Tax Swap Proposal Dies

May 10, 2019

Legislative News

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Rep. Dan Huberty (R-Houston), the author of House Joint Resolution (HJR) 3 and House Bill 4621, which would have asked voters to increase the state sales tax by 1 cent to buy down school district property taxes, postponed consideration for the resolution and House bill until Jan. 12, 2021. The resolution would have required a two-thirds majority of each chamber to pass in order for it to appear on the November ballot, where it would then need the approval of voters. Both the resolution and House bill have been championed by the governor, lieutenant governor and the speaker but drew considerable opposition from Democrats, civic organizations and a few key Republicans, such as Sen. Paul Bettencourt (R-Houston), who is the principal author of the Senate's property tax bill, Senate Bill 2.

Since funding education is a joint effort of local communities and the state, any reduction in local school property taxes would require the state to increase its financial obligation. The tax swap proposal became leadership's preferred method of raising the necessary revenue to help reduce school property taxes, which currently constitute 54% to 56% of a property owner's tax bill.

House Democrats on May 3 signaled they would not support the tax swap proposal, citing the regressive nature of the tax and pointing toward analysis that indicated the bill would increase the overall sales and property taxes paid by a household with an income of less than $150,000.

Over the weekend, a few House members referenced poll results to show how unpopular the sales and use tax increase was in their districts, while other House Republicans found themselves unwilling to take a vote to increase taxes if the Senate wasn't on board.

On May 6, the day before the House was to take up the vote on HJR 3 and HB 4621, the Senate stripped the tax swap provision from its version of the school finance bill. In doing so, the Senate signaled the tax swap measure didn't have its support. Instead, the Senate added an amendment to create the Tax Reduction and Excellence in Education (TREE) Fund to pay to lower school district taxes and finance the more than $6 billion in school finance formula funding detailed in the bill. The TREE fund is expected to include $2.7 to $3 billion from existing revenue sources and will not rely on additional new taxes. Sen. Larry Taylor (R-Friendswood), indicated the Senate's committee substitute for HB 3 contained no linkage to raising the sales tax and was expected to save the owner of a $250,000 house roughly $250 per year.

On May 7, on the House floor, Huberty was critical of members of the Senate who claim to have been devoted to providing true property tax reform but are unwilling to do the necessary work to make it happen. The chairman was asked a number of pointed and direct questions on the House floor regarding the Senate's inability to propose any meaningful property tax reform just before Huberty called for postponing consideration of his resolution and House bill. Huberty later issued a statement saying he remains committed to making transformative changes to school finance and working with the Senate to provide meaningful school property tax relief.

On May 8, the Senate joined the House and designated conferees to HB 3. Part of the deliberation may include the tax swap measure as it was contemplated in the House version of the bill. House Speaker Dennis Bonnen (R-Angleton), indicated the issue is no longer on the table, but, as the session draws to a close and the need for revenue to fully fund HB 3 intensifies, conferees may bring the tax swap back to the table.