Unpacking Proposition 4

On November 7, 2023, Texas voters overwhelmingly approved Proposition 4, an $18 billion property tax-cut package aimed at providing relief to homeowners and businesses. Spearheaded by Houston Republican Sen. Paul Bettencourt, the constitutional amendment is a significant step toward reforming property taxes in the state, with a focus on reducing school district property taxes, which constitute a substantial portion of Texans’ property tax bills.

Key Provisions and Objectives:

School District Tax Reduction:

Proposition 4 allocates $7.1 billion to school districts to lower their tax rates. This involves replacing local revenues with state dollars, a process referred to as “compression.” As a result, school districts will experience a reduction in tax rates by 10.7 cents for every $100 of property value.

Homestead Exemption Increase:

Homeowners will benefit from an increased homestead exemption on school district taxes. The amendment raises the exemption from $40,000 to $100,000. This means that a larger portion of a home’s value is exempt from taxation to fund public schools.

Tax Savings for Homeowners:

Combined, these measures are expected to result in significant tax savings for homeowners. The average Texas homeowner can anticipate over $2,500 in tax savings over the next two years. Seniors and other eligible groups may experience even greater savings. This reduction will be reflected in landowners’ 2023 tax bills, providing tangible relief.

Utilization of State Budget Surplus:

The tax-cut package is made possible by tapping into a substantial $33 billion state budget surplus. This surplus is a result of Texas’ robust economic growth and the influx of federal COVID-19 relief funds. Republicans, aiming for significant tax cuts, seized the opportunity to address property taxes.

Additional Tax Changes:

The $18 billion package also includes $5.3 billion to cover tax cuts previously approved by lawmakers. This demonstrates a comprehensive approach to providing relief and addressing various tax-related concerns.

The amendment introduces a cap on the annual growth of certain businesses’ property values. Commercial, mineral, and residential properties valued at less than $5 million, without a homestead exemption, will be subject to a 20% cap on value growth annually for the next three years. This brings business properties in line with the existing cap for homeowners.

The cap on certain business properties’ value growth is set to expire in 2026, unless lawmakers and voters choose to extend it. This provision introduces a time-sensitive element to the tax reforms.

Proposition 4 also expands the category of businesses exempt from the state’s franchise tax, providing additional relief to qualifying entities.

Local Appraisal Districts:

Voters in counties with at least 75,000 residents will now have the authority to elect three new members to their local appraisal districts’ board of directors. This change shifts from the previous system of appointed positions, allowing for more direct community involvement in property valuation matters.

Proposition 4 is fantastic news for Texas homeowners and businesses! It marks a big win and shows a real change in property tax policies. The green light for this $18 billion tax-cut package is a clear commitment to lightening the load on taxpayers, especially when it comes to school district property taxes. Thanks to state funds, higher homestead exemptions, and limits on some business property values, Texans can look forward to actual financial relief in the years ahead. This amendment covers a lot of ground, addressing different tax issues and making the local appraisal process more transparent. I believe it’s a fantastic move in the right direction for taxpayer’s financial well-being!