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Last-minute legislative plan would save Texas homeowners $176 on property taxes, if voters approve

The compromise on tax relief would be paid out of state surplus, even as lawmakers dole out only about four-fifths of federal COVID relief money available to Texas.

Update: Updated at 9:35 a.m., Oct. 19, 2021, to include Patrick-Phelan statement on tax cut and their intent to create endowments for historic sites and parks.

AUSTIN — Lawmakers late Monday passed a compromise on tax relief that would increase homestead exemptions on school taxes, saving the average Texas homeowner about $176 a year.

The deal between House and Senate leaders resolved one of the last sticking points for the money bills being considered in the year’s third special session, which has mostly been devoted to redistricting. The last redistricting bill, the Texas Congressional map, was passed just before the tax break was sent to Gov. Greg Abbott.

However, property tax relief was Lt. Gov. Dan Patrick’s top priority. The Senate wanted to buy down school maintenance and operation rates for a year, using unspent state money. But the House belatedly proposed using $3 billion from the state’s share of President Joe Biden’s American Rescue Plan Act to mail $525 checks to 5.7 million Texans who claim a homestead exemption.

With the clock ticking — the special session must end by midnight Tuesday — GOP legislative leaders decided Monday on a third approach, boosting homestead exemptions permanently.

Late Monday, the Senate Finance Committee on a 13-0 vote kicked out Senate Joint Resolution 2, a constitutional amendment that would increase the homestead exemption on school taxes to $40,000, from $25,000. The full Senate then approved it, 31-0. The House approved it unanimously shortly after 11 p.m., with House Speaker Dade Phelan, R-Beaumont, casting a rare vote.

The break, financed out of unspent state general-purpose revenue, would be permanent if voters approve it next May. The Legislative Budget Board, in an estimate lower than some circulating earlier Monday, said the relief would cost $355 million in fiscal 2023. In a few years, the annual cost would exceed $400 million.

Some advocates of education and health care programs worry that while the state is flush now, it may struggle to pay for SJR 2′s proposed property tax relief down the road.

Traditionally though, Democrats have urged increasing homestead exemptions, rather than slashing property tax rates. They’ve argued that knocking ten or twenty thousand bucks off a home’s value for tax purposes means a lot more to the little guy than to the mansion owner.

“A constitutional amendment to raise the homestead exemption is definitely a long-term commitment. And does nothing for the business lobby,” veteran tax-policy analyst Dick Lavine of the center-left think tank Every Texan said late Monday. “But [it] has the advantage of being progressive. Maybe we should take credit.”

Sen. Paul Bettencourt, the Houston Republican who authored SJR 2, told fellow Senate budget and tax writers that the $15,000 increase in homestead exemptions on school taxes would “provide $176.25 of savings to homeowners in tax year 2022,” if the constitutional amendment passes. The median home in Texas is worth about $300,000.

In a joint statement Tuesday, Patrick and Phelan called the relief significant.

“The increase in the homestead exemption will save every homeowner $175 per year over the lifetime of their home, which will total in the thousands in tax savings,” the two leaders said.

They said $3 billion of the federal stimulus money “will be held for future tax relief that the Legislature will study before the 88th legislative session” in 2023. Patrick, who presides over the Senate, and Phelan, who led the House for the first time this year, noted that lawmakers also left $12 billion in the rainy day fund. They also didn’t spend $6 billion of general-purpose state revenue expected to be spun off by a recovering state economy through August 2023, the leaders said.

‘No mulligans’

After the House Republican Caucus huddled late Monday to discuss the last-minute deal, Vice Chairman Tom Oliverson of Cypress confirmed a $15,000 increase in homestead exemptions is under discussion.

“There’s unity of purpose but it’s a question of the clock and the calendar,” Caucus Chairman Jim Murphy of Houston said. Referring to the phrasing of ballot questions in proposed constitutional amendments, Murphy added, “We don’t get any mulligans in this business.”

Democrats had criticized a plan GOP House leaders rammed through their chamber on Friday — the one that would have Comptroller Glenn Hegar next year send one-time checks of $525 to owner-occupied homes — as a blatant attempt to curry favor with well-off voters shortly before the 2022 midterm elections.

Democrats also questioned whether giving money to people who claim a homestead exemption for a residence complied with the American Rescue Plan Act, as “assistance to households,” and not a forbidden tax cut.

If there were a federal audit, the money used could be clawed back, some warned. The $1.9 trillion relief package was adopted by Congress in March — without any Republican votes.

In addition, though an estimated 38% of Texas households rent, the package would offer them no rental assistance or relief.

After all the wrangling in Austin, state lawmakers appeared likely to spend just $13.3 billion of the $16.3 billion Texas is receiving from two pots of federal relief money — one for states’ fiscal recovery and the other for their capital projects.

The biggest pieces of the measure allocating the federal funds, Senate Bill 8, which passed the Senate unanimously and was awaiting final approval from the House late Monday, would be:

· $7.2 billion, to avert a big unemployment-compensation tax increase on employers by replenishing a trust fund tapped out by the huge spike in layoffs during the COVID-19 pandemic;

· $2 billion for medical surge staffing and COVID-related drugs and treatments at hospitals;

· $400 million to financially assist frontline workers in nursing homes, assisted living facilities, home health agencies, group homes for the intellectually and developmentally disabled and EMS paramedics;

· $500 million to improve broadband;

· $325 million to pay interest on university construction bonds;

· $300 million to buy land for and build a new state emergency operations center;

· $286 million to assure that retired teachers don’t pay more for health care because of COVID-19; and

· $237.8 million to complete construction of a long-sought state psychiatric hospital in Dallas.

Top GOP budget writers such as Flower Mound Sen. Jane Nelson and Friendswood Rep. Greg Bonnen have said they struggled under complex federal rules to use the American Rescue Plan Act money for one-time items, so an ongoing obligation for state taxpayers isn’t created. In addition to tax cuts, the federal law also prohibited using the money for pension funds.

“These dollars will help us continue to fund COVID-19, address a wide range of needs that have emerged over the past two years and provide a major boost to our ongoing economic recovery,” Nelson said as she laid out SB 8 late Monday.

Earlier this month, she noted that her Senate Finance Committee sifted 300 requests for $60 billion of spending — “more than three times the amount that we have available to spend.”

‘Lazy, unimaginative’

Sen. Nathan Johnson of Dallas, though, said Monday Texas could’ve been more thoughtful — and didn’t do enough with what he called a golden opportunity.

“The whole approach is lazy, unimaginative and fiscally irresponsible,” he said.

Johnson said he would have plowed some of the federal funds into highway maintenance, prekindergarten, major upgrades of antiquated state agency IT systems and even weather-proofing the natural gas feeder system for electricity-generating plants, to avoid a repeat of February’s blackouts. That is, if state leaders can’t find the will to force companies to do it, he said.

States have until 2026 to finish spending the fiscal recovery money, he noted.

“We’re rushing to send this money out as fast as we can, instead of thinking about how it could be most effectively spent,” he said.

Earlier this month, though, Nelson insisted lawmakers have taken a deliberate approach to deciding the funds’ use. There will be “transparency,” she added.

“There will be no doubt as to how these funds are spent,” she said on the Senate floor.

According to the SB 8 conference committee report, under a last-minute compromise, the Texas Tech and University of Houston systems each would receive $50 million for “institutional enhancement.”

Supporters of those systems have complained that they’re starved for research money needed to push their flagship schools into the American Association of Universities — and into the best athletic conferences. Tech and UH don’t receive money, as the University of Texas and Texas A&M University do, from the Permanent University Fund, their supporters have noted.

The federal stimulus funds also would go to improving state agencies’ cybersecurity ($200 million) and providing grants of up to $20,000 to tourism industry businesses hurt by COVID-19 ($180 million).

SB 8 would distribute $150 million for a “Next Generation” 911 emergency response system, $160 million for crime victims and $137 million for services for sexual assault victims, victims of other crimes and other programs funded by court fees, which all but disappeared when courthouses closed during the pandemic.

Also, $113 million would go to the Texas Child Mental Health Care Consortium, a priority of Nelson, who is retiring.

“Depression, substance abuse and suicide all unfortunately are on the rise” as a result of isolation caused by the pandemic, she explained.

And $100 million would augment food banks and home-delivered meal programs, $75 million would buck up rural hospitals, $40 million would create an institute on epidemics at UT Health Houston and $20 million would flow to an “incubator” for federally qualified health centers, which provide primary care in underserved areas.

Without elaborating, Patrick and Phelan indicated they have reached a tentative agreement on a spending initiative for next session.

“We are also announcing a bold plan to create endowments in the 2023 Texas budget to preserve historic buildings, sites and our state parks for future generations,” the leaders said. “These endowments will help with maintenance and repair so that our wonderful parks and historic sites remain world-class.”

Austin-based investigative reporter Lauren McGaughy contributed to this report.

Connect with needs and opportunities from Get immediate access to organizations and people in the DFW area that need your help or can provide help during the Coronavirus crisis.

Robert T. Garrett, Austin Bureau Chief. Bob has covered state government and politics for The Dallas Morning News since 2002. Earlier, he was a statehouse reporter for three newspapers, including the Dallas Times Herald. A fifth-generation Texan, Bob earned a bachelor’s degree from Harvard University. He covers Gov. Greg Abbott, the state budget and CPS and foster care.

rtgarrett@dallasnews.com /bob.garrett.39 @RobertTGarrett
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