exceed lower chambers suggestions

John McCord, Executive Director of Texas Retailers Association – For

  • Support SB 5
  • Will focus on the inventory piece, supports
  • Bettencourt – thinks focusing on inventory relief is important, thinks this idea will have wide popularity
  • Bettencourt – asked for thoughts on inventory tax
    • Some retailers have large inventory in distribution centers, so not just products on shelves but way to shelves so this encourages building distribution centers
    • Quintero – property taxes were having effect on small businesses and entrepreneurs so there is a long way to go especially in urban centers
  • Bettencourt – thanks McCord and Quintero’s organization for their support

Rick Briscoe, self – For

  • People are being crushed in San Antonio
  • Taxes and school funding are same side of coin, keep hiring administrators over teachers and it is not helpful
  • Bettencourt – agrees all taxes end up for the most part being borne by the consumer

Jennifer Rabb, Texas Taxpayer and Research Association – For

  • Supports package as balanced approach to providing relief
  • Does not lead to distortions in tax base or large economy