(The Center Square) – The property tax relief package passed by the state Legislature is the second largest in Texas history, economist Vance Ginn, president of Austin-based Ginn Economic Consulting, says.
While at the Texas Public Policy Foundation, Ginn helped devise a plan to eliminate one of multiple property taxes homeowners pay: the school maintenance and operations (M&O) tax. Eliminating this tax over time was part of Gov. Greg Abbott’s call for the first and second special legislative sessions.
Ginn, who sat down with The Center Square to explain differing property tax relief approaches, was also integral to implementing federal tax reform efforts when he worked at the White House’s Office of Management and Budget under the Trump administration.
After the legislature passed an $18 billion property tax relief package Thursday, House Speaker Dade Phelan said it was “the largest cut in Texas history.” Lt. Gov. Dan Patrick said it was “the largest property tax relief package in Texas history, and likely the world.”
Abbott, when running for reelection for his third term, vowed to return half of the state’s record $33 billion surplus to taxpayers. On Wednesday, he said the package allocated “at least $13.5 billion from our historic budget surplus to provide substantial relief to property taxpayers across Texas.” With additional money from the budget, he said they were delivering “over $18 billion in property tax cuts.”
According to Ginn’s analysis, the package includes $12.7 billion in new relief and $5.3 billion from the earlier-approved state budget. Neither $13.5 billion nor $12.7 billion is half of the surplus, he points out.
The combined $18 billion in property tax cuts, Ginn also points out, isn’t the largest property tax cut in state history. That occurred under Gov. Rick Perry in the 2008-2009 legislative session when the legislature passed $14.2 billion in property tax relief, he said. In order to surpass that, adjusting for inflation, “for us to have the same purchasing power of those dollars back then it would need to be about $21 billion,” he said. “This isn’t the largest tax cut in history. It’s substantial, it’s historic, probably the second most ever.”
But more problematic, he says, is the Republican-led legislature spent more money than ever before.
“This session was the largest spending increase in Texas history of more than 20%,” he said. “If you look at all funds, and more than 30% if you look at state funds, the state’s portion is up by a massive 30%. More than $50 billion being spent; that’s more than ever before.
“If you spend too much, you can’t provide as much in tax relief. That’s just dollars coming from the taxpayers.”
The $33 billion surplus means the state over collected taxes, he added. “That should be returned to the taxpayer. And the best way to do that,” through property tax reduction, “is through compression.”
“The research that I’ve done on this in the past is that’s the only way you can get to zero. If we really want to eliminate property taxes, which is what Governor Greg Abbott said he wants to do, you can’t do it by raising the homestead exemption. You could raise the homestead exemption to $1 million, $2 million, $3 million but you’re always going to have property values that are above that. So that can’t get you to zero.”
“Appraisal caps don’t do that either,” he said, because they just slow growth, referring to the House plan, which was included in the bill. “Appraisal caps don’t reduce property taxes. The only way to get to $0 per a $100 valuation, meaning a 0% tax rate, is by compression, lowering property tax rates until they get to zero. If you want to talk about limiting the growth of property taxes or a small relief, then you can talk about appraisal caps or homestead exemptions. But if you want elimination, and actually reduce them over time, the only way, the gold standard, is compression.”
Ginn explained how compression works.
“Rght now, when people pay property taxes to the school districts, the districts are funded at a set amount. The amount [that taxpayers overpay] that goes over the set amount, known as recapture, spills over and goes to Austin. When we talk about compression, what we’re saying is we’re wanting to reduce the recapture amount by the state funding a reduction in school M&O property tax rates.
“You do this by using state dollars collected from taxpayers, mostly sales taxes, but also franchise taxes. The school districts still receive the same amount of money because state law requires them to be fully funded. The difference is how much [recapture money] goes to Austin or not.”
Compression going to zero would eliminate recapture altogether, he explains.
Recapture is one reason why “the school property tax is essentially a statewide property tax,” he said. While the M&O tax is “determined by the school finance formulas that are set by the Texas legislature, “It’s local in name only. That’s why the focus has been to eliminate it at the state level. Use record levels of sales taxes and surplus dollars to reduce, compress the school district property tax until it goes all the way to zero.”
