In 2023, the Texas Legislature passed a historic tax relief package to lower school taxes, primarily through tax rate compression and an increase in the homestead exemption. Together, these measures were supposed “to cut the average homeowner’s tax bill by roughly $1,300 per year,” thereby providing much-needed relief to those laboring under the twin ills of Bidenomics and inflation.
However, while tax bills went down initially, many Texans’ taxes have since rebounded and are just as big today as they were two years ago. The chief reason why is that opportunistic local governments took advantage of the moment to raise rates aggressively, pitch-and-pass huge bonds, pester voters with VATREs, and issue certificates of obligation for wishlist items. As a result of these local excesses, property taxes are back with a vengeance.
One way to observe this trend is to examine actual and projected school tax levies. Their quick return to the 2023 level is telling.
According to the Texas Education Agency’s image below, the Legislature’s tax relief efforts reduced Tier I M&O revenues from $29 billion in 2023 to $25 billion in 2024. Further, the total tax levy, comprised of Tier I M&O, Enrichment M&O, and debt service, decreased from a combined $42 billion in 2023 to $39 billion in 2024. All of this translated into lower tax bills immediately after the package was passed.
But any tax relief was to be short-lived. Looking further at the data, the agency anticipates that ISD tax levies will increase for 2025, so much so that we, as a state will be right back where we started in 2023 (i.e. $42 billion tax levy). In the few short years thereafter, it’s expected that the school tax levy will continue to rise, growing from $45 billion in 2026 to $48 billion in 2027 and then to $51 billion in 2028. This incline is the result of spending pressures mounting in both the M&O and I&S camp.
This latest data is a reminder that tax relief isn’t enough. The Legislature must also give more consideration to tax reform. Right now, it’s far too easy for spendthrift local governments to erode any relief provided by the Legislature. It’s gotten to the point that tax relief almost resembles an indirect subsidy, enabling the tax-and-spend crowd to grow government without consequence.
That’s why state lawmakers should place a premium on tax reform this session. We must do more to guard any gains won on behalf of taxpayers, especially with economic uncertainty high and the cost-of-living up.
What does that mean exactly? Well, TPPF has a few ideas. Thirty-five, to be exact.