​Americans are facing a housing affordability crisis – and Texans are no exception.

Texas families struggle to make ends meet with high inflation, stagnating wages, and rising mortgage rates. Add high property taxes to the equation, and it is not difficult to see why 1-in-2 Texans reported that they were behind on rent or mortgage payments and that eviction or foreclosure in the next two months is likely.

Property tax relief is needed more than ever to help homeowners, renters, and businesses during these challenging times. For this purpose, the Texas Public Policy Foundation proposes a way to cut local property taxes substantially next year, and cut them nearly in half over the next decade.

In Texas, the housing market is cooling as there were three months of supply of homes for sale relative to demand in September 2022, which is the highest since May 2020 after a couple of years of a very tight housing market. This cooling of the housing market resulted from mortgage rates topping 7%, a 20-year high that dramatically raises borrowing costs and monthly payments.

Another contributing factor to the affordability crisis in Texas is high and rising local property taxes.

Texas is blessed to have constitutional bans against a personal income tax and a statewide property tax. But while Texas has a costly gross receipts-style tax called a franchise tax, which should be eliminated, the most burdensome taxes discussed during soccer practices or business events are local property taxes.

These taxes have nearly tripled over the past 20 years. And it’s wrong to think that property taxes are high because there is no personal income tax, as other states like Florida and Tennessee have much lower property tax burdens. The problem is excessive local government spending that requires more taxes.

Property taxes are regressive. The Texas Comptroller’s office estimates that the lowest 20% of income earners will pay 6.9% of their total income in property taxes compared with 1.9% for the highest income quintile in 2023.

Moreover, the Tax Foundation ranks Texas 11th in property tax collections per capita, 6th for its burden on homeowners, and 13th most burdensome to businesses, which is ultimately passed to consumers.

Consequently, property tax relief is a top priority to help relieve some of the housing affordability issues. Reducing property taxes for Texans would keep more money in their pockets to satisfy their desires during a rising affordability crisis.

​To do so, the Foundation proposes eliminating nearly half of total property taxes. The proposal uses state general revenue-related funds to replace the maintenance and operations (M&O) property taxes partially funding independent school districts (ISD), which is about $60 billion per biennium.

Specifically, most, if not all, surplus general revenue-related funds, which the Legislature has the most control over, above the state’s new state spending limit based on the rate of population growth plus inflation would be used to replace the ISD M&O property taxes each period until they’re eliminated.

We calculate that this could happen in a decade. We use the average two-year growth rates over the last decade from 2012 to 2021, given that the state has a biennial budget for general revenue-related funds of 9.3% and a rate of population growth and inflation of 6.7%. We then use a reasonable 90% of this 2.6-percentage points surplus each biennium and half of the latest 2022-23 surplus of $27 billion to find this is achievable while fully funding public schools based on the current state-determined school finance formulas.

With a record $27 billion expected surplus and another $14 billion likely in the state’s rainy day fund, the state has plenty of taxpayer money to fund limited government provisions within the normal taxes collected while returning surplus money to Texans.

This is a historic opportunity to provide substantial property tax relief and more opportunities for businesses to move to Texas without costly incentive deals. The result would be Texas having a more robust economy, more job creation, more investments, and more opportunities to prosper so that Texans can be more able to afford their desired livelihood.

Originally published at The Center Square

​Americans are facing a housing affordability crisis—and Texans are no exception.

Texas families struggle to make ends meet with high inflation, stagnating wages, and rising mortgage rates. Add high property taxes to the equation, and it is not difficult to see why 1-in-2 Texans reported that they were behind on rent or mortgage payments and that eviction or foreclosure in the next two months is likely.

Property tax relief is needed more than ever to help homeowners, renters, and businesses during these challenging times. For this purpose, the Foundation proposes a way to cut local property taxes substantially next year, and cut them nearly in half over the next decade.

In Texas, the housing market is cooling as there were three months of supply of homes for sale relative to demand in September 2022, which is the highest since May 2020 after a couple of years of a very tight housing market. This cooling of the housing market resulted from mortgage rates topping 7%, a 20-year high that dramatically raises borrowing costs and monthly payments.

Another contributing factor to the affordability crisis in Texas is high and rising local property taxes.

Texas is blessed to have constitutional bans against a personal income tax and a statewide property tax. But while Texas has a costly gross receipts-style tax called a franchise tax, which should be eliminated, the most burdensome taxes discussed during soccer practices or business events are local property taxes.

These taxes have nearly tripled over the past 20 years. And it’s wrong to think that property taxes are high because there is no personal income tax, as other states like Florida and Tennessee have much lower property tax burdens. The problem is excessive local government spending that requires more taxes.

Property taxes are regressive. The Texas Comptroller’s office estimates that the lowest 20% of income earners will pay 6.9% of their total income in property taxes compared with 1.9% for the highest income quintile in 2023.

Moreover, the Tax Foundation ranks Texas 11th in property tax collections per capita, 6th for its burden on homeowners, and 13th most burdensome to businesses, which is ultimately passed to consumers.

Consequently, property tax relief is a top priority to help relieve some of the housing affordability issues. Reducing property taxes for Texans would keep more money in their pockets to satisfy their desires during a rising affordability crisis.

To do so, the Foundation proposes eliminating nearly half of total property taxes. The proposal uses state general revenue-related funds to replace the maintenance and operations (M&O) property taxes partially funding independent school districts (ISD), which is about $60 billion per biennium.

Specifically, most, if not all, surplus general revenue-related funds, which the Legislature has the most control over, above the state’s new state spending limit based on the rate of population growth plus inflation would be used to replace the ISD M&O property taxes each period until they’re eliminated.

We calculate that this could happen in a decade. We use the average two-year growth rates over the last decade from 2012 to 2021, given that the state has a biennial budget for general revenue-related funds of 9.3% and a rate of population growth and inflation of 6.7%. We then use a reasonable 90% of this 2.6-percentage points surplus each biennium and half of the latest 2022-23 surplus of $27 billion to find this is achievable while fully funding public schools based on the current state-determined school finance formulas.

With a record $27 billion expected surplus and another $14 billion likely in the state’s rainy day fund, the state has plenty of taxpayer money to fund limited government provisions within the normal taxes collected while returning surplus money to Texans.

This is a historic opportunity to provide substantial property tax relief and more opportunities for businesses to move to Texas without costly incentive deals. The result would be Texas having a more robust economy, more job creation, more investments, and more opportunities to prosper so that Texans can be more able to afford their desired livelihood.

Originally posted at TPPF

​Susan, a suburban married mother working one job, peacefully drops her son off at his private school and drives back to her gated community in a Range Rover. Because in addition to her cushy home and vehicle, another thing money can buy is any education for her son. She was able to assess each schooling opportunity to choose the one that best met his unique needs, settling on a private school. He’s thriving and on track to be admitted into a prestigious college that will propel him into his dream career.

Meanwhile, Rachel, an inner-city single mother working two jobs, anxiously drops her daughter off at the bus stop to her district-locked public school. Her daughter has special learning needs that aren’t best suited for a big public school environment, and her falling grades and reading scores make her daughter feel like a failure. Rachel reassures her daughter but knows she’s ultimately being let down by a system that doesn’t suit her. She wishes she could find a better schooling option, but that’s a choice she can’t afford, and it’s her daughter who suffers.

This disparity shows the reality of the current privilege-centered schooling system where wealthier parents have schooling options while budget-strapped parents are trapped at a government-run school in the district. A public school system run by educational bureaucrats with a schooling monopoly does not put students first. And it ultimately disempowers parents and teachers.

The solution to these issues already active in Arizona that Texas and many other states should adopt is school choice.
Despite being known for its business-friendly economy and family-loving culture, Texas lags in educational freedom. Meanwhile, Arizona, since implementing the most expansive school choice policy in the nation this year, received nearly 8,000 more new Empowerment Scholarship Account (ESA) applications as parents jumped on the opportunity to explore educational opportunities for their children.

Rather than funneling taxpayer money for education into government-run schools, school choice redirects those funds to families. Arizona has reimagined school choice in the form of ESAs that supply about $7,000 per student per year. Parents can use the money to fund any school-related expenses, such as private school tuition, homeschool curriculum, tutors, etc.
This approach empowers parents to pursue a more holistic approach to their children’s education rather than being forced to place them in a one-size-fits-all system that varies immensely in quality depending on location, mainly.

Not only are parents empowered with the ability to choose what’s best for their kids, but studies show that school choice positively affects academic outcomes. Students test better and experience overall improvement from a school that fits their unique needs. At the same time, new data on educational progress shows that public school performance has fallen behind even more since the pandemic.

School choice also increases competition, as public schools are more incentivized to improve education for their students by breaking down the monopoly situation (one dominant supplier). And this tends to provide better compensation for teachers who have little negotiating power in states where public schools have a monopsony (one dominant consumer).

So what’s the holdup? Well, for Texas and many other states, politicians in rural communities have pushed back against school choice.

This results from misconception and, in some cases, fear-mongering that school choice somehow defunds public schools, which would be a concern for rural areas where public school is the primary option. But school choice doesn’t take money away - it gives it back to parents and allows them to choose which education services receive it.

High-quality public schools will attract more students and, thereby, more funding. Public schools spend more than $14,000 per student per year in Texas, and outcomes for students and teachers are lacking, so more funding isn’t the answer. If the question is about funding for public schools, then those against school choice are conceding that public schools aren’t able to compete. So, it seems school choice opposition is more about politics and winning votes than what’s best for students, whether a parent is like Rachel or Susan.

The U.S. system of federalism allows for a laboratory of competition in which states can implement new ideas. Arizona is taking full advantage of this liberty and using it to empower its parents, students and teachers with educational freedom.
To remain competitive and among the freest states, the time is now for Texas to enact school choice. Our vote matters this November, so the next session will be when we can say, “It’s for the kids.”

Originally posted at The Center Square

​Current safety-net programs too often discourage recipients from achieving long-term self-sufficiency, but a new holistic approach called empowerment accounts would help recipients achieve this with existing resources.

​Key points

• Government safety-net programs too often encourage work-capable recipients to remain dependent upon them, harming the very people they are supposed to help.
• Previous policy solutions to mitigate these perverse incentives have not worked well, demanding a different approach.
• Our proposed new program, called empowerment accounts, is an innovative, improved solution that provides a holistic approach to help recipients find self-sufficiency.
• An empowerment account replaces a complex set of safety-net programs with a simpler, more flexible debit card payment along with greater access to work and social capital.
• Texas and other states could start a pilot program for empowerment accounts for eligible recipients, who would forgo current programs, to support an improved path to long-term self-sufficiency.

Also find at TPPF website. 

With extensive economic pressure facing the U.S., progressive lawmakers in Washington believe they have found a new solution: taxing and spending. This failed fiscal framework has become an easy sell for each new progressive administration. But this time the Biden administration has placed America in a high-inflation recession, and looks to do more harm with the “Inflation Reduction Act.”

But there’s an overlooked concern of hundreds of billions of taxpayer funds redistributed by the federal government to state and local governments for supposedly COVID-relief efforts and even more in the recent “infrastructure” bill over the last two years.

These excessive federal funds should be used wisely in order to not hinder Texas’ economic prosperity. That could mean public-private partnerships, which increase transparency and efficiency.

Texas’ nonfarm employment has increased in 25 of the last 26 months, bringing record high employment in eight consecutive months. Compared with a year ago, total employment was up by 778,700 (+6.2%) in June with the private sector adding 761,800 jobs (+7.1%) and the government adding 16,900 jobs (+0.9%).

Texas also ranks fifth best in a Georgia Center for Opportunity study that compares the ratio of employment to an estimated pre-shutdown recession trend in each state. That’s a huge feat given how many jobs were lost during the costly shutdowns. And Texas is now headquarters for more than 10% of all Fortune 500 companies.

Texans and all Americans are struggling with economic uncertainty due to a 40-year high in inflation and a recession from mostly bad policies out of D.C.

Texas has been allocated about $116 billion between COVID 19-related funds and the “Infrastructure Investment and Jobs Act” (IIJA) since March 2020.

This includes $79 billion from several bills from March 2020 to March 2021. A major chunk of that figure was $24.5 billion from the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 that was primarily for COVID 19-related provisions, including for health care, public education, childcare, and worker safety.

The other was $40.3 billion from the American Rescue Plan Act (ARPA) in March 2021 that was for specific projects like broadband, water, and infrastructure along with $15.8 billion of those funds available for various recovery purposes. Fortunately, the state separated the ARPA funds in Article XI of the budget so that there is less comingling of federal with state funds to avoid considering these as an ongoing funding source.

The rest was $36.3 billion from the IIJA to be used primarily for projects related to broadband, transportation, and water.

Ultimately, these funds must be spent responsibly—if at all—and only for one-time items to avoid a fiscal cliff when these funds go away. If not, there will be wasteful spending that will unnecessarily grow the state’s budget, leading to higher taxes and distortions throughout the economy and less prosperity.

Since the massive expansion of federal assistance to states began in the 1960s with President Johnson’s “Great Society,” the burden of federal funding in states has continued to grow. Texas usually has about one-third of its total budget funded by taxpayer dollars collected at the federal level.

We need a new approach. These one-time federal funds must be spent on on-time expenditures.

Next, public-private partnerships (P3) should be considered.

They’re contractual agreements between a government and private entities. The state provides funding with oversight of a new project while a private company does the work. They can transfer risk, bundle projects, and increase efficiency through a design-build approach.

Ultimately, most projects should be left to the private sector, where the best productive projects happen because of profit-loss decisions. But the opportunity to use P3s with these one-time federal funds should be carefully considered to reduce waste and inefficiency on projects.

While there are legitimate concerns about corporate welfare to private businesses through picking winners and losers, the use of these one-time federal funds allocated for projects makes sense—though careful consideration should be made now and later.

Given the poor track record of excessive federal funds and the success of P3s, Texas should look to set a precedent for fiscal responsibility and more market-oriented solutions by employing P3s with the federal funds recently received rather than resorting to the failures of too many government-run projects.

Published at TPPF with Nathan Evenhar

Florida Gov. Ron DeSantis recently responded to questions about California Gov. Gavin Newsom’s ads airing in Florida, “It’s almost hard to drive people out of a place like California given all their natural advantages, and yet they are finding a way to do it.” He noted that California is hemorrhaging its population because of bad progressive economic policies so that they could be more free

Florida ranks third in the nation for economic freedom, according to the Fraser Institute. And California ranks second to last.

Our own study supports the position of DeSantis.

Freer states that were more reluctant to shut down their economies due to COVID-19 are doing much better economically than states with severe shutdowns. Even a state like California is suffering — which was considered an American paradise for nearly a century, with its perfect weather and natural beauty.

This month’s U.S. jobs report showed an increase of 372,000 net nonfarm jobs in June, yet it’s still under the pre-shutdown number by 524,000. The Biden administration trumpeted the good news of job growth, yet the real story is in the details. Labor participation is lagging and inflation-adjusted average hourly earnings are declining, and the bulk of the new jobs added are decisively in lower-tax, pro-growth-oriented states.

Residents are fleeing California, New York, Illinois, and Pennsylvania for places like Georgia, Florida, Tennessee, and Texas. DeSantis noted that it was once unusual to see California license plates in Florida, but it’s now a growing trend.

Of the 14 states that have recovered all their jobs lost due to the shutdowns, 12 are in states with legislatures and governors, championing a better fiscal and regulatory climate. This supports lower costs of living that offer new residents greater purchasing power and better opportunities to weather a looming recession.

Perhaps the most important statistic is how Americans are voting with their feet.

Forty-six million Americans changed zip codes in a 12-month period ending in February 2022. That’s the most moves since 2010. According to the U.S. Census Bureau, in 2021, California, New York, and Illinois had the highest domestic migration losses, and Florida, Texas, and Arizona gained the most.

Pods, a moving and storage company, offers up their own data on where Americans are increasingly headed. Virtually every destination benefitting now is in the Southeast, Texas, or Arizona. Pods continually cites that people say the lower cost of living as a primary reason for relocation.

U-Haul released a report showing essentially the same results. And there are private research organizations as well with more corroborating evidence, such as How Money Walks that uses IRS data.

And it’s not just people that are moving but businesses, too.

In June, Caterpillar Inc., a Fortune 500 company, announced they are moving their headquarters from Deerfield, Illinois, where they have been since the early 1900s, to Irving, Texas. This makes Texas now the headquarters of 54 of the Fortune 500 companies in the world. Remington Firearms, America’s oldest firearms manufacturer, recently announced its relocation from New York to LaGrange, Georgia.

The list goes on and on.

Competition amongst states for residents and businesses is a booming trend that doesn’t look like it will abate soon. Undoubtedly, ad campaigns and recycled political rhetoric will ratchet up the fight on both political sides for new residents and commercial enterprises. Yet the policies of lower spending and taxes, deregulation, and stronger property rights resulting in more freedom are winning.

Prolonged COVID-19-related shutdowns and excessive government mandates proved to be a formula for economic destruction. The evidence in favor of economic opportunity and robust markets is overwhelming.

Fortunately, Americans are now seeing and acting on not only mounting evidence but also their own real-life experiences — which is the true test of which approach is more viable.

Published at Real Clear Policy with Erik Randolph

​Texans face an affordability crisis with inflated bills, diminishing savings, and a looming U.S. recession. While this is mostly the result of Washington’s irresponsible policies, Texas governments can help by using massive surpluses to dramatically reduce the sixth most burdensome property tax system in the nation without harming the delivery of core services. The Foundation’s Lower Taxes, Better Texas plan accomplishes this by lowering maintenance and operations (M&O) property tax bills while adequately funding core services.

​Published at TPPF with James Quintero.

​As most of the country struggles with the effects of stagflation and is either in or will soon be in a recession, Texas has been an economic leader. The Texas Model of economic freedom with the strongest state spending limit in the nation, no personal income tax, sensible regulations, and a relatively low cost of living have helped sustain this leadership.

No wonder 54 of the Fortune 500 companies call Texas home—most of any state. But excessive local spending and taxing must be addressed to improve ways to let people prosper.

Net nonfarm jobs in Texas increased by 74,200 in May, resulting in increases in 24 of the last 25 months and the 7th consecutive month of record-high employment. Compared with a year ago, employment was up by 762,400 (+6.1%) with the private sector adding 733,900 jobs (+6.9%) and the government adding 28,500 jobs (+1.5%). Compared with February 2020 before the pandemic-related shutdown, the state’s labor force participation rate is higher at 63.7%, employment-population ratio is close at 61.1%, and private sector employment is up 410,000 jobs.

States with limited government better support opportunities for people to gain self-sufficiency and flourish. Erik Randolph at the Georgia Center for Opportunity calculates that Texas’ private sector employment is 98.9% of its pre-shutdown trend, which ranks sixth best nationwide. Overall, 22 of the 25 best-performing states are red-leaning states and 12 of the 14 worst performing states lean blue.

These data are insightful because only Republican governors, with the exception of Louisiana, ended the enhanced supplemental unemployment payments that contributed to some people receiving more payments than while working well before the payments expired in September 2021. Texas ended these enhanced payments in June 2021.

Clearly, incentives matter.

In fact, the positive effects of this decision and more well-paid jobs in Texas helped increase personal income by an annualized 4.6% in the first quarter of 2022 even as many federal safety-net payments without work requirements expired.

But Texas faces challenges.

Bad policies primarily out of Washington have contributed to stagflation. Recent data show that Texas’ inflation-adjusted economic output declined by 2.6% on an annualized basis in the first quarter of 2022, more than the 1.6% decline nationally. This was after Texas led the way with 10.1% growth in the fourth quarter of 2021. The decline in the first quarter indicates that elevated inflation, less investment, and other factors are reducing economic activity.

This stagnating economic growth hasn’t hit the labor market yet, which has a 4.2% unemployment rate, but the labor market is a lagging economic indicator. Fortunately, Texas has been doing better than many states as people and businesses move to the Lone Star State.

Texas must do more to combat Washington’s irresponsible policies and remain a leader.

The affordability crisis of a 40-year high inflation, record-high home values, and skyrocketing property taxes are hurting Texans. While Texas can’t directly influence the inflation rate—which is driven by excessive money printing by the Federal Reserve fueled by out-of-control spending by Congress, it can help with the housing affordability issue by reducing local zoning restrictions and reducing property taxes.

Texas is expected to have about $30 billion in extra taxpayer dollars available next session. As Governor Greg Abbott recently tweeted, “We must use a substantial portion of this money to cut property taxes in Texas.” We agree as there is a need to cut school district maintenance and operations (M&O) property taxes, which is about half of most Texan’s property tax bill and part of a renters’ rent.

The Legislature ought to hold spending growth below population growth plus inflation as it has in the last four initial biennial budgets, and even more so now given less spending equals more money in struggling Texans’ pocket. Then use the surplus to dramatically cut school district M&O property taxes while funding core services.

But the Foundation’s recent report shows how many local governments have been spending excessively. They should pass responsible budgets that spend less than this metric to be consistent with the state’s fiscal prudence and help Texas be more affordable statewide. Doing so will give many local governments the opportunity to compress their own M&O property taxes and fund essential provisions.

Texas ought to strengthen its successful model by reducing and ultimately eliminating arcane M&O property taxes that hinder people from keeping or ever actually owning their home. There is a historic opportunity to at least lower property tax bills next session if governments limit spending and rightly make taxpayers the priority.

Published at TPPF with Nathan Evenhar

​Nearly every major city and county government in Texas spends well beyond what the average taxpayer can afford, according to a series of new research papers on local government spending by the Texas Public Policy Foundation. As a result, over the last decade the typical family of four has paid thousands of dollars in taxes over what the state considers to be a reasonable increase.

(Individual reports linked below)

“Major cities and counties in Texas are spending huge sums that are wildly out of step with what many taxpayers can afford to pay,” said Dr. Vance Ginn, TPPF’s Chief Economist and co-author of the series. “The data should be a huge red flag that we are heading toward unsustainable spending growth and tax increases that kill jobs, punish families, and drive people and businesses out of the state.”

TPPF defines reasonable spending growth as no more than population growth plus inflation. The state of Texas has followed this spending limit for state budgets for several biennia and officially adopted most of it into state statute in the last legislative session. City and county budgets are currently under no obligation to follow this reasonable spending limit.

“Responsible Local Budgets (RLB) would promote efficiency and prudence with taxpayer money, creating less need for higher taxes and fees, but still provide all the funding needed for critical government functions,” said James Quintero, TPPF’s Policy Director for the Government for the People campaign and co-author of the research. “Taxpayers would love to see local governments voluntarily adopt these spending limits, but, as long as cities and counties continue their spending binge, it may be necessary for state lawmakers to impose strict parameters to protect taxpayers.”

Over the last decade, Dallas has been the worst offender among cities, spending more than 34% above a responsible spending growth limit. In that time, the average family of four in Dallas paid more than $10,000 in excess taxes. The cities of San Antonio and Austin spent over 16% and 14% higher, respectively, than the average taxpayer’s ability to pay.
Spending growth in Texas’ major counties has been eye-popping. Lubbock County’s spending has grown 66% above a responsible limit, Bexar County by 52%, Travis County by 43%, Dallas County by 40%, and Tarrant County by 27%. Only Brownsville spent under the growth limit during the decade.

Harris County takes the prize as the worst of all local governments by exceeding a responsible spending limit by 114%.
“Now it is time to rein in excessive government spending growth at the local level,” Ginn and Quintero write. “We urge local governments to voluntarily adopt these taxpayer protections. Because some may not, we recommend that the Texas Legislature pass a spending limit for all other local governments that includes all spending from any revenue source, restricts expenditure growth to a maximum of state population growth plus inflation from the prior year, and requires a two-thirds supermajority vote by the local governing body to exceed the limit.”

“Limiting the growth of these budgets to population growth plus inflation with the RLBs outlined here will help ensure these localities can be vibrant places for people to prosper.”

https://www.texaspolicy.com/press/tppf-local-governments-spending-beyond-the-average-taxpayers-ability-to-pay

​High property taxes are not just an urban and suburban problem. In rural Hays County (San Marcos and surrounding), for example, property appraisals are shooting up.

“The overall market value of Hays County’s 2022 preliminary appraisal roll rose to nearly $59 billion, up 53.27% from $38.4 billion in 2021,” the Hays Free Press reports. “Commercial and industrial real property increased in value nearly 41%, up from nearly $3.6 billion in 2021 to $5 billion this year.”

One year. And that burden will have to be shouldered by rural Texans who tend to be older and have less income than their urban counterparts.

Yet opponents of property tax reform will use rural Texans as a prop in their argument. But rural Texans need property tax relief, too. And our plan, which will use state surplus funds to buy down the maintenance and operations (M&O) portion of school taxes (the biggest part of your tax bill), will benefit all property owners in every part of the state. The Foundation’s Lower Taxes, Better Texas plan provides a practical way to achieve this goal while funding critical government provisions.

Some have expressed concern that rural counties won’t be able to pay for their first responders—police and firefighters.

But the fact is, our plan is revenue-neutral and would continue to fund critical government services. It would allow for budgets to grow, but would limit increases in spending to no more than the rate of population growth plus inflation—anything more than that is just growing government. Yet within that framework, both schools and local governments would be fully funded. In fact, if cities, counties and special districts use the same formula (population growth plus inflation) to keep their spending in check, they can use surplus revenues to buy down their own property tax rates.

Sales taxes are also a key part of our longer-term plan.

Some have worried that rural Texas, with its more limited sales tax base, would suffer under our plan to broaden the sales tax to completely eliminate school district M&O property taxes within 10 years. But that’s not the case.

Local governments (i.e. cities, counties, and special purpose districts) would have the option to raise their sales tax rate along with the increased funding from the broader base to eliminate their own M&O property taxes. If they don’t do this because they don’t have a sufficiently large sales tax base, then they have the flexibility to not eliminate their M&O property taxes but rather buy them down over time.

There are also concerns that if the economy takes a hit, the state’s general revenues will decline, forcing higher school district M&O property tax rates in response. But our plan would have the state lower school district M&O property taxes only if there is a sufficient general revenue surplus while making permanent past reductions.

There looks to be at least a $12 billion available in general revenue surplus at the end of the current budget period for this property tax relief. If there is a major recession, then the state could call on state agencies to find savings to soften the blow. That has been done before. And the state could turn to the at least $12 billion in the state’s rainy day fund created to cover unforeseen revenue shortfalls. And school districts are sitting on about $20 billion in excess reserves. That could also help them get through a tough recession.

Property taxes are a major problem for rural Texans, whose budgets are already hurting from high gasoline prices (they drive longer distances), high food prices, and general inflation. Don’t use rural Texans to argue against the relief they need.

https://www.texaspolicy.com/rural-texans-need-property-tax-relief-too/

Texans are facing a crisis when it comes to paying for their skyrocketing property taxes, inflated bills, and saving for a rainy day. In fact, many Texans are living with the fear that exorbitant taxes could take their home away or keep them from buying their first home. The Foundation has developed a balanced, practical solution to lower property taxes by eliminating the maintenance and operations (M&O) property taxes while also funding the needs for critical services.

​Invited Testimony Before the Texas Senate Finance Committee 
https://www.texaspolicy.com/lower-taxes-better-texas-3/​

​Texans are facing a crisis when it comes to paying for their skyrocketing property taxes, inflated bills, and saving for a rainy day. In fact, many Texans are living with the fear that exorbitant taxes could take their home away or keep them from buying their first home. The Foundation has developed a balanced, practical solution to lower property taxes by eliminating the maintenance and operations (M&O) property taxes while also funding the needs for critical services.

Invited Testimony Before the Texas House Ways & Means Committee

https://www.texaspolicy.com/lower-taxes-better-texas-2/

Texas is a leader in the economic recovery from the severe spring 2020 shutdown recession. Texans have overcome many challenges especially since the state was fully opened in March 2021, without statewide mask, closure, or vaccine mandates since then—as these should be voluntary. The 87th Texas Legislature supported the recovery with the passage of many pro-growth policies like the nation’s strongest state spending limit, but there were missed opportunities like permanent, broad-based property tax relief. Given other states are drastically cutting or eliminating taxes, Texas must make bold reforms so it can remain an economic leader, support more opportunities to prosper, and withstand bad policies from D.C.

https://www.texaspolicy.com/texaseconomy/

​Overview

• Over the last 20 years, property taxes have increased 81% faster than the average taxpayer’s ability to pay for them, contributing to too many Texans struggling to pay bills and keep their home.
• Our Lower Taxes, Better Texas plan will help Texans by eliminating local maintenance and operations (M&O) property taxes in a revenue neutral way by no later than 2033.
• This balanced solution will give Texans the relief they demand while continuing to fund critical services, like public safety and education.
• After eliminating the M&O property taxes, which represent 80% of all property taxes in Texas, constitutional changes should prohibit re-imposing these taxes.
• Texas governments ought to embrace this fiscal framework to ensure all Texans can flourish and deliver real peace of mind to Texas homeowners in a timely way.

We should be able keep what we purchase outright. But that’s not the case with real estate in Texas. Even if a mortgage is paid, many homeowners struggle to afford their yearly local property tax bill. This forces too many Texans to lose their homes. And renters who pay more because of skyrocketing property taxes too often can’t pay their rent.

In the March 1 primary election, 76% of Republican voters supported eliminating property taxes in 10 years—without implementing a state income tax. The Foundation has a plan to achieve this worthy goal.

Some suggest property taxes are a necessary evil because the state (rightfully) prohibits an income tax. But this claim isn’t true for other states. Florida and Tennessee don’t have a state income tax, yet they have a much lower property tax burden.

So we should ask, what are these taxes funding?

Most property taxes (80%) are collected from taxpayers for the maintenance and operations (M&O) of a local government’s day-to-day expenses. Of these M&O taxes, the school district portion is the largest. The other portion of your property tax bill goes to the interest and sinking (I&S) fund, which pays down local debt. Collectively, local governments siphon about $70 billion (and rising) from Texans every year.

That elevated burden is also growing too fast.

In the last 20 years, property taxes have grown by 181%, far exceeding the average taxpayer’s ability to pay for these taxes—as measured by population growth and inflation. This measure has grown by only about 100% over the same period.

And this excessive burden isn’t met with efficient spending.

Unfortunately, some taxpayer dollars are lost to waste, fraud, and abuse by governments. These happen from paying too much to fix a road to building Taj Mahal-like facilities to giving public sector executives massive severance payments.

Nearly half of property taxes paid go to support government schools, which haven’t always been good stewards of that money. The latest total expenditures available for the 2019-20 school year for 5.5 million students was about $14,000 per student. That’s close to the national average ($15,342), but shocking when we realize that only 40% of Texas students are reading and doing math on grade level, and 95% of kids who fall behind don’t catch up

By comparison, private schools in Texas cost parents about $10,000 per student, which is in addition to the property taxes paid to a government school their kids don’t go to.

How are private schools doing better, for less money? Basically, government schools aren’t spending money efficiently. Misspending is often rampant, revealing itself in expensive management posts and perks, redundant administrative positions, and other frills.

But even if local governments spent property tax dollars efficiently, property taxes hurt lower- and fixed-income Texans by forcing people out of their homes through no fault of their own. Individual liberty should allow people to own what they purchase instead of renting from the government.

The Foundation has a plan to eliminate M&O property taxes by 2033.

In 2021, we helped put into law the state’s spending growth limit—now, the strongest in the nation—of general revenue to grow less than population growth and inflation. As a result, this limitation should lead to recurring surpluses that ought to be returned to taxpayers. This spending limitation should be expanded to local governments, too.

The Texas Legislature should return at least 90% of the general revenue surplus back to taxpayers by lowering school district M&O property tax rates, which the state already has much control over with the Robin Hood redistribution scheme. Doing this each session could take at most 30 years, depending on the fiscal restraint lawmakers show.

Given this delay, we suggest that after about 10 years (if not before) of this buy down, the elimination process should be sped up and done immediately by broadening the sales tax base without raising the overall tax rate.

To help eliminate the rest of M&O property taxes, local governments should follow the state’s lead by using surplus revenue to lower their M&O property taxes. Then when the state broadens the sales tax base, they could eliminate their M&O completely.

By limiting spending and cutting property taxes, Texas could eliminate 80% of its property taxes by 2033. This would also provide time for lawmakers to determine what to do with the other 20% in I&S, which is already approved by local voters.

Our approach would provide a fairer tax system and a more robust economy in Texas. A happy side effect of this could be even more people and businesses moving to Texas along with more economic growth, further easing the tax burden for all, and helping Texas families flourish for generations.

https://www.texaspolicy.com/property-taxes-in-texas-must-go/