Senate passes property tax bill state leaders love, local officials oppose

The Texas Senate on Tuesday approved a controversial bill that seeks to curb the growth in property taxes that local government agencies like cities and counties levy on landowners.

Senate Bill 2, which passed in an 18-12 vote, could require taxing entities to hold an election if the amount of operating and maintenance funds they plan to collect from property taxes is, in general, 5 percent more than what they took in the previous year.

State Sen. Paul Bettencourt’s bill has split scores of Texas homeowners and the local officials that they elect. Landowners and some government officials say the bill is needed to slow the increase in property tax bills they must pay every year.

Bettencourt, R-Houston, said from the Senate floor Tuesday that many homeowners are seeing increases of 8 percent to 10 percent in what they pay in property taxes each year. He said commercial property owners are repeatedly seeing 15 percent to 20 percent hikes.

“I for one don’t want to continue to climb the ladder above states like Illinois and New York,” Bettencourt said.

But many local and state officials say the Legislature is sidestepping the real issue that leads to rising tax bills: school districts levying more in property taxes because lawmakers won’t change the state’s system for funding education. State Sen. Lois Kolkhorst, R-Brenham, conceded that point on Tuesday.

“It’s a fine balance between respecting our local elected officials and having an understanding that we still have a lot of work to do,” she said.

Critics of the bill say it glosses over the fact that an election could be triggered when the actual tax rate remains flat because rising property values play a major role in calculating the election trigger. Many local officials also say the bill would threaten their ability to hire police officers, build new parks and fill potholes.

Many police and fire chiefs from across the state testified against the bill last week.

“What do I tell them?,” State Sen. Carlos Uresti, D-San Antonio, said Tuesday morning.

Because Texas has no state income tax, it relies heavily on sales and property taxes. The state and local entities split sales taxes. But only local entities receive property taxes. It’s unconstitutional for the state to levy property taxes, and state lawmakers don’t have the power to set those rates.

The current and proposed thresholds that could allow a rollback election aren't based entirely on the actual tax rate, which is the amount per $100 of property value that a government entity levies against landowners. Instead, the formulas focus on how much total tax revenue a local entity receives from properties from one year to the next. So a city or county could hit the threshold for an election without changing its tax rate if there was a significant increase in local property values.

Currently, an 8 percent property tax increase or higher allows voters in a city or county to gather signatures to call for an election on the new rate. Bettencourt’s bill would lower that threshold to 5 percent and would require an automatic election.

State Rep. Dennis Bonnen, R-Angleton, has filed companion legislation, Texas House Bill 15, in the lower chamber. No hearing on that bill has been set. That bill has a lower rollback election threshold of 4 percent. That was the same threshold in Bettencourt’s original version of SB 2, but he increased it to 5 percent amid pushback during a Senate committee hearing last week.

Bill proponents say that the automatic election would allow for more local control because it puts more power in the hands of voters. Critics say voters can already oust elected officials for passing local budgets and tax rates they don’t like.

“Do you hold a referendum every time you make a big decision in your role as senator?” State Sen. Eddie Lucio Jr., D-Brownsville, asked Bettencourt on Tuesday. 

State Sen. Kel Seliger, R-Amarillo, sought three amendments to the bill. All three were shot down 17-13 by the Senate. One of those amendments would have allowed residents to petition for a rollback election at the 5 percent threshold and only would have required an automatic election if a government entity hit the 8 percent threshold. 

Lucio said that even though lawmakers can't set property tax rates, they can "indirectly" influence them through unfunded mandates, which are constraints or requirements that they pass down to lower levels of government that don't come with additional funding from the state. 

Bettencourt said he's often requested to see a budget that breaks down how much local governments spend on unfunded mandates from the state, but no one has ever produced one.

"I'm a big believer in what gets measured gets fixed," Bettencourt said. 

Lucio suggested an amendment that would have raised the election threshold to 8 percent during any biennium in which state lawmakers pass any unfunded mandates.

"This amendment will encourage us to take responsibility for our government spending," Lucio said.

He withdrew the amendment after Bettencourt said he would not entertain it. 

Read more of our related coverage:

• Local governments and school districts battling the Texas Legislature over property taxes have a couple of things in common: They want local control over taxes and a more reliable partner in the state government.
• Most Texans don't know the state faces a tight budget, but asked what they'd do in a pinch, many of them say they'd dip into the state's savings account, according to the latest University of Texas/Texas Tribune Poll.