Proposition 4 Passes, Property Tax Relief Coming

After months of heated debate and negotiations, not to mention two special sessions called by Governor Greg Abbott, both houses finally agreed on a $12.7 billion property tax relief package known as Proposition 4, the largest such package in Texas’ history. The Governor signed off on that package on August 9th, officially sending it to voters for passage. Yesterday, Texas voters overwhelmingly passed Proposition 4 giving Texas property owners and businesses alike much needed property tax relief.

What’s in Proposition 4?

The proposition directly targets the reduction of school district property taxes, which constitute the majority of a Texas landowner’s property tax bill. It allocates $7.1 billion to school districts, allowing them to decrease their tax rates through a mechanism legislators refer to as “compression.” This initiative will slash the tax rates that school districts apply to cover operational expenses such as teacher salaries by 10.7 cents per $100 of property value.

Proposition 4 actively increases the homeowners’ homestead exemption on school district taxes more than twofold. This change escalates the portion of a home’s value that remains untaxed when funding public schools. The constitutional amendment raises the exemption from $40,000 to $100,000. For seniors, the exemption increases to $110,000. To translate that into plain English, it removes $100,000 from a home’s value for taxing purposes. In other words, a $400,000 home will be taxed as if it’s worth $300,000.

Together, those changes – which will be applied to 2023 property tax bills – will amount to more than $1,000 in tax savings in year one. In Katy ISD, on a $400,000 home, these changes will equate to roughly $1,208 in savings in 2023, or approximately $100 per month.

Non-homestead changes

Owners of commercial, mineral and residential properties, such as rental homes and apartment buildings, will also benefit. Non-homestead properties in Texas do not benefit from homestead exemptions or the 10% cap on valuation increases that homeowners have come to depend on, especially the last few years. Proposition 4 changes that now, providing a 20% appraisal cap for non-homestead properties valued at less than $5 million. This cap however is temporary… expiring in 2026 unless lawmakers and voters choose to keep it in place. All of these changes aim to shield Texas property owners from the risk of being priced out of their properties.

Proposition 4 includes a few more changes that aren’t getting near the airplay as the breaks outlined above. This package actively channels $5.3 billion to finance tax cuts that lawmakers greenlit in past sessions. It broadens the spectrum of businesses exempt from the state’s franchise tax and implements a new rule permitting counties with a population of 75,000 or more to elect three new members to their local appraisal district’s board of directors, transitioning these historically appointed roles into elected positions.

Tax Reform was a Priority

Despite Texas’ reputation as a low-tax state, thanks largely to its lack of a state income tax, property owners here pay some of the highest property tax bills in the nation. It’s great for attracting business to the State, not so much for private property owners. Property tax reform and fundamental changes to the state’s school funding model have been a top priority for the state’s highest-ranking Republicans.

It took two special sessions to get Proposition 4 to the finish line, and Governor Abbott has since summoned lawmakers back to Austin for a 3rd AND 4th special session to address his vision for school vouchers, allowing parents to use taxpayer dollars to pay for private or religious schools.

The State of Texas is sitting on a $33 billion state budget surplus as a combined result of massive economic growth and a deluge of federal COVID-19 relief funding. This gave state Republicans the opportunity to swing for the fences on property tax reform, a subject that has plagued and angered Texas property owners for years.