Over the past week, Lt. Gov. Dan Patrick and House Speaker Dade Phelan began to meet in earnest to hammer out a compromise between longstanding differences between the chambers on how to approach tax reform and using part of a $33 billion surplus to “buy down” property taxes owed by Texans.

This morning a joint statement was issued as three tax reform House bills were referred to the House Ways and Means committee for approval: House Bill 2, House Bill 3, and a related ballot proposition for this fall House Joint Resolution 2.

The Texas Legislature is in its second special session this summer after the regular session gaveled out in May, with Gov. Greg Abbott eager to pass the “biggest property tax cut in Texas history” and dissatisfied on the legislature’s failure to pass a school choice bill, among other reforms. The Governor called for “legislation to cut property-tax rates solely by reducing the school district maximum compressed tax rate in order to provide lasting property-tax relief for Texas taxpayers” and “legislation to put Texas on a pathway to eliminating school district
maintenance and operations property taxes” during this special month-long session. Stronger appraisal growth caps, it seems, have disappeared from the agenda. A third special session is anticipated for this fall.

We include the joint press release below. The House Ways and Means committee is expected to meet after noon on Tuesday to discuss some details.

Wins for Abbott: Originally, the House plan was calling for reducing appraised value increases per year from 10% to 2%. This element appears to have been squashed. Abbott, who took a relatively hands-off approach to the inter-chamber squabbles over tax relief, jumped into the fray in June, seemingly not a fan of expanding appraisal caps. Abbott said he looks forward to signing the bill as presented.

Wins for the House: The House, also skeptical of appraisal caps, long favored the compression or “buy down” of taxes, having approved legislation in the regular session that would have resulted in around $18 billion in spending for that purpose. It appears the final sum is around $12 billion — a far cry from using half of the surplus called for by Abbott.

Wins for the Senate: Sen. Paul Bettencourt cheered the expansion of the Texas Homestead Exemption to $100,000 of a property’s value, as well as $7 billion of compression of school district maintenance and operation taxes. He called today’s agreement “eye-popping” that would give most if not all taxpayers significant relief.

Some other noteworthy features of the property tax reform proposal:

-A “circuit breaker” pilot program of three years, which would cut non-homesteads appraised for $5 million or less by 20%.

-School districts will be allotted $642 million so that they are “held harmless” by these reforms. In other words, they won’t be suffering because off any tax revenue drops due to greater homestead exemptions.

-Election of three county residents to a County Appraisal District (CAD) board of directors, so long as the county has at least 75,000 people. This is scheduled to go into effect next year with smaller counties starting in 2025.

-Franchise exemption that would include an estimated 67,000 Texas businesses. Translation: 67,000 businesses may not have to pay a business tax next year, according to Bettencourt.

-Elimination of the “nuisance tax” — the requirement that those who are not on the hook for paying a business franchise tax must file a no-taxes-due form. This will affect an estimated 1.7 million business owners, Bettenourt said.

How the average homeowner benefits: $1,266.30 or 38.3% in the first year, according to Bettencourt.

🚨TAXPAYERS WIN! I filed the largest property tax cut bill in Texas history! All residential and commercial real property taxpayers WIN! All 5.72 million homestead owners WIN with an eye-popping average 41.5% savings of $1373 year-after-year! This is a RECORD property tax cut… pic.twitter.com/pKolTxf0qU

— Team Bettencourt (@TeamBettencourt) July 10, 2023

Others aren’t so sure the reforms will amount to much in the way of actual relief.

https://twitter.com/VanceGinn/status/1678601241549586432

The new property tax “deal” between Patrick and Phelan is an embarrassment and disaster. It will do more to turn us into New Jersey than any other policy #txlege could have dreamed up.

Government should never pick winners and losers. That is what the socialists do. They divide… https://t.co/TugoUckAUv

— Don Huffines (@DonHuffines) July 10, 2023

Texas Democrats took Thursday to propose spending $20 million of the surplus on tax relief and devoting some of that to a tax rebate for renters. According to the Austin American-Statesman, to receive the rebate, landlords would provide a “certificate of rent paid” to renters, who in turn would submit the notice to the comptroller’s office and apply for the 10% rebate. Neither of their proposals appear in this compromise.

Press Release from this morning (July 10):

AUSTIN – Texas Lieutenant Governor Dan Patrick and Speaker Dade Phelan today issued a joint statement to announce an agreement on proposed legislation that will deliver the biggest property tax cut in Texas history. Both leaders met last week in Austin and, along with members of the House and Senate, have continued working day and night to reach a consensus. The deal represents a significant win for providing relief to Texas property owners and reflects the commitment of Texas leaders to address the concerns of taxpayers and provide significant relief from the burden of escalating property taxes.

Highlights of the $18 billion tax cut legislation include:

• Over $12 billion will be spent on reducing the school property tax rate for all homeowners and business properties.
• Every homeowner who homesteads their home (approximately 5.7 million homeowners) will get a $100,000 homestead exemption.
• Non-homesteaded properties, valued at $5 million and under, including residential and commercial properties, will receive a 20% circuit breaker on appraised values as a 3-year pilot project.
• Legislation will also include savings on the franchise tax for small businesses and create newly elected positions on local appraisal boards

“Reducing property taxes, providing relief to small business owners, and reforming our appraisal system will ensure economic growth and prosperity, and this agreement is a significant victory for all Texans,” said Speaker Dade Phelan. “I appreciate Rep. Morgan Meyer, Rep. Will Metcalf and all the dedicated members of the House who worked tirelessly behind the scenes to help us reach a consensus, and the Texas House will soon do its part to deliver historic property tax relief. Negotiations with the Lieutenant Governor have been extremely productive, and by coming together and finding common ground, the House and Senate are one step closer to providing much-needed, much-deserved relief. I look forward to the passage of this package in the coming days and delivering on our commitment to the people of Texas.”

“I started working to reduce property taxes at a Capitol hearing in 2003, 4 years before I was elected to the Texas Senate. It has been a long road, but this is a great day for all property owners. Speaker Phelan and I worked diligently together over the last week on the final bill. It made the difference. It may have taken overtime, but the process has produced a great bill for homeowners and businesses,” said Lt. Gov. Patrick. “I thank all 31 Senators for working together and being patient through this process. I especially thank Sen. Paul Bettencourt, who was with me on that first bus trip to Austin 20 years ago, for his tireless work on this issue.”

Both the omnibus property tax relief bill and the franchise tax relief bill will originate in the Texas Senate and the constitutional amendment will be introduced as a House Joint Resolution (HJR). The Senate and House will file legislation today with the goal of passing the bills later this week.

UPDATES: 11:59 p.m.