The Texas House gave preliminary approval to a priority property tax reform package this week, teeing it up for negotiations with the Senate after impelling the upper chamber to act on an omnibus school finance measure.

Together, the education and tax overhaul bills have been the top policy issues of the 2019 legislative session, and they are ultimately expected to be ironed out behind the scenes — and perhaps simultaneously.

Tuesday’s vote marked a small milestone for House leadership, which has muscled its must-pass budget, public education and tax reform bills to passage, all before the last month of session begins. But the House and Senate will next need to reconcile notable differences among the three measures.

“We have done our job in the House — and we have sent everything over to the Senate,” said state Rep. Dan Huberty, R-Houston, author of the school finance bill.

Senate Bill 2 was approved on a 107-40 margin after a half-dozen hours of debate. More than 20 Democratic lawmakers broke party ranks to support the measure, which has garnered adamant opposition from city and county officials since its introduction.

A top imperative for state leaders, SB 2 offers wholesale reforms to the property tax system and limits the ability of cities, counties and other taxing units to raise property tax revenue. As passed, it forces cities, counties and emergency service districts to hold an election to approve raising 3.5% more property tax revenue than the previous year. Hospitals and community colleges have an 8% election trigger in the version passed by the House.

“Texas taxpayers are frustrated by rising property taxes. They’re often confused by the process, and many are scared of losing their homes,” said state Rep. Dustin Burrows, the bill’s author and chair of the tax-writing Ways and Means Committee. While the bill makes the tax process more transparent, “it does not lower anyone’s property taxes.”

“It was never designed to do that, and I’ve never promised anyone that it did,” said Burrows, a Lubbock Republican.

The full Senate is expected to vote Friday on its comprehensive school finance reform legislation, which aims to increase the base funding for each Texas student, increase teacher pay, provide money for full-day pre-K for low-income students, and allow for long-term property tax relief.

The Senate Education Committee fast-tracked a vote Wednesday, a day after House lawmakers voted through their property tax reform bill, which was made contingent on school finance reform also passing this session.

Local officials said the revenue caps would impede budgeting and could hurt funding for local police and fire departments. Waco Mayor Kyle Deaver said the 3.5% cap would be only a slight improvement over the initially proposed 2.5% cap.

Local reaction

“It’s still an arbitrary cap that our budget and finance staff calculated would have cost us $2.5 million in revenue last year,” Deaver said. “That would impact our ability to address infrastructure and streets, and it doesn’t provide municipal tax relief to our citizens.”

Deaver said he agrees both school financing and property taxes require reform, but feels this is an “inappropriate” way to go about it.

“We have hearings on our tax rate every year, and as long as I’ve been mayor we’ve never had a single citizen come about this,” Deaver said.

McLennan County Judge Scott Felton said the legislation is “short-sighted,” and is hampering the county’s budgeting process.

“Our departments are putting together their budgets, but until this is resolved, we can’t promise anything beyond what we’re already promising,” Felton said, referring to county commissioners’ budget deliberations.

Despite the increasing costs of providing services, the county has cut its property tax four times in the past five years, primarily because of higher property values, he said.

He wants the county to maintain a strong cash position and a strong bonding position, something the cap may threaten, Felton said.

“Which is why my blood pressure up,” he said. “We can’t do any number-crunching until we get this resolved. I’m glad we’re fixing school finance, as it is a tremendous burden on taxpayers. But I believe there will be consequences for cities and counties the Legislature is not expecting.”

Different versions

There are few differences between the House’s version of the property tax package and the bill passed by the Senate earlier this month. Perhaps the most significant point is that the House offers community colleges and hospitals an 8% election trigger, while the Senate has reduced it to 3.5%.

In addition, the Senate had required voters in small taxing units — those that bring in less than $15 million combined sales and property tax revenue — to opt in to some of the bill’s provisions. The House’s revision eliminated that definition and inserted a new allowance to let all taxing units increase their property tax levy by $500,000 without triggering an election.

The Senate also permitted the costs of providing indigent defense services to be factored into the revenue growth calculation. The House removed that language but included a similar clause that protects cities and counties from being penalized if they offer homestead exemptions to their residents.

Finally, the lower chamber’s version includes a provision that lets taxing units bank unused revenue growth for five years, allowing them to surpass the 3.5% trigger in some of them.

Currently, cities, counties and other taxing units can raise 8% more property tax revenue before their voters can petition for an election to roll back the increase. SB 2 would make those elections automatic and put in place a battery of reforms designed to increase transparency and utility for taxpayers.

State leaders had said property tax reform is necessary to protect Texans whose property tax bills are growing faster than their incomes. Gov. Greg Abbott has said on Twitter that “skyrocketing property taxes must be fixed” and that a previous increase to the homestead exemption was quickly “eroded by rising appraisals and rates.

But Democrats and ultraconservative lawmakers have clamored for weeks over how much control the state should exercise over local property tax revenue growth and whether the bill should include school districts.

Schools levy the bulk of property taxes across Texas, and hard-right lawmakers and activists have argued property owners will feel no relief if schools are exempted from the bill.

Efforts to exclude public safety expenses, economic development expenditures and spending on flood risk mitigation from the revenue growth calculation all failed to progress Tuesday.

City and county officials have also maintained the bill imposes an election trigger that is not practicable.

Fort Worth Mayor Betsy Price said that “a 3.5% revenue cap would create unintended consequences” and would “hamstring cities” without providing meaningful tax relief to residents.

Sylvester Turner, the mayor of Houston, which already operates under a revenue cap, also said the proposal would have little impact on taxpayers’ bills.

“Last year, revenue caps saved the average Houston homeowner less than $10 a month,” he said, “and resulted in 1,152 fewer police on the street.”

School bill

Many details of the Senate school finance bill still need to be ironed out, too, and committee members voted Wednesday without an official analysis of how their districts would fare financially.

Many committee members expressed disappointment at having to take a vote without being prepared. Their offices received the newest version of the bill just after 8 p.m. Tuesday.

Senate Education Committee members voted out a version of the school finance legislation that differs in many ways from the version the House voted out in early April. It includes a $5,000 across-the-board raise for full-time classroom teachers and librarians, funding for districts that want to pay higher-rated teachers more, money for districts with better student academic outcomes, and a few different long-term property tax relief proposals.

The House’s version of the bill requires districts to use a portion of their additional base funding per student on raises for all school employees and designates extra money for raises to be given at districts’ discretion. It lowers school tax rates by 4 cents per $100 valuation — $100 off a tax bill for the owner of a $250,000 home — and lowers rates further for districts taxing higher. But it doesn’t include a proposal for long-term, ongoing tax relief.

House members made it clear Tuesday they were happy with the property tax bill being yoked to school finance. An attempt to pry them apart during the hours-long floor debate failed by a large margin, with only five lawmakers on record supporting it.

In the meantime, another time crunch looms. State Sen. Larry Taylor, the Senate Education Committee’s chair, has indicated the Senate’s long-term school property tax relief proposals will only be viable if lawmakers also find a sufficient revenue source to make up for lost local tax revenue. Currently, there’s a blank space where the revenue source should be in the bill.

State leaders, including Patrick, Abbott and House Speaker Dennis Bonnen, have backed a proposal to increase the sales tax one percentage point and use that revenue for tax relief.

Legislation that would do that, House Joint Resolution 3, was presented in the House Ways and Means Committee last month but has not yet been voted out. It would give Texans the chance to approve the sales tax swap.

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Aliyya Swaby of The Texas Tribune contributed to this report.

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