How Texas school funding could change if property taxes disappear

May 10-With deadlines quickly approaching for Texans to protest their property value appraisals, school districts are starting to forecast how changing values will affect their budgets.

Texas schools are funded by two main pots of money. The state determines how much funding it takes to educate each district's students, accounting for special student needs like dyslexia services or career and technical education courses.

Each year, school districts levy a local property tax to raise money to pay for their budgets. Some districts with higher property values are able to fund their entire budget out of this local tax revenue. But districts with lower property tax values may still need more support to fill their coffers. That's where the state comes in - kicking in funding to make districts whole.

In recent years, lawmakers have required school districts to lower their property tax rates, which has increased the state's portion of public education funding. The two funding sources operate like a see-saw, with one side rising when the other side dips.

But Gov. Greg Abbott and other conservative lawmakers are now touting a proposal to eliminate school property taxes for Texas homeowners with a homestead exemption. School taxes typically account for more than half of an average homeowner's annual tax bill, even if they have no children in the household.

Will a decline in local property values hurt local school districts?

According to preliminary projections from the Bexar Central Appraisal District, local taxable property values will rise by $1.8 billion this year, or 0.7%, compared with 14.3% in 2023, 7.7% in 2024 and 5.1% in 2025. School districts aren't the only governmental entities that rely on local property taxes to fund their budgets. Bexar County officials are bracing for budget cuts, and the city is considering its first property tax rate hike in 33 years.

Last year, the Legislature budgeted $51 billion to pay for tax cuts for homeowners and businesses, including an increase in the standard homestead exemption from $100,000 to $140,000 and breaks for seniors and disabled homeowners. The money helped replace revenue that school districts would lose out on with a decrease in their property tax rolls.

It appears that the decline in local values will not hurt school districts in the short term. But some policy experts say the state won't be able to continue doling out tens of billions of dollars in the future for property tax relief, unless it finds new sources of revenue.

Could school taxes be abolished?

Abbott has proposed eliminating school property taxes for homeowners and using state budget surplus funds to support public schools. Texas voters would have to approve the change through a state constitutional amendment.

The state projected the local share of public education funding would be $31.4 billion in 2026 and $31.8 billion in 2027. Those estimates include some tax revenue that wouldn't necessarily be eliminated under Abbott's proposal - but opponents argue slashing property taxes would still mean the state would have to take on billions more in education funding.

Critics have warned the state, which has no income tax and is reluctant to increase its sales tax, could run out of surplus funds in an economic slowdown. Plus, they say property tax relief doesn't help renters who make up nearly 40% of the state's population.

Texas Policy Research, a nonpartisan nonprofit organization headquartered in North Texas, has advocated that Texas school districts use state general revenue, rather than property taxes, to fund day-to-day school maintenance and operations. Districts use a "maintenance and operation," or M&O, property tax to fund this part of their budget.

"With fiscal discipline, controlled spending, and responsible budgeting, the state could phase out the school (maintenance and operation) tax entirely. Reducing or eliminating this tax would provide meaningful, broad-based property tax relief, unlike targeted exemptions that shift the burden onto those who do not qualify," the group said in an online explainer.

But in a recent article, the Urban-Brookings Tax Policy Center, a Washington, D.C.-based think tank, recommended Texas use targeted tax credits for low-income homeowners as a fair method of school funding. Fully exempting homesteads "may be manageable while Texas is running large surpluses, but it could backfire quickly if revenues slow and the state reduces transfers," the center said.

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