Texas Two Step in Dallas: Property Tax Relief but Excessive Spending by State and Localities

September 27, 2023
Vance Ginn
88th Legislative Session, Local Budgets, Local Government, Property Tax, Spending Limits

This commentary was originally published at The Center Square here. It is being republished with permission from the author.

If you live in Texas, then your property taxes are skyrocketing. This has made housing less affordable, especially for the neediest among us.

The Texas Legislature passed what some are calling the “largest property tax cut in Texas history,” but it’s the second largest. Regardless, the amount of lower tax bills will likely be underwhelming and leave voters with a bad taste in their mouths come election time next November.

There have been some bright spots, but they’re dimming quickly.

Dallas was one place that showed promise. Its city council passed the largest budget in city history, going against Mayor Eric Johnson’s (a Democrat who recently stated he will switch to be a Republican) wishes.

He aptly voiced what most Texans are thinking in Dallas and beyond about the perils of big budget increases: “In an environment of such economic uncertainty for our residents and businesses, with inflation and interest rates being where they are, I simply could not vote for a budget that is the largest in the history of the city and that is paid for by raising taxes on our residents and businesses.”

This increase will completely override the city passing a one-cent tax rate decrease, making people’s property bills 8 percent higher due to rising property values.

Dallas is exhibiting on a smaller scale what occurred at the state level a few months ago.

Despite the Texas Legislature passing the state’s second-largest property tax cut of $12.7 billion to reduce school district maintenance and operations (M&O) property taxes earlier this year, half of the property tax burden is imposed by other local governments. Because many localities, like in Dallas, are poised to raise property taxes, there are very few places where taxpayers will see a lower property tax bill despite the statewide tax cut.

Or, like in Dallas, many local governments pursuing “cuts” will render it irrelevant with excessive spending.

Certainly not what should be expected from such a large state tax relief package. And this is likely to hurt Republicans in the next election as they (wrongly) sell this as the “largest property tax cut in Texas history.”

Mayor Johnson has it right that reining in spending is crucial to providing tax relief. When spending outpaces a responsible budget, and Dallas’ has for decades, higher taxes and less economic growth have resulted.

This is why the biggest governmental burden is always spending, not taxes. Excessive government spending by primarily blue localities in a sea of red helps explain why Texas has some of the most burdensome property taxes nationwide.

But Texas is also running up massive debts for even more spending to get around the requirement to pass a balanced budget. The Lone Star state’s total outstanding local government debt is $280 billion, making its local debt per person third most among the top 10 largest states. Regarding local debt, Texas looks much more like New York and California (largest debts per capita) than its southern counterparts, like Florida, where the debt per person is about half of that in Texas.

To get spending, and therefore taxes, under control, Texas needs to adopt a responsible budget at the state and local levels.

This responsible budget provides a limit that does not exceed what the average taxpayer can afford to fund, restricting the budget to the maximum rate of population growth plus inflation. Ideally, spending should always be below this fiscal rule, but even meeting that cap could save taxpayers billions of dollars.

For instance, had Dallas followed this responsible budget model yearly since 2013, the city would have saved $3.4 billion by 2022. This results in substantially higher property taxes in these localities, with similar results in other localities across the state than otherwise.

Implementing this budget rule would also result in substantial surpluses because tax revenues generated from sales taxes, fines, and fees typically increase faster than this rule. Through these surpluses, property taxes could be reduced until they are zero.

Cities that do this would create so much competition that other cities would be compelled to use their other current revenue sources to reduce their property taxes, leading to the state having much more competitive property taxes overall. With the most competitive rate being zero.

That’s one step. The second step to take Texas to the top is to do the same at the state level.

The state legislature recently took two steps back and one step forward by passing its largest budget increase in the state’s history in tandem with its hefty property tax cut.

But if they stick to the same fiscal rule or, even better, a “Frozen Budget,” they can use surplus funds generated to buy down school district M&O property tax rates each period until they’re eliminated. This process would also take about a decade for the state to fund 100% of the state’s school finance formulas as intended by the Texas Constitution.

While Texas boasts many freedoms, including no personal income tax and a business-friendly climate, its burdensome spending and property taxes reduce opportunities for people to flourish. Immediate fiscal restraint at the state and local levels is required for the Lone Star State to continue thriving by seeking to eliminate property taxes.

Texans deserve to stop renting from the government and start owning property. Limiting spending is the catalyst to take us there. And localities passing the no-new-revenue rate that would cover all property taxes collected would be a great path eventually eliminating property taxes to better let people prosper.

This commentary was originally published at The Center Square here. It is being republished with permission from the author.

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