Even with property tax rates slashed, more work still needs to be done.
The Texas Legislature has enacted several key property tax reforms since 2019. Pursuant to House Bill 3 (86R, 2019) the state used surplus revenue to reduce, or “compress,” school district maintenance and operations (M&O) tax rates. In addition, HB 3, along with Senate Bill 2 (86R), lowered the percentage by which a taxing unit’s year-over-year tax revenue, subject to certain adjustments, may increase without the approval of local voters in an election (2.5 percent for school districts and 3.5 percent for most other taxing units). Furthermore, HB 3 implemented a mechanism by which school district M&O tax rates are automatically further compressed if local or statewide property values increase beyond 2.5 percent. In 2021 the Legislature adopted a resolution increasing the homestead exemption from school district taxes from $25,000 to $40,000 (approved by voters in 2022), followed by another increase to $100,000 in 2023. Additionally, a record budget surplus allowed the 88th Legislature to accelerate the compression of school district M&O tax rates (SB 2, 88S2).
The effects of these reforms are becoming increasingly evident as time passes. In 2018, only New Jersey and Illinois had higher effective property tax rates on single family homes than Texas (2.18 percent).1 In 2023, Texas had the twelfth-highest effective property tax rate as determined using the national median home value ($430,321). Notwithstanding the reforms described above, it is still possible for property tax revenue raised in the state to grow over time as property values increase and new properties are built. But due to the reforms above- particularly the compression of school district M&O tax rates in 2023 with surplus state revenue- preliminary data for 2023 indicates that school district tax revenue actually declined in absolute terms.
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