Abbott Proposes Spending Caps to Lower Texas Property Taxes

Gov. Greg Abbott boasted about plowing another $3.5 billion into cutting homeowners’ property taxes in the latest legislative session. Now, he wants state lawmakers to go even further during the special session by capping how much cities and counties can increase their spending.

The Texas Republican has framed the issue as his next major legislative battle after signing long-sought private school vouchers into law earlier this year.

"What I would like to see done is to make sure that every property taxing jurisdiction must live just within the same spending limits that the state has to live in," Abbott said in an interview with Hearst Newspapers. "And if they're confined in that … their ability to impose greater property taxes is going to be hamstrung."

READ MORE: Texas closed a tax loophole. Last-minute deals cost taxpayers $175M anyway

The governor wants to tie local spending increases to population growth and inflation, similar to spending limits imposed on the state. He and other Republicans argue city and county spending is driving up tax bills even as the state keeps pouring in billions to keep them down. The next two-year state budget sets aside $51 billion to pay for past cuts and to fund the new ones.

Abbott has previously said he wants to campaign on the issue like he did vouchers and bail restrictions he successfully pushed through the legislature earlier this year.

"I’m just thinking, well, it worked with these two strategies, maybe it’s time to employ the same strategy as it concerns property taxes," Abbott said in June. "I was not out in the trenches fighting for that in the same way."

It is just the latest way that city and county budgets, which rely heavily on property tax revenue, would be boxed in by state-imposed restrictions. Local jurisdictions have to get voter approval to raise property taxes more than 3.5%, under legislation passed in 2019. Larger cities and counties, meanwhile, are also prohibited from slashing law enforcement spending — which account for a massive chunk of most budgets — or the state freezes their property taxes and can deduct from its sales taxes.

Taken together, the restrictions would present a near-impossible hurdle for the state’s metro and fast-growing suburban areas, said Adam Haynes, policy director at the Texas Conference of Urban Counties.

"For fast-growth cities and counties, we would always be catching up to the expenditure ratio … and we would never catch up," Haynes said.

He said the state is pushing restrictions, even as counties, in particular, already do much of the state’s work with little financial assistance.

"We house the state’s prisoners, we build the state’s roads, we run the state’s elections, we care for the indigent population, health care — all of those are state responsibilities that they put down on the counties to do, all the while saying, ‘cut your property taxes’ — and now, ‘cut your expenditures,’" Haynes said.

Abbott added the issue to a busy special session agenda that also includes flood relief legislation, redistricting and regulations on hemp-derived THC.

It is unclear exactly how the spending cap would work. A bill in the House would only allow cities and counties to increase their spending to account for inflation and the state’s population growth rate. That would mean spending cuts would be imposed in all of the state’s large and fast-growing counties, where population increases far outpace the state.

"It would probably force us into a situation where we would have to look closely at law enforcement, sheriffs, prosecutors — and then we get in trouble if we ‘defund police,’" Haynes said.

State Rep. Cody Vasut, who co-authored similar legislation during the regular session, said cities and counties could still raise spending if they get approval from the voters. In some cases, that could mean voters would decide whether to increase spending and property taxes to pay for that spending on the same ballots.

"The whole idea is at a certain level of spending you will trigger an election of the people," said Vasut, an Angleton Republican. "Really what you’re getting at … is whether you’re growing government or not."

Conservatives argue the state can only do so much to address property taxes on its own. While schools usually account for the biggest chunk of most tax bills, they say cities and counties are driving up people’s bills as well.

"There is a growing recognition at the Capitol that it doesn’t matter how much money we put toward tax relief, if we don’t do things to control the appetite of local government, they’ll just eat it up," said James Quintero, the policy director for the conservative Texas Public Policy Foundation's Taxpayer Protection Project.

During a hearing on the bill earlier this year, Bell pointed to a comptroller report that showed school tax revenue fell 10% in 2023 while county and city taxes both grew by more than 10%. He said his legislation was aimed at making "certain that we have clear constraints in place to make sure that our cities don’t grow faster than inflation."

Special purpose districts which are not targeted by his bill, grew the most, however, at 22%, according to the comptroller report. Those districts support services including hospitals, toll roads and utilities.

Tying budget increases to population and inflation would create major practical challenges for cities like Austin, the city’s CFO, Ed Van Eenoo, told the committee.

The city is currently in the middle of a $4 billion airport expansion, for instance, and Van Eenoo said the airport’s budget will go up "a lot" in the coming years as a result.

"It's going to surely outpace inflation plus population growth over the next few years," he said. "And putting those limits in place is going to challenge that project — or if we don't challenge that project, it creates challenges for other aspects of the city's budget."

The city is also renovating its convention center, and the city has been downsizing staff during the renovations. Its operating costs will be low for a time, but when the city reopens the center, Van Eenoo predicted costs will go up 100 or 200%.

But the vast majority of the city’s budget — 70% to 80% — is personnel costs, he said. And Austin, like most cities, has labor contracts that have pay increases built in.

"If we're looking at the labor market, and labor costs are going up 3.5, 4% and we're going to have to pay 3.5 or 4% or we're not going to get lifeguards, we're not going to get cops, we're not going to get firefighters," he said.