Recent Developments in Texas Property Taxes (with an Emphasis on School Taxes)

Property tax assessments and collections are more complex than they appear on the surface. Every year, individual property values change and tax rolls change (list of taxable properties for each authority) as properties are removed while others are built. Additionally, exemptions and other rules affecting taxability change. But that is not all. The budgets for each city, county, school district, and special district change annually. Therefore, these entities must reconsider their tax rates, and they usually change. New revenue-growth limits and rate compression rules legislated over the past few years add to the complexity.

Naturally, since the Texas economy has been growing rapidly, total property value has increased with appreciating real estate values and many new properties being added to the tax base. So, even with increased exemptions and rate restrictions, the total property tax levy (tax due) continues to grow. Last year, the total levy exceeded $80 billion for the first time. In the future, I will post a blog on city, county, and special district property tax developments; the remainder of this blog focuses on school taxes.

As is evident from Figure 1, the school levy declined from 2022 to 2023 as its share of the total property tax levy decreased from 57.1 percent to 47.9 percent. This is the lowest percentage since at least 1985, as shown in Figure 2.

The drop was a result of mandatory increase in the homestead exemption for school taxes and additional compression of the school maintenance and operations (M&O) rate in 2023. In other words, the decline occurred even while market values continued to rise, as illustrated in Figure 3.

The homestead exemption was increased from $25,000 to $40,000 effective 2022 and then to $100,000 in 2023. School M&O tax rates were affected by a 2.5 percent property tax revenue increase limit passed in 2019 and further impacted in 2023 by a substantial rate compression (decreasing the maximum allowable school M&O property tax rate). This is not a commentary on school funding, as the state increased its share of total funding from other revenue sources to offset the property tax reductions.

The decline in the portion of market value that was taxable, mainly because of the increased exemptions, is charted in Figure 4.

Finally, as you would expect based on these developments, the M&O tax rate has been in decline since 2019, and that decline accelerated in 2022 and 2023. The green dashed line in Figure 5 represents the effective tax rate implied from the total property tax levy divided by the total market value of properties on tax rolls statewide.

The bottom line is that the effective tax rate (ETR) for school tax is substantially lower than it was just two years ago. Keep in mind that this analysis includes the entire property tax roll (all property types). Given the current size of the homestead exemption, the ETR is even lower on homesteads than it is overall. Certainly, there is more we can say about tax policy. Nevertheless, if this trend continues, maybe homeowners will more comfortably celebrate increases in their home values as would be normal for any other owner’s asset value.

Notes about the data presented in this blog:

• M&O and I&S Rates are statewide medians.
• Total Rate is a weighted average of total ISD rates and levies.
• Taxable Value is as pertains to the ISD M&O rate.
• All figures represent Texas Real Estate Research Center analysis of Texas State Comptroller data (https://comptroller.texas.gov/taxes/property-tax/).