Prospects for tax relief coming out of this year’s legislative session moved from talk to — well, still just talk, no action, but a bit more specific talk and some ballpark numbers this week in Austin.
State Sen. Jane Nelson, R-Flower Mound, and Lt. Gov. Dan Patrick unveiled the initial $205 billion Senate budget for the 2016-17 fiscal years. Nelson chairs the Senate Finance Committee.
She said the starting budget dedicates $3 billion for “meaningful” property tax relief and $1 billion for reductions in the state’s primary business tax.
“That is relief that taxpayers will actually see and feel,” Nelson said. “Our economy has performed very well in Texas. We are taking in substantial revenue, and we have an obligation to return a large share of those dollars to the people who have worked hard and earned that in the first place.”
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The 140-day legislative session is in its early days. It continues until June 1, and lawmakers usually don’t finish wheeling and dealing on the budget until near the end.
The initial House version of the budget does not include a specific allocation for tax relief. House leaders say they’ll wait and see what proposals come from members.
Nelson and Patrick clearly have laid down their markers. The numbers are optimistic, and the two have glossed over the details, but they are not being coy about where they intend to go.
The business tax reduction probably will come as a combination of continuing current exemptions and other measures.
It’s important that relief for individuals is proposed to come through property tax changes. Other options had been mentioned previously, including temporary reductions in the sales tax.
Documents released by the Legislative Budget Board, whose staff works hand-in-hand with lawmakers in crafting the budget, reveal more about the plan.
The $3 billion in tax cuts will be delivered through reductions in school property taxes, although specific mechanisms have not been decided.
Nelson told reporters “we pretty safely can say we’re going to do some homestead exemptions.”
Currently, school districts must reduce the appraised value of a homestead by at least $15,000 before calculating property taxes. The Legislature could raise that amount in increments until it reaches the goal of $3 billion in tax relief.
The state would have to reimburse school districts for their loss.
One of the details that Nelson and Patrick glossed over is that the initial Senate budget does not change school funding formulas.
It does add $2.5 billion in state spending to account for enrollment growth of 83,000 to 85,000 students per year, and that’s good.
In 2011, the Legislature did not fully fund enrollment growth, putting more of a burden on local districts.
A state district judge in Austin has declared the Texas school funding formula unconstitutional. The Supreme Court has agreed to take up that case and is expected to hear oral arguments in the fall.
Under the current formula, state spending on schools goes down dollar-for-dollar as property values increase and local district property tax revenue goes up.
The LBB documents say state obligations to school districts are expected to go down by $4.5 billion in the next budget as local property tax revenues increase by that amount.
So even with $3 billion in tax relief, taxpayers will still be picking up more of the cost of running their local schools.
Patrick said he wants to take other steps to slow down the growth in property taxes.
Specifically, he mentioned “bringing down the value increases that are beyond the reach of many homeowners to keep up with.”
He’s talking about lowering the cap on property tax appraisal increases. That’s been a perennial idea among property tax opponents in the Legislature — and a perennially bad one.
There’s already a 10 percent limit on how much the tax appraisal on a home can go up year-over-year. That’s more than enough distortion in the way this system should work.
The fair way to do tax appraisals is to base them on market values. The tax burden itself can be determined from there through a system of exemptions and annual determination of tax rates by elected officials.
Patrick said lawmakers might decide to make it easier for voters to have input on their tax rates by lowering the “trigger” point at which local revenue increases would require approval in an election.
This budget is only “a starting point,” Nelson said. It’s a good starting point, but there’s much to do before it’s finished.