America's Property Tax Advisor

Texas Taxes Will Depend on Rates


Property taxes have been rising in Texas in recent years both due to valuation increases and rate increases. In light of the economic fallout from the COVID-19 pandemic, local tax jurisdictions are faced with a balancing act – raise enough tax revenue to fund essential services and at the same time avoid overburdening taxpayers who are dealing with their own financial hardships.


Revenues Fall


Texas’ three largest cities: Houston, Dallas, and San Antonio are expecting a 10% to 15% decline in city revenues because of the COVID-19 pandemic, according to a study by the Kinder Institute at Rice University in Houston.


Each of Texas’ three largest cities could lose $100-$200 million in revenue because of coronavirus impacts. This is comparable to revenue losses that occurred during the Great Recession. The report says the long-term impact from the pandemic may be even greater. Indeed, the COVID-19 crisis is likely to create the most difficult budget situation in recent history for major cities in Texas.


Tax Rates


Governor Greg Abbott has discouraged local governments from raising property taxes to compensate for the revenue lost during COVID-19, but it has not stopped some cities from considering it. In Dallas, a resolution to seek voter approval to raise taxes by 8% to compensate for a shortfall of an estimated $134 Million in revenue failed by a City Council vote of 11
to 3.


Comparing the state’s largest cities, property taxes account for slightly more of Dallas’s budget than Houston’s (55% of the general fund versus 51%). This difference largely is due to the fact that Dallas’s property tax rate is higher—about 78 cents per $100 of assessed value, compared to about 58 cents per $100 of assessed value in Houston. In other words, Dallas’s property tax rate is almost 35% higher than Houston’s.


Houston and Dallas had about the same property tax rate until around 2002, when Dallas started raising its rate considerably each year. Dallas continued to raise its property tax rate until 2011, at which point it leveled off and began to decline. Meanwhile, Houston’s property tax rate began to decline gradually in 2002 and dropped more steeply starting in 2016.


Several factors are at work here. The first is Houston’s local property tax revenue cap, which limits the annual growth of property tax revenue to the combined rates of inflation and population growth or 4.5%, whichever is lower. Neither Dallas nor San Antonio has any similar cap, though all three cities are subject to the state’s property tax reform law. Cities may exceed the 3.5% limit on property tax revenue only if voters approve.


The Kinder Institute Report predicts that property tax revenue is likely to remain fairly stable over the next couple of years despite the COVID-19 crisis. Property values tend to be less volatile than retail sales and, because of the timing of reassessments, lower property values (and lower property tax revenues) often do not kick in until one or two years after an economic downturn.