Texas House and Senate reach a deal on how to cut property taxes, ending monthslong impasse

AUSTIN, Texas (KTRK) -- After a monthslong standoff among Texas' top Republicans, state GOP lawmakers finally struck a deal Monday on how to cut Texans' property taxes.

The $18 billion compromise - which includes more than $5 billion approved for relief in 2021 - between the Texas House and Senate would give increased tax relief for the state's 5.7 million homeowners and create a tax-credit pilot program for non-homesteaded properties. It would also cut taxes to small businesses and send billions of dollars to school districts so they can cut their tax rates across the board, according to details made public by state leaders Monday.

The proposal must clear both chambers before it heads to Gov. Greg Abbott's desk.

"Reducing property taxes, providing relief to small-business owners, and reforming our appraisal system will ensure economic growth and prosperity, and this agreement is a significant victory for all Texans," Texas House Speaker Dade Phelan said.

Lt. Gov. Dan Patrick said the last week of negotiations among himself, Phelan and members of both chambers "made the difference."

"It has been a long road, but this is a great day for all property owners," Patrick said. "It may have taken overtime, but the process has produced a great bill for homeowners and businesses."

According to Phelan's office, the legislation, expected to be passed this week, includes more than $12 billion to reduce the school property tax rate for homeowners and business properties; an increase to the homestead exemption from $40,000 to $100,000; and savings on the franchise tax for small businesses. It would also include a so-called "circuit breaker" program for residential and commercial properties valued at $5 million and under. The program would be piloted for three years.

The new property tax relief bill, the franchise tax relief bill and the constitutional amendment required to enact the cuts will be filed later Monday, Phelan's office said in a statement.

Abbott's office did not immediately respond to a request for comment.

The deal marks the end of a stalemate among the state's top Republicans that lasted nearly seven months as they butted heads over how to dole out $12.3 billion in new tax breaks budgeted by lawmakers earlier this year.

Republicans came to Austin this year with a nearly $33 billion surplus and big promises to use a big chunk of it to provide tax relief to Texas property owners, who pay some of the highest property taxes in the nation. But for most of the year, the heads of the House and Senate - Phelan and Patrick - couldn't come to terms on how to do it.

The main dividing line came over whether homeowners or business owners would get a bigger tax break. Phelan and House lawmakers wanted to send the entire $12.3 billion to school districts to lower their tax rates, a kind of tax cut referred to as "tax rate compression." Doing that would result in across-the-board cuts for all property owners, but it would most benefit business owners.

Abbott and conservative tax-cut warriors saw the proposal as a way to put the state on a path to eventually eliminating the school maintenance and operations tax, the bulk of the school property tax that pays for day-to-day school expenses like teacher salaries. But as the weeks dragged on, Abbott's support for a compression-only tax-cut proposal seemed to wane as he encouraged House and Senate leaders to come to a deal and send him a bill.

Patrick and Senate tax-cut writers agreed with the House on allocating $12.3 billion for property tax cuts but wanted to use only 70% of that amount for tax rate compression so they could use the rest to pay for a boost to the state's school district homestead exemption, the amount of a home's value that can't be taxed to pay for public schools. Patrick and state Sen. Paul Bettencourt, a Houston Republican and Patrick's lieutenant on the tax-cut issue, pushed for raising the exemption from $40,000 to $100,000.

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