The Texas Senate unanimously passed legislation increasing homestead tax exemptions to $140,000, with additional benefits for seniors, marking the state’s latest effort to curb rising property tax burdens. The measure, however, draws attention to potential unintended consequences similar to those seen in California’s landmark Proposition 13.
The bill, SB 4, authored by state Sen. Paul Bettencourt (R-Houston), would increase the homestead exemption from its current $100,000 level, set just two years ago. Bettencourt claims the change will eliminate school property taxes entirely for homeowners in 49% of Texas school districts where average home values are below $140,000.
“Eighty to ninety percent of Texas seniors will pay no property taxes at all,” Bettencourt said, highlighting the measure’s expanded benefits for older homeowners.
However, research on California’s Proposition 13, which revolutionized property tax policy in 1978 by mandating a 1% property tax rate and capping assessment increases, suggests such reforms can create significant economic side effects. A National Bureau of Economic Research study found that from 1970 to 2000, Prop 13 led to increases of 1.04 years and 0.79 years in the average tenure length of owners and renters, respectively, representing increases of 9% and 18% compared to other states.
But unlike California’s approach, which caps assessment increases at 2% annually until property sale, Texas’s reform focuses on expanding exemptions while allowing regular market-value reassessments. This difference could help Texas avoid some mobility issues that have plagued California’s housing market.
Gov. Greg Abbott, who listed property tax reform as a top legislative priority, acknowledged that previous relief efforts fell short due to loopholes allowing local jurisdictions to raise rates. “Loopholes that increase your property taxes must be banned,” Abbott said, advocating for requiring two-thirds voter approval for any new tax increases.
The measure includes a hold-harmless provision guaranteeing the state will cover school district shortfalls from exemption increases. Combined with 6.8 pennies of school district tax rate compression in the Senate budget, supporters project average homeowners will save $496.57 annually, consisting of $363.44 from the increased exemption and additional savings from rate compression.
When combined with previous relief measures, Bettencourt says homeowners will receive a total tax cut of $1,762.87 from 2023 and 2025 reforms, with seniors receiving $1,933.23 in total relief. The bill now heads to the House, where similar measures have faced challenges in previous sessions.
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One Response
I think the comparison with Prop. 13’s effects misses the mark a bit. The “lock in” effect that NBER found was a function of not using market value for assessments. Texas’ approach — increasing the homeowner’s exemption — may have a similar effect in that state, but mostly a short-run impact. That will be true given how much easier it is to build new homes. No, the real impact of increasing the exemption is to — are you ready for this — to make property taxes in Texas more progressive than those in California. FYI — the homeowner’s exemption is $7,000.