Texas Mulls Financing Schools with Sales Taxes

State Representative Andrew Murr (R-Kerrville) filed a bill Monday that, if passed, would change how Texas funds public education. The legislation seeks to alleviate skyrocketing property tax burdens homeowners shoulder by replacing the so-called “Robin Hood” school financing law with a general sales tax to cover these costs.

“While Texas is generally viewed as a low-tax state, the dirty little secret is that our property tax rates are among the highest in the nation,” said Murr in a prepared statement after filing House Bill 285.

“In fact, it’s only places like New Jersey, Illinois and Connecticut who have higher rates than ours,” added Murr. “Naturally this has an impact on the investment decisions made by everyone from large corporations all the way down to your next door neighbors.”

HB 285 slashes property taxes by almost half through eliminating the school district maintenance and operation (M&O) levy thrust upon property owners. Instead, the bill bumps up state sales tax from 6.2 percent to 12 percent to compensate for this revenue.

Since 1993, Texas has funded its public schools, in part, via wealth equalization. This means, the state “recaptures” a percentage of property tax dollars people pay in “richer” school districts defined by higher property values. It redistributes these monies to “poorer” school districts with lower property values to even the financial playing field. This practice became better known as “Robin Hood” named for the English folklore bandit. The state’s property tax rates are set and collected by local governments, according to the state comptroller’s office.

A 2016 study conducted by the Texas Taxpayers and Research Association (TTARA), The Property Tax in Financing Texas Public Schools, revealed that, in 2015, Texas property owners paid a total of $52.3 billion in property taxes. From that amount, more than 1,000 school districts levied property taxes of $28.3 billion, of which $22.5 billion serviced the general M&O of local school districts, $5.8 billion went to retire facilities bonds also called “interest and sinking fund” (I&S) taxes. Texas property owners also paid $8.4 billion in taxes to roughly 1,200 cities, and $8.7 billion to 254 counties. Special districts accounted for around $7 billion of levied property taxes.

Murr called “Robin Hood” an antiquated system, acknowledging many Texans’ frustration with recapture. “It just requires the political will to say that enough is enough, and that we will no longer saddle property owners with an unjust tax system that punishes them for owning their little piece of Texas,” he stated. “It’s time to end the unfair practice of ‘wealth redistribution’ to pay for public schools.”

Interestingly, the state deems Houston Independent School District “property wealthy” even though the district says nearly 80 percent of students come from low-income families. They attribute their “wealth” to property values doubling across the city since 2006. In 2016-17, the school district sent roughly $162 million local property tax dollars back to the state to fund less fortunate school districts. This came on the heels of Houston ISD’s $107 million budgetary shortfall the year before which was the result of a larger internal financial debacle. In June, the district claimed they will have to send $268 million to Austin for recapture in 2017-18. The district adds this will leave them with a $69 million deficit in the 2018-19 school year.

Murr, who comes from a family of ranchers, called property ownership “one of the most sacred rights we have as Texans and Americans” and lamented that with “never-ending” property taxes “our land will be taken from us if we stop paying, regardless of our means or economic situation, the reality is that we are just renting from the government.”

Cutting escalating property taxes remains Governor Greg Abbott’s top priority during the Texas Legislature’s 30-day special session underway in Austin. He recently stated: “We are hearing stories about people who are being taxed out of their homes because of rising property taxes. You don’t really own your home, it seems like, it’s the appraisers. That must stop.”

If passed and then signed by Abbott, HB 285 would become law on January 1, 2019.

Last week, Senator Paul Bettencourt (R-Houston) filed Senate Bill 1, the Property Tax Reform and Relief Act of 2017, to rein in runaway property taxes. SB 1 would lower the rollback the current rate of 8 percent to four percent of what property taxes a municipality could collect each year. The public would vote on any proposed tax increases that exceeds the four percent rate. On Saturday, the Senate’s committee on government reform voted in favor of SB 1 by 5-2. This bill is similar to his SB 2 filed during this year’s regular legislative session. It passed in the Senate but died in the House.

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