Texas Legislature Gaveled Out. A Number Of Real Estate-Related Bills Sit On The Governor's Desk

Property tax reform, school finance reform and to-go beer sales are among the bills atop the desk of Texas Gov. Greg Abbot waiting to be signed into law. Abbot has until June 16 to veto legislation passed by the House and Senate. 

Texas lawmakers had a busy session, which ended Monday, negotiating and killing bills tied to the commercial real estate industry. Here is what made it through: 

Property Tax Reform 

The long-sought property tax reform made it out this session.

The legislation seeks to slow down the rapid rise of property taxes. Introduced as Senate Bill 2, the bill requires local governments to hold a mandatory election if property tax values rise above 3.5% year over year; previously the rollback tax rate was 8%.

Sen. Paul Bettencourt (R-Houston), who has been advocating for property tax reform since he was elected in 2015, said this is a once-in-a-generation change. The state has taken nearly 40 years to adjust the rollback tax rate.

"This is good news for the commercial real estate industry as substantial tax relief is coming their way," Bettencourt told Bisnow. "The property tax rate increases are going to finally start slowing down. We are not just tapping on the brakes but jamming them."

Houston Building Owners and Managers Association, an industry organization that has pushed for property tax reform since 2014, also expressed gratitude to see this bill to the finish line.  

"We believe the passage of SB2 is a victory for all Texans," Houston BOMA CEO and Executive Vice President Tammy Betancourt said in an email. "Uncertain taxing environments act as a disruptor for new businesses looking to call Texas home. SB2 goes a long way to create a more transparent, efficient and effective property tax system across the state which will benefit every taxpayer and will serve to create a predictable tax environment for Texas businesses."   

Commercial property values across all property types in Houston have risen by nearly 40% over a five-year period ending in 2017, according to Houston BOMA. Property values increased from $24.4B in 2013 to $33.8B in 2017. 

While many real estate experts note the benefit for property owners, many local tax agencies are against the action. They say the bill will cut local municipalities' budget by millions of dollars and limit their ability to provide adequate funding for public safety, schools and roads.  

School Finance Reform 

School finance reform was also a big-ticket item this session. And again, the lawmakers came out with a deal.

Introduced as House Bill 3, the bill will include funding for full-day pre-K and an increase in the base funding per student, which hasn't changed in four years, according to Houston Public Media.  

The bill also imposes a 7-cent reduction in the property tax rate for school districts in 2020 and then a rollback rate of 2.5% year over year starting in 2021, according to Bettencourt. 

"This one-two punch will be helpful to commercial real estate in the future," he said. 

Property tax and school finance reform bills are expected to be signed into law by Abbot, who has publicly supported both.   

Beer To-Go Passes Senate

The Texas Senate approved a measure to allow breweries to sell beer to-go from their taprooms — joining all the other states, which already allow such action. 

The to-go bill measure was added to a bill allowing the Texas Alcoholic Beverage Commission to continue operating, the Texas Tribune reported. Lawmakers also approved a measure that allows individuals to hold up to 250 liquor store permits; previously most individuals were allowed to own up to five.    

Sen. Dawn Buckingham (R-Lakeway) said the to-go beer amendment was added to foster job creation, economic development, entrepreneurship and tourism, according to the Texas Tribune.

Brewery owners, along with advocacy groups on both sides, have battled to-go beer regulations for about 15 years, Bisnow previously reported.

Supporters argued that to-go sales increase production volume, bringing more to the bottom line and enhancing brand loyalty and marketing as customers can buy beer to take home and share with friends and family. The opposition worried about the financial drawback for Texas beer distributors.  

Since 2013, the number of craft breweries multiplied by four in Houston, according to NAI Partners. There are 50 active craft brewpubs with five more underway with TABC licenses and 14 active craft breweries with three more in progress, according to the Houston Beer Guide. Generally, breweries have larger production volume. In Texas, only brewpubs have been allowed to sell beer to-go.

Property owners like brewpubs because they bring an experiential retail concept to a neighborhood, NAI Partners Vice President Larry Koestler told Bisnow previously. This environment is further enhanced by being dog- and family-friendly, extending daytime hours, offering board games and other activities and hosting trivia nights and events.

However, the Senate didn't restore a measure that would have allowed retailers like grocery stores and restaurants to begin selling beer and wine at 10 a.m. instead of noon on Sundays, per the Texas Tribune.   

Other Hot Bills

• Texas plans to spend $1.7B from the state's rainy day fund to help pay for flood control projects and repairs across the state, according to the Texas Tribune. The negotiated bill provides less than the $3B initially introduced in Senate Bill 7. 
• The sales tax swap, which would have raised the sales tax by 1 cent, was unsuccessful.