Texas Property Tax Reform Proposal Collapses in Legislative Standoff

House rejects compromise bill targeting city and county spending, leaving residents without additional relief

A high-stakes attempt by Texas lawmakers to impose stricter limits on city and county property tax increases collapsed Tuesday when the House rejected a compromise bill by a 60-71 vote, effectively ending hopes for additional taxpayer relief during the special legislative session. The failure of Senate Bill 10, authored by state Senator Paul Bettencourt (R-Houston), represents a significant setback for Governor Greg Abbott's property tax reform agenda and exposes deep fractures within the Republican Party over the scope and geography of tax relief efforts.

The legislation would have reduced the voter-approval tax rate from 3.5% to 2.5% for cities and counties with at least 75,000 residents, requiring voter approval for any increases beyond that threshold. Texas lawmakers have already approved $51 billion over two years to maintain and expand cuts to school district property taxes, which typically constitute the most significant portion of homeowners' tax bills.

Republican Unity Fractures Over Limited Geographic Scope

The House rejection exposed a significant rift among Republican lawmakers, with hard-right conservatives joining Democrats to defeat the measure they deemed insufficient. State Representative Mitch Little (R-Lewisville) captured the frustration among House Republicans, declaring, "This is not the solution to our problems. This is not the answer to our prayers.”

The geographic limitations particularly angered House conservatives. Under the Senate version, the tighter cap would apply to only about 9% of Texas's 254 counties and 4% of the state's 1,224 cities and towns, according to Texas Tribune analysis of U.S. Census Bureau population data. This meant that most rural and smaller communities, represented by Republican lawmakers, would see no benefit from the legislation.

State Representative Steve Toth (R-Conroe) expressed his contempt for incremental approaches with characteristic bluntness. "Bull. Bull crap," he said when supporters argued the bill represented progress. "It's not even a start".

"It is the Democratic cities that will see the largest benefit in this bill, not the Republican ones." — State Rep. Vince Perez (D-El Paso)

House Amendments Stripped in Conference Committee

The legislative breakdown stemmed from disagreements between the chambers over the bill's scope and structure. Last week, House lawmakers removed the geographic limitations, allowing the bill to apply statewide, regardless of city or county size. They also reduced the cap to 1% and exempted public safety spending from the restrictions.

Those House changes were subsequently removed during negotiations between the chambers, triggering the rebellion that ultimately led to the legislation's demise. Several House Republicans argued they could not support a bill that provided relief primarily to urban areas while ignoring their rural constituents.

State Representative Ellen Troxclair (R-Lakeway) defended the compromise measure, saying: "We know that this bill, of course, is not the silver bullet, but it is a step in the right direction, giving voters further control of their own tax rate at the local level.” Her arguments failed to persuade a sufficient number of colleagues.

Senate Author Blasts House Vote as 'Disappointing'

Senator Bettencourt issued a sharp rebuke of the House vote, characterizing it as an "unanticipated and disappointing" decision that blocked property tax relief for "tens of millions of Texas taxpayers". In a statement released late Tuesday, he emphasized that the 2.5% voter-approval rate would have reduced property tax levy increases by 29.57% while still allowing local governments to seek voter approval for higher rates.

The Senate author criticized House members for failing to contact him before the vote and declared that the Senate could not accept the House amendments. "The Senate cannot accept the House version, in part because it would have amounted to an 'unlimited property tax revenue increase on public safety expenditures,'" Bettencourt stated.

The senator had previously highlighted the policy rationale for his legislation, noting that county tax revenue increases have grown three times faster than school tax levies. In comparison, city tax revenues have grown about 2.5 times faster.

Bipartisan Opposition Reflects Different Concerns

The unusual coalition that defeated the bill included Democrats opposed to any restrictions on local government spending and Republicans demanding more comprehensive reform. State Representative Vince Perez (D-El Paso) noted the irony that predominantly Democratic urban areas would receive the most benefit under the Republican-authored legislation.

Democrats had consistently argued that cities and counties already face budget constraints due to the existing 3.5% limit enacted in 2019, combined with rising costs for essential services such as police, fire protection, and road construction. They pointed to population growth, inflation, and the end of federal pandemic relief funding as factors straining local government budgets.

The political dynamics created an awkward situation where rural Republican lawmakers found themselves aligned with urban Democrats in opposing legislation that would primarily benefit large metropolitan areas.

Historical Context of Texas Property Tax Reform

The 2019 property tax reforms, which established the current 3.5% limit, were credited with slowing the growth of city and county property tax bills for the first time in 38 years. Senator Bettencourt noted that school district levy growth dropped from 18.26% to 3.21% annually after those reforms, while city levy growth slowed to 8% annually.

However, the data also showed that cities and counties continued to raise tax bills at rates significantly higher than those of school districts, even after the 2019 reforms. "Simply put, cities and counties have raised their tax bills three times faster than schools, even after we reformed the system," Bettencourt explained.

Texas has consistently allocated increasing amounts of state funds to buy down local property tax rates each legislative session. The state can do this relatively efficiently because the school district maintenance and operations tax functions like a state-equalized property tax, allowing for simpler state-local tax swaps.

Economic Impact on Local Governments

The proposed restrictions come at a challenging time for Texas cities and counties, which face multiple budget pressures beyond their control. Local governments have already seen their budgets compressed by the existing 3.5% limit, while costs for essential services continue rising with the state's population boom.

Additionally, localities have brought in less revenue from sales taxes due to economic uncertainty, and federal pandemic relief dollars have largely dried up. The timing of additional restrictions has particularly concerned local officials responsible for disaster recovery efforts, as Senate Bill 10 would close a funding lever being considered for Hill Country flood recovery.

El Paso's experience illustrates the modest impact of recent property tax relief efforts. Despite the 2023 expansion of school homestead exemptions touted as "the largest property tax cut in Texas history," property tax bills in El Paso declined only 3% to 7% over 2022 levels, with rising property valuations offsetting much of the intended relief.

Future Prospects for Property Tax Relief

With lawmakers eager to conclude the special session, Republican officials may have to settle for the $51 billion already committed over the next two years to maintain existing school property tax cuts and enact new ones. The failure of Senate Bill 10 leaves unresolved the fundamental tension between demands for property tax relief and the fiscal needs of growing communities.

The collapse of negotiations also reflects broader challenges facing Texas's approach to property tax reform. While the state has successfully reduced school district taxes through direct funding, reforming city and county taxes requires different strategies that have proven more politically complex.

Governor Abbott's call for additional property tax cuts during the special session specifically requested "legislation imposing spending limits on entities authorized to impose property taxes." Still, lawmakers have been unable to reach a consensus on the appropriate scope and structure of such limits.

The legislative deadlock suggests that further property tax reform efforts may need to wait until the next regular legislative session in 2027, when lawmakers will have more time to develop compromise solutions that can satisfy both urban and rural constituencies while addressing the genuine fiscal pressures facing local governments across Texas.