SB 2 - Property Tax Bill Passes House, Heads to a Conference Committee

May 03, 2019

Legislative News

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April 30 was County Government Day at the Capitol and on the same day, the Texas House took up Senate Bill 2 in place of HB 2 by Rep. Dustin Burrows (R-Lubbock). SB 2 is the property tax bill that remains a top priority of the Governor, Lt. Governor and Speaker during the 86th Session.

Speaker Bonnen took time on April 29 to meet with members and reiterate the importance of advancing the bill, and the Governor was on the House floor visiting with Republican members just ahead of the property tax debate on April 30. While debate over the bill and the 48 proposed amendments consumed just over five hours, in the end the bill passed on a bipartisan vote of 109 yeas, 40 nays, and 2 present not voting.

Chairman Burrows indicated the bill does not lower anyone's property taxes and would be best referred to as the "property tax transparency bill."

The House-amended version of SB 2 contains differences from the version originally passed by the Senate on April 15. Here's what's in the latest version:

Rollback rate of 3.5%

The House incorporated the Senate's lower rollback rate and requires an automatic election if the local community wishes to further fund any core services. Valid attempts to amend the bill and provide budget relief to local communities wishing to provide public safety services such as police, fire, and emergency services all failed.

The House version includes provisions to allow a county to save up and "bank" its unused rollback rate for up to five years. The difference between the actual tax rate and the rollback rate is what the bill defines as the unused increment rate. A county would be permitted to use any saved increment rate to exceed the rollback rate within five years. This provision will expire in 2024.

School property tax cap

Recall that 54-56% of a property owner's bill is comprised of school property taxes. The bill lowered the cap at which a school district can raise property taxes from the Senate's 2.5% to 2.0%. Chairman Burrows indicated this is only symbolic as the changes were made to the tax code and not the education code and any meaningful school property tax reform would occur in HB 3 (the school finance reform bill).

No rural and small districts exemption

Originally the bill contained an exclusion for small cities and counties that collect less than $15 million in revenue. Chairman Burrows indicated that "all property tax bills big or small deserve property tax reform" in justifying removing the exemption.

The bill does include a de minimis consideration. If a county meets the statutory criteria, the county would be permitted to adopt a de minimis tax rate, which would be above the rollback rate, such that the total levy would bring in $500,000 (the de minimis amount) more than if the county had adopted the effective tax rate – without having to hold an otherwise mandatory rollback election. This de minimis tax rate is based on the formula outlined in the bill. The de minimis amount will be adjusted annually by the Comptroller to account for inflation and is indexed to the consumer price index (CPI). This is a provision that will likely be addressed in conference committee.

The House version allows a tax rate adjustment for local option residence homestead exemptions from the total tax rate. It is contemplated that the favorable treatment of homestead exemptions will lead to greater property tax relief for owner-occupied residential properties.

The House bill also provides consideration for communities impacted by disasters. Those communities impacted by a natural disaster declared by the Governor for up to five years are permitted the flexibility to be treated as a special taxing entity.

Community college and hospital districts exemptions

Chairman Burrows indicated it was necessary to include the exemptions for community colleges and hospitals because of a concern that community college tuition would increase and because hospitals endure high medical inflation costs. But the enumerated exclusion for emergency services districts was removed.

Link to HB 3 (school finance reform)

The House has indicated its number one priority this session has been the school finance bill and recognizes the Senate's number one priority has been the property tax bill. In an attempt to ensure that HB 3 passes, Chairman Burrows included a provision in SB 2 that requires HB 3 to pass in order for the property tax bill, SB 2, to pass. Burrows stated this is significant because the school bill includes property tax relief, and capping cities and counties alone isn't enough to make a meaningful impact.

Senate Education Chairman Larry Taylor (R-Friendswood) introduced and passed an updated 289-page committee substitute for HB 3 on a 8-0 vote, with three members present but not voting, in a recent committee hearing. The bill contains both substantive and non-substantive edits that have raised concerns among many stakeholder groups.

A significant provision that was added now requires HJR 3 to pass (which would require voters to approve a constitutional amendment for a 1-cent sales tax increase moving the state's sales tax from 6.25% to 7.25%) in order for HB 3 to pass. Chairman Taylor announced from the Senate floor that HB 3 will be taken up by the full Senate on Monday, May 6.

Governor Abbott praised Chairman Burrows and the House for advancing SB 2. "For too long, Texans have watched their property taxes skyrocket while being reduced to tenants of their own property. That is not the Texas way," Abbott said in a statement after the vote. "I am confident this historic legislation, combined with additional reforms working their way through the system, will reach my desk where I will sign them into law."

SB 2 now heads to a conference committee for House and Senate members to settle differences between their two versions.