Earlier this month in Texas, a little over 11 percent of registered voters cast their ballots in local elections in favor of seven propositions that amended the Texas Constitution. One of the most watched proposals was Proposition One, which created significant controversy between both chambers during the legislative session since the House sought for a cut to the state’s sales tax and the Senate sought property tax relief. The measure raises the homestead exemption for Texas property owners from $15,000 to $25,000, and is important to certain counties that rely heavily on property taxes for revenue. While Texas is, in many ways, a business friendly state, it has room for improvement when it comes to providing relief for certain homeowners. The overwhelming support for Proposition One by Texans shows how widespread the desire for this improvement really was.
The support for Proposition One comes as no surprise when looking at the property tax structure of the state. According to the Tax Foundation, Texas ranks as the sixth worst state for property taxes. Texas counties rely heavily on property taxes for revenue, and as a result avoid higher rates in other tax categories such as the gasoline tax. Texas also does not have a state property tax nor an income tax. While Texas enjoys a favorable tax system in this respect, a high property tax at the local level is inevitable to make up for lower rates on other taxes. This works in theory, but in practice, making homeowners pay one large sum annually instead of smaller payments over time — such as from income tax — comes with its own difficulties.
For example, in Texas the median property tax is $2,275 — representing an average of 1.81 percent of a property’s assessed fair market value — per year. This can be a burden on homeowners since the Texas median income is $62,353 and the median property tax would account for 3.65 percent of household income. For neighboring New Mexico, the median property tax in the state is $880.00. This makes New Mexico one of the lowest median property tax rates in the nation. The median property tax only accounts for .55 percent of the home value, a large difference from that of Texas. It is worth noting, however, that New Mexico does implement a state income tax that ranges from 1.7 percent to 4.9 percent depending on the individual’s income bracket.
As a result of the increased homestead exemption, Texas will pay about $600 million annually to the public school education fund to cover the loss of revenue raised by property taxes. In Texas, homestead exemptions for school districts have not increased since 1997. Property taxes are set at the county level based on assessed property values. So how much does the average Texas homeowner save on property taxes? Lawmakers estimate that the average savings will be $126 annually. Although Texas continues to be a fast-growing state, some homeowners in fast-growing counties will not see a lower property tax bill, but rather see their bill grow by a smaller amount.
Proposition One had the second highest approval from voters — with 87.53 percent in favor — and homeowners will be able to see their savings immediately on their next property tax statement. Homeowners are able to view their savings according to their school districts and compare to surrounding school districts as well. For the next legislative session, homeowners can expect property taxes to be a continued discussion as the Lieutenant Governor has asked the Senate Finance committee to study the issue further. With Proposition One, Texans demonstrated that they wanted a property tax system in which rates are levied in a less burdensome manner.