Texas Senate votes unanimously to raise Homestead Exemption, sends bills to the House

The Texas Senate sent two bills to the Texas House on Thursday that will cut property taxes by again increasing the Homestead Exemption for property owners.

Senate Bill 4 and Senate Joint Resolution 2 were unanimously passed 30-0 Thursday. They would raise the exemption from $100,000 to $140,000 for taxes paid to public schools, saving homeowners an average of $363.44 on their annual property tax bill. The exemption would be $150,000 for seniors.

Because the increase would require an amendment to the state constitution, the bills must be approved by 2/3 of the Texas House and then Texas voters in November before they can go into effect for this tax year. This Homestead Exemption would apply retroactively to 2025 tax bills if passed by voters.

A higher exemption for taxes paid to public schools means public schools already strapped for cash would receive less money. However, there's protection for school districts in SB 4 that says the state would make up any shortfall should a school district have losses in tax revenue because of the higher exemption.

"Today, the Texas Senate delivered a win for homeowners statewide. By passing SB4 and SJR2, we are putting real dollars back into the pockets of Texans while ensuring our schools remain fully funded," said State Sen. Paul Bettencourt, R-Houston, who authored SB4.

SB4 works in conjunction with SB1, the General Appropriations Act, which provides 6.8 pennies of school district tax rate compression. This compression will result in an additional $133.13 in savings for the average homestead property owner, for a total of $496.57.

Texas Lt. Gov. Dan Patrick said in a statement Thursday that the average home value in 49% of Texas school districts is under $140,000, meaning those homeowners would pay no M&O property tax.

“In 2023, the Texas Senate delivered a tax cut of $1,266.30 for the average homeowner. When tax cuts from 2023 and 2025 are combined, homeowners will be receiving a total tax cut of $1,762.87. Seniors will receive a combined tax cut of $1,933.23, resulting in a 58.5% reduction in school district property taxes for seniors from 2023 to the present," Patrick said.

Bettencourt said SB4 and SJR2 are expected to receive broad bipartisan support in the House.

HOW ARE TEXAS SCHOOL DISTRICTS FUNDED?

Texas school districts are funded by three sources: Federal money, state money and local taxes. Local taxes comprise two tax rates, Maintenance and Operations (M&O) and Interest and Sinking (I&S), set by the school board. M&O is the money used to pay for the day-to-day operations of a school district, including salaries and professional development, utilities, curriculum, building maintenance, and student services. I&S is the money generated from bonds to pay for new buildings, renovations, security, buses and other large expenses. The I&S tax rate is used to repay the bonds. Funding approved for M&O and I&S projects can't be mixed.

HOW CAN BOND MONEY BE SPENT?

Bond money can only be spent on capital projects like new buildings, renovations, security upgrades, land acquisition, and other non-recurring costs. It can't be spent on salaries, staff, utilities, fuel, or other recurring costs. The money repaid from a bond will include interest over time, generally 30 years. Many districts try to repay their bonds early to save on the interest obligation.

WHAT IS A VATRE?

VATRE stands for Voter Approval Tax Rate Elections. If a district needs to increase funding for salaries, daily operating expenses, or other recurring costs, then they have to ask voters to approve of an increase of the M&O Voter Approved Tax Rate (VATR). Many districts hold VATREs to increase M&O funding because they have a deficit. State legislators have not increased funding for schools since 2019, and with inflation and the addition of unfunded mandates, such as adding an armed officer on each campus, many school districts say they are strapped for cash.

'THIS IS A PROPERTY TAX INCREASE'

A state law requires Texas school districts to include the statement, “This is a property tax increase,” on every ballot proposition. That is true even if the proposition does not increase the tax rate. In their proposals, many Texas school districts say they can issue bonds without increasing the I&S rate. This is often done by taking on new bond debt as old, declining debt is paid off. Read the district's proposal thoroughly to understand whether voting for the bond package will result in a tax rate change. Even without an increase in the tax rate, changes in property tax appraisals could result in a larger tax bill for the property owner.