Texas Legislature Reaches Property Tax Deal With Some Relief For CRE

Texas legislative leaders announced that the two chambers struck a deal on property tax relief Monday following two sessions of deadlock.

The package agreed to by the state House and Senate on Monday will compress school property tax rates for all homeowners and business properties, according to a joint statement from Lt. Gov. Dan Patrick and Speaker Dade Phelan. The state will spend more than $12B to make up the difference, and funds have already been appropriated from Texas’ budget surplus for the purpose. 

The reduction of the school tax rate will be significant, Tony Trahan, a property tax consultant with KE Andrews, told Bisnow. Decreases in the rate are expected to be staggered over a number of years rather than a one-time deal.

“From what I’ve seen, they’re going to have about a 0.25% rate reduction, which is big,” Trahan said. “If it's a $10M property, that's going to save roughly $25K in taxes.”

Also under the plan, residential properties valued at $5M and under that don't receive homestead tax exemption will receive a “20% circuit-breaker on appraised value increases as a 3-year pilot project,” according to a news release from Sen. Paul Bettencourt, a Republican from Houston who is a primary author of Senate Bill 2, which was filed Monday.  

Tax experts said it is unclear what circuit breaker means in this context. Typically, circuit breakers account for people’s ability to pay and reduce taxes above a certain percentage of a person’s income, Dick Lavine, the senior fiscal analyst for public policy nonprofit Every Texan, told the Houston Chronicle.

It could mean that the program will cap annual property appraisal increases at 20% for unchanged properties worth $5M or less, Trahan said. KE Andrews has put in requests with officials for further clarification, he said. 

The circuit breaker will have to be voted on by the public for approval, according to the statement from Bettencourt. 

There is a 10% cap on annual residential appraisal increases. Phelan had pushed to lower that to as little as 2% and extend the benefit to business owners. 

The plan includes an increase of the homestead tax exemption to $100K, something Patrick demanded. That positions homeowners who live in their residences as beneficiaries, though that will also have to be approved by voters. 

“The Senate was really stuck on having that homestead exemption increase there, and that is the biggest driver of what is going to help residential folks,” Trahan said. “Going from $40K to $100K is significant.” 

The plan combines a little bit of all of the proposals the Senate, Gov. Greg Abbott and the House have been advocating since the beginning of the regular session in January.

“I look forward to this legislation reaching my desk, so I can sign into law the largest property tax cut in Texas history,” Abbott said on Twitter.

Abbott sided largely with Phelan, who works as a real estate developer, on breaks that would benefit commercial property owners. It is hard to say who will benefit more from this tax plan, Trahan said.

“During this, they thought of everyone, which is positive,” he said. “They thought of homeowners, they thought of commercial real estate owners, and they’ve got something in there for small-business owners as well. I think they’ve checked a lot of boxes.” 

The package will also include “savings on the franchise tax for small businesses and create newly elected positions on local appraisal boards,” according to the statement from Patrick and Phelan.

Lawmakers plan to pass the package later this week.