In Texas, property taxes keep local governments like cities, counties and school districts operating and pay for everything from police officers’ salaries to city street repairs and classroom textbooks.
But in recent years, Texans have complained about rapidly rising property tax bills, and state lawmakers have vowed to slow such increases — even though state officials don’t set local tax rates.
Because school district taxes make up about half of tax bills, lawmakers have vowed to pour money into public education after years of allowing skyrocketing local revenue to decrease the state's share of school funding.
Legislators are also eyeing major changes to how local governments other than school districts set their tax rates.
Senate Bill 2 and House Bill 2 — both dubbed the Texas Property Tax Reform and Relief Act of 2019 — won’t provide across-the-board cuts to property tax bills. Instead, the bills would limit the amount of revenue that local governments like cities, counties and special districts can collect without voter approval.
When local governments set their tax rates for the year, they do some basic math and look at how much money they collected the previous year and whether the same properties they're taxing saw any changes to their appraised values.
To help readers understand how that math works, the example below shows how a hypothetical city calculates the tax rate that determines how much its residents will pay in property taxes.
Last year's revenue
In a hypothetical example, the local appraisal district determined that the total taxable value of all properties in the city was $250 billion last year. With a tax rate of $1 per $100 of value, the city would have brought in $2.5 billion in property tax revenues.
Leaving the tax rate flat
Not counting new developments or annexed properties, let’s assume that those same properties are now valued at $260 billion. If the city leaves its tax rate the same, it would bring in $2.6 billion — a $100 million increase in revenues.
This year's effective rate
But let’s say that the appraised values increased, and the city decides to lower its tax rate so it brings in the same amount of revenues as last year. That rate is called the effective rate. So to bring in $2.5 billion again on properties now valued at $260 billion, the city could lower its tax rate to 96 cents per $100 of value. But if your property’s value also increased, that drop in the tax rate may not equal a drop in property taxes.
Current state law allows cities, counties and other taxing districts to increase their revenues on existing properties by just under 8 percent before voters can overrule them. The rate that triggers an election (if enough voters petition for one) is called the rollback rate. In our hypothetical, that means the city could collect just under $2.7 billion before voters can weigh in. That would set the tax rate at just under $1.04 per $100 in value – a 4-cent increase in the tax rate.
Proposed rollback rate
State lawmakers want to lower the threshold that triggers rollback elections. Current legislation would allow cities, counties and special districts to increase their revenues by just under 2.5 percent — above that level, an election would be automatic. So in our example, the city could collect just under $2.56 billion before voters weigh in. That would lower the tax rate to just under 99 cents per $100 of value, but would still allow the city to collect an extra $60 million.
New properties also taxed
Because rollback rates only apply to existing property, the tax revenues from new developments or annexed land don’t trigger rollback elections. So in addition to increased revenues on existing properties, local governments also see their revenues increase from taxes on new properties. The same tax rate the government adopts for existing properties also applies to new ones.