The Latest on Property Taxes and School Funding

With resources limited, the focus should be on educational needs, not tax cuts

The Texas House Ways and Means Committee, which controls bills related to the state’s revenue system, is collecting input, in written form, from the public and other interested parties on its interim charges. Today we draw attention to Charge 2, which is directly tied to the recent passage of House Bill 3, the far-reaching school finance law passed in 2019.

Charge 2: Study and consider possible methods of providing property tax relief, including potential sources of revenue that may be used to reduce or eliminate school district maintenance and operations property tax rates.

Of the $11.6 billion in the new school finance law, $5 billion was directed toward reducing maintenance and operation (M&O) property tax rates. This occurred in two primary ways:

  1. Across the state, all school districts were required to reduce Tier I M&O tax rates to $0.93 per $100 of property value from $1.00 per $100 of property value in fiscal year 2020. Beginning in fiscal year 2021, tax rates for all school districts will be reduced annually if statewide property values grow faster than 2.5% per year. As a result, the State Compression Rate, or Tier I M&O tax rate, is currently set at $0.9164 per $100 of property value.
  2. Beginning in 2021, individual districts where property values grow faster than 2.5% are required to reduce the Tier I M&O tax rate to stay under the growth threshold, although no individual district can lower its tax rate to more than $0.10 below that of the highest taxing school district.

The M&O property tax rate will continue be reduced each year in the future at both the statewide and individual school district level – ultimately creating a glide path toward elimination of the M&O tax and the need for new state revenue to fund our schools. HB 3 made a future commitment to property tax reduction at a huge cost to the state, yet no similar promises were made to the students of Texas, such as future adjustments for inflation to maintain the purchasing power of our schools.

The second provision is most troubling because it requires the state to subsidize low tax rates for school districts seeing the greatest growth in property wealth per student. This means the state will be using its limited resources to keep tax rates low in high wealth districts rather than on addressing the biggest area of educational needs such as bilingual education, math and science teachers, counselors, and vital trainings. It also completely rejects the principle, upheld through multiple lawsuits, that school districts must receive similar levels of revenue at similar tax rates. Going forward districts will receive similar revenue at varying tax rates.

The Legislature was working under the then-current assumption of a robust economy for at least the next two years when they passed HB 3. However, even then there was no plan on how to replace the revenue lost to continual property tax cuts going forward, let alone find the revenue needed for further education investments, such as fully funding the newly required full-day Pre-k requirements, increasing the funding weights for all English Language Learners, or addressing the woefully outdated special education funding system.

Currently, the Legislature anticipates returning to a $4.6 billion revenue shortfall in this current budget cycle and an unknown situation for the next two-year cycle. In order to protect funding intended for student learning, the Legislature should abandon the problematic individual school district tax rate compression and freeze the Tier I M&O property tax rate for all districts at the current level.

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