Texas property tax relief won’t last unless local governments rein in spending

Texas is proud to be among the states with the lowest taxes. According to the Tax Foundation, the state ranks seventh in overall tax competitiveness, largely because it has no personal income tax and no traditional corporate income tax. 

But there’s a trade-off: Texas relies disproportionately on property taxes to fund local services. The state ranks 38th in property tax competitiveness, with property taxes equal to about 1.4% of owner-occupied housing value.

That burden has become harder to justify amid a housing boom. The Texas Comptroller’s Office estimates that median home prices increased by about 40% between 2019 and 2023. That means many homeowners have faced rising tax bills driven by paper gains, even though they have no intention of selling, and their yearly income has not necessarily improved. According to the Texas Public Policy Foundation, property tax revenue has grown by 181% over the last 20 years, while population growth and inflation have grown by only about 100%.

This is an obvious political problem for a state that prides itself on having low taxes. Texas has responded with repeated rounds of property tax relief. But to make property tax relief durable, Texas must address the growth in local spending that property taxes fund. If Texas does not, it risks merely redistributing rather than reducing the burden on taxpayers. 

The taxes of Texas

Although property taxes are mostly regulated at the state level, Texas’ state constitution does not authorize the state government to levy them. Only local governments can, including cities, counties, school districts, and special-purpose districts. Nationwide, property taxes account for about 30% of local government revenue, but in Texas they account for about 40%. 

Property tax revenue in Texas comes mostly from homes, not businesses. Single-family homes represent 48% of Texas taxable value. When combined with multifamily property, the residential share rises to 56%. The remainder is divided among commercial and industrial property (29%), oil, gas, and minerals (5.7%), utilities (3.0%), rural land and farm/ranch-related property (3.7%), and vacant lots (1.9%).

Among Texas’s local governments, school districts are the largest property-taxing units. In 2023, they collected 48.5% of all local property taxes in the state, about $39.5 billion. Cities, counties, and special districts split the other half. School districts used to represent an even larger share of total tax revenue—60% in 1998.  

Tax relief doesn’t reduce government spending

Recent property tax relief efforts have focused heavily on school taxes. Proposition 4, approved by voters in November 2023 and retroactively applied to the 2023 property-tax year, increased the school district homestead exemption from $40,000 to $100,000. In 2025, voters approved another increase in the school district homestead exemption, from $100,000 to $140,000, effective for the 2025 tax year.

But despite the passage of significant property tax relief, total property tax levies in Texas have continued to rise. According to the Comptroller’s Office’s latest data, total levies increased by about $3 billion, or 3%, from Fiscal Year 2024 to 2025. School district levies remained essentially flat, but levies by cities, counties, and special-purpose districts continued to increase. That is because the state’s recent homestead exemption increases apply only to school districts, which account for roughly half of Texas’ property tax levy. For Texas to provide more comprehensive property tax relief, it must also address the other local governments that levy property taxes.

Another missing component is spending control. A property tax cut does not actually shrink the cost of government; it merely adds pressure to reduce. It may only change who pays, when they pay, and through which tax instrument. This is already happening in Texas. Under both recent homestead-exemption increases, the state compensated school districts for their losses in local tax revenue. This means taxes were not actually reduced but merely shifted from local government to the state. These costs will reappear in other ways, either as higher state taxes, higher debts, or reduced reserves.

Gov. Greg Abbott’s newer property tax proposal recognizes part of this problem. His plan calls for local spending limits tied to population growth plus inflation or 3.5%, whichever is lower; two-thirds voter approval for local property tax increases; an easier process for voters to force rollback elections; less frequent appraisals; a lower appraisal cap; and a constitutional amendment allowing voters to eliminate school district property taxes on homeowners. 

Texas’ school district debt problem

School districts in Texas carry a lot of debt, which presents a complex challenge to durable property tax relief. 

In aggregate, the state and local governments of Texas rank 10th nationally in long-term debt per capita, making it the only primarily Republican state among the 10 most indebted in the nation. Its long-term obligations are disproportionately composed of bonds, loans, and notes—with 62% of Texas’ long-term debt being bonds compared to only 40% nationally. The main culprit of this bonded debt is the school districts. 

Texas’ school districts have, in aggregate, about $27,500 in bonded debt per student, more than twice the national average of $12,300. By contrast, state government bonded debt per capita is only modestly higher than the national average, while both city and county bonded debt per capita are below their national averages.

Part of the reason school districts carry so much debt is that the state makes that debt easier to issue. In 1983, Texas voters approved the Texas Permanent School Fund Bond Guarantee Program, which uses the state’s public education endowment to guarantee bonds issued by eligible school districts and charter schools. The guarantee gives school districts an AAA-backed credit enhancement that expands the market for their debt and lowers borrowing costs. The state estimated that this program saves about $400 million each year. But one unintended consequence of the program is that it has weakened market discipline and made it easier for districts to take on debt.

This must be kept in mind as Texas pursues property tax relief. School districts collect most property taxes, and they carry many legacy obligations that must be repaid.  

The path to lower taxes is paved with cost reductions

The political pressure to provide property tax relief in Texas is high. Property taxes are among the most visible forms of taxation. And Texas’s real estate boom, while a consequence of the state’s attractiveness, has made the tax hit harder. Many homeowners are being taxed on paper gains they did not ask for, cannot easily access, and may never realize unless they sell their homes.

Recent initiatives are a step in the right direction, but effective property tax relief requires more than ever larger exemptions. It is essential that spending and debt limits on local governments be implemented. It is an inalienable part of an effective tax reduction initiative and must not be negotiated away. 

This is especially important since the state compensates school districts for any losses in local tax revenue originating from the homestead exemption increase. Texas must require local governments to reduce spending, restrain tax increases, and limit new debt issuance. Otherwise, the burden will not disappear. It will simply move from local property tax bills to the state budget, depleted surpluses, other taxes, or future debt service.

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Source: https://reason.org/commentary/texas-property-tax-relief-wont-last-unless-local-governments-rein-in-spending/