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Speaker 1: Hello, and welcome to the Texas Tribune Tribe Cast for Tuesday,

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January thirteenth. I'm Eleanor Klibanoff Law and politics reporter, joined

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as always by Editor in chief Matthew Watkins.

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Speaker 2: It's going well, yeah, yeah, we're talking about my favorite topic. Yes, well,

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I was gonna say.

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Speaker 1: I mean, one of the great joys of being a

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Texas politics reporter is even numbered years where you get

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to watch your colleagues across the country go back to

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their state capitals and cover legislative sessions and we get

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to just, you know, totally check out, basically, take a

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year off. Nobody's talking about anything interesting, nobody's really getting

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that into politics at all.

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Speaker 2: Frankly, no, if only that was the case.

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Speaker 1: Our beloved elected officials are giving us no time off. Obviously,

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we have the twenty twenty six primary election in like

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thirty five minutes from now, and it's becoming increasingly clear

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what the main topic for the twenty twenty six election,

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and obviously the twenty twenty seven legislative session is going

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to be, and it.

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Speaker 3: Is property taxes.

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Speaker 1: Property taxes, which you know, just already we've got our

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elected officials at each other's throats about this.

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Speaker 3: And I would just like to know that I have

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no idea what that drum roll sounded like to our podcast.

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Speaker 1: I realized relatedly, that's probably the worst thing you can

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do other than like chew gum while doing this, So

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sorry about that. You know, this is going to be

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just a very very important topic. That's we're already getting

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very in the weeds, like shockingly in the weeds, considering

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we are a year out from the next legislative session.

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To talk about the different proposals that are different lawmakers

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are talking about and why this issue just continues to

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be such a hot topic in Texas. We are joined

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by John Diamond, the senior director of the Center for

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Tax and Budget Policy at the Baker Institute.

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Speaker 2: John, thanks for being here.

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Speaker 4: It's a pleasure to be here. Thank you for having me.

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Speaker 1: Yeah, I mean, for all we talk about property taxes,

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and that our state wide elected officials talk about property taxes.

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You know, Texas does not actually have a statewide property tax.

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We have local taxes set by cities, counties, and school

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districts that pay for a wide range of services that

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many other states choose to cover with income tax, which

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we obviously don't have, John, maybe you can sort of

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give us a little bit the lay of the land

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on where things stand now before we get into all

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the where things people want things to go. This has

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been a big hot button issue in the legislature for

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a couple of sessions.

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Speaker 2: Now you know.

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Speaker 1: What property taxes do people in Texas have to pay

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and sort of what are some of the like Where

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have those recent fights taken us in terms of progress

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on that?

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Speaker 4: Well, so you mentioned I mean there's property taxes. Cities

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have them, counties have them, school districts have them, and

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we have these strange entities called these special districts, which

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include flood districts and many other smaller groups that impose

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a property tax on Texas residents. There's been a lot

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of changes since twenty fifteen. So we've had reforms in

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twenty fifteen, twenty nineteen, twenty twenty three, and twenty twenty

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five that have all aimed to reduce the bite of

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the property tax on Texas homeowners and business business. It's

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done very little to lighten the voter disapproval of the

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amount that they have to pay in property taxes. And

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that's mostly because home values over that period have gone

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up substantially, have gone up faster than median incomes, and

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I think that's put a squeeze on the tax player budget.

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While counties, districts and other government entities also complain about.

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Speaker 3: Their budgets, one of the one of my favorite things

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to sort of say about property taxes is that they

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were perfectly designed to make people angry. Right, Like, when

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your sales tax bill goes up. I mean, I know

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you don't get a sales tax bill, but when the

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amount you're paying in sales tax goes up, it's because

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you're buying more things, which is fun, and you get

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some stuff out of it. Right, If your federal income

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tax goes up, it's probably because you've gotten a raise, right,

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and you again, like you might not feel it, and

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you might associate it with a good right, But your

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property tax cut, your property tax payments can go up

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without you doing anything or realizing any immediate benefit. Right,

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you buy a house, you're the value of your house

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goes up. That's good, right, it raises your net worth

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and all that, But it's a benefit that you can't

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realize until you probably sell the house or I guess

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maybe like take a loan out on the House or

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any of those types of things. Right, but your taxes

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already go up, and that's just an incredibly frustrating thing

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to experience. You're like, I didn't do anything here, but

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my tax bill went up, and like that to me

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is like the reason why basically we're in this world

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right now where we can talk about what Greg Abbott

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wants to do here in a minute, but basically, like,

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basically politicians are asked every year, no matter what they

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did the previous session, what are you going to do

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about my property taxes? Because that frustrating growth continues to happen.

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Speaker 1: Yeah, I mean I'm curious and like Johnny, like since

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twenty fifteen, we've seen a lot of these reforms. I

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think for a while before that, you know, there were

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people calling for property tax reforms. It did not have

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as much political salience as it does now. No one

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is ever happy when they get their tax bill. Is

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what change that brought made things start moving on? This

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that made is an actual political have some more political

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pressure behind it.

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Speaker 4: You know. Again, I'll go back to the rise in

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housing values and how much faster housing values were rising

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than income, and so you know that yearly hit when

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you know, so when housing prices go up, you kind

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of double WHAMMI in that if you move to a

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new house, you know, you have to pay more for

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your mortgage. And then on top of that, we were

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in a very low interest rate period, so houses were

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very cheap in terms of the monthly payment. But then

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starting in twenty seventeen, intrat rates started to creep up,

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and then they after COVID, they ramped up fairly quickly,

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and that made owning a house even more expensive. So

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all of the additional cost added to this yearly property

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tax payment that was going up rapidly and faster than

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people felt they could afford. Even though during that period

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the state government kept saying, we're going to solve this problem.

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Here's you know, we're going to compress the school tax

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rate by ten cents. We're going to raise your property

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tax exemption from you know, fifteen thousand to twenty five

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thousand to forty thousand to one hundred thousand. But taxpayers

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continued to feel, you know, the pressure of higher property

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tax payments, even though the state government was telling them

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we're acting, we are going to solve this problem. We're

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going to bring these taxes down, but they've been relatively ineffective.

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I mean, they have brought them down some, but the

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increase in house prices have just eaten away at that

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over that same time period.

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Speaker 1: I mean, I think what we're hearing now from some

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sort of loudest voices is, you know, eliminate property taxes, right,

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I mean a little bit more rhetoric around like you're

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basically paying the government rent to live on your private property.

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I feel like there's a little bit more of a

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hardened ideology forming around this that you know, property taxes

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are you know theft or you know theft from the government,

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And is there a world in which you know we're

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going to go through again the specifics of the plan

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for like, here's how we could pull some of this back.

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Can Texas eliminate property taxes? And what would happen if

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we just were like we're done allowing you know, anyone

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to tax your property.

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Speaker 4: So I've written two papers on this, so I would

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run a total repeal of property taxes. So if we

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were to eliminate property taxes and replace them with an

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increase in the sales tax rate but no other change,

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so we don't broaden the base. We don't reduce expenditures.

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It's just a swab sales tax for property tax. And

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you know, the results I got were that you would

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need about a twenty two percent rate, assuming that there's

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no evasion of the higher sales tax rate. But we

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know from the literature that if you raise the sales

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tax rate to twenty two percent, people are going to

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avoid and evade that tax. And so if you just

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build in a very modest amount, say ten percent, evasion

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of the sales tax, that the rate would need to

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go to twenty six percent. And so that is to

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replace the roughly eighty billion in property taxes that are

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collected at all levels, city, county, school district, and special

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purpose districts. I read another paper in I think it

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was around twenty seventeen, it maybe twenty eighteen that looked

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at just replacing the O and M portion of school tax.

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So this is roughly forty billion dollars. And in that

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paper I allowed the sales tax base to be expanded.

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I think I took it from about sixty percent of

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goods were tax to write around seventy leaving a bunch

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of the most controversial or the most desired goods that

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people want to be untaxed, like food, and so worth

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leaving those untaxed and just expanding to things like services

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and that kind of thing. And that raised the sales

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tax base to about seventy percent of total final sales.

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And then I reduced expenditure by a small amount each year.

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And in that paper I estimated that you would need

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to raise the sales tax just to get rid or

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just to eliminate the school tax, the operations and maintenance

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tax by about you'd have to rise it to about

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nine point seven percent, So it's about a percentage point

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and a half that is actually doable where complete elimination

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of school district taxes as well as city count and

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special purpose districts, raising the rate to twenty two or

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twenty six percent is not feasible. I mean economically that

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would not work out well. The inefficiencies in that system

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would be much larger than the inefficiencies in the current

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with a property tax system. And so I think that's

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where we are. So is it reasonable to think in

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other states? And we actually know this is true. So

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if you a state like Michigan and lots of other states,

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actually they don't fund schools locally through property taxes. So

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we could easily fund our education system at the state

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level and carve out, or get rid of, or eliminate

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the property taxes for school districts at a local level,

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although you would still leave property taxes to finance long

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term debt, so things like building school buildings or sports

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stadium their football stadiums or whatever, those could still be

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financed by property taxes at the local level. And I

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will point out that one of the problems with replacing

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all property taxes is on the back end. So once

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you replaced the taxes, let's say we replaced all property

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taxes with a sales tax, we raise the rate to

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twenty six percent. The state then has to allocate that money.

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And how do you allocate that money between cities, counties,

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special purpose districts, and school districts. That's a very complicated formula.

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It's one California has had to deal with post Prop

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thirteen and nineteen seventy eight. And what they do, the

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way they do it, when you actually look at it

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and look at the data is pretty strikingly bad. Like

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it's something we definitely want to avoid. So I will

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stop there. Well, I mean yes, it is possible in

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some sense, but not in a total sense.

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Speaker 1: Right.

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Speaker 2: I mean, I think.

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Speaker 1: You eventually have to pay for some government services, right,

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like some the money has to come from somewhere. And

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to your point, yes, I mean I think sales tax

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is more appealing in that like, well, you're at least

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getting something. But a twenty you know, twenty five thirty

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percent sales tax increase I think would.

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Speaker 2: I don't know that people would love that?

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Speaker 3: No, probably not. And I mean it's worth noting that

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in twenty nineteen, I might be getting the date wrong.

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You can correct me if I am the Big Three

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At the time, Speaker bond In I believe, Speaker Or

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and then Lieutenant Governor Dan Patrick Governor Greg Abbott proposed

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increasing the sales tax by one cent, essentially in an

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effort to buy down property taxes. They did this late

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in the session after there was a big push to

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reduce property taxes, and it quickly generated major pushback and

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ended up failed. So if they can't get a one

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percent increase, a one cent increase, can you do a

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twenty two cent you know, sales tax? I would be

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highly skeptical of that. The other thing that I think

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is worth noting here is that sales tax is also

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a very regressive tax, right, and a poorer people pay

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a higher proportion of their incomes towards sales taxes than

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they do, you know, other kinds of taxes. You know,

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whether that would be a concern of say, lawmakers or

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not is hard to say, but another possible drawback from

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doing that.

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Speaker 1: And like, I mean, just when we think about I mean,

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I rent my apartment. I understand that they're you know,

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in the long run, people say, like property tax reform

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does eventually help renters, you know, you know, all all

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of that. But at the end of the day, if

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I'm you know, I don't have to pay a property

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tax bill every year, but if I have to pay

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twenty two percent more every time I go to the

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grocery store, that's sort of more persistent annoyance, which obviously,

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as we're saying, sort of a non starter. But I

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think for the people who are saying, you know, abolish

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property tax, not anything less is unacceptable, I haven't heard

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a ton of sort of sitting with the reality of

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what that might look like.

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Speaker 4: John, I wanna ask you what we need another revenue source.

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I mean, you definitely need to replace at least a

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large portion of the revenue. So maybe there would be

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some spending cuts that could all sets for sure, you know.

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But another problem with the sales tax that doesn't often

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get attention is that about forty percent forty to fifty

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percent of the sales tax space is on business purchases,

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and so you know, as economists, we call that a

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cascading tax, and those are not very efficient taxes. And

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so the sales tax system does have its wards, and

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that makes it actually hard to raise the rate too

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much more than where we have it. I think you

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could go to around ten percent, although I agree with

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Matt politically that's a much bigger lift than it is economically.

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But I think that's where you're capped. Anything over ten

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percent and there's going to be some major inefficiencies that

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creep into the system more so than we currently have.

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And so my view is that you really would need

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to replace if you really wanted to eliminate property taxes,

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you would need to replace the sales tax with a

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more efficient version of a consumption tax.

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Speaker 3: John, I want to ask you talked to about how

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you know, if you get rid of property taxes, you

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have to replace it. I mean, for the last let's say,

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seven or eight years, the state has essentially been able

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to lower property taxes for free. It's not for free,

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of course, because we're spending money on it, but economic

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growth in taxes has been so significant that they have

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had the surplus revenue largely from sales tax increase spending

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and you know, maybe some inflation that is driving increased

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sales tax revenues as well, that they've been able to

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take money from the sales tax pool and use it

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to buy down property taxes, specifically in schools. The number

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that was sort of you know, reported by the Legislative

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Budget Board last year was the state has essentially committed

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in recent sessions fifty one billion dollars in order to

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do this. I think there are a lot of people

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asking the question of like, is that era of sort

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of free property tax reduction still possible given where we

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might be economically right and that you know, the sales

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tax revenues other revenues in the state might be stagnant

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or even down next year in twenty twenty seven's, it

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might be very hard to even continue paying for the

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cuts that we did these past few sessions. Let alone

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significantly reduce school property taxes, or as Governor Bett is asking,

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completely get rid of them. I wonder if you could

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just sort of reflect on that situation for me. Do

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you feel like the way I've framed it is accurate?

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How does that factor into these conversations do you think

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going forward?

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Speaker 4: I think you've framed it pretty well. So, starting in

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around twenty a little before twenty seven, we started to

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see an increase in sales taxes. This was partly due

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to the way that we treat online UH sales, and

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that actually led to a significant increase in sales tax

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revenues by taxing anyone that sells goods online that has

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a nexus in Texas UH. And so we've seen this

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surplus of revenues both because of higher sales tax revenues

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as well as the other big revenue increase. It wasn't

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a revenue well, it's a it's a money increase in

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Texas was the large expansion in fiscal health from the

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federal And so when you look at Texas's budget, about

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a third of it comes from inner governmental transfers from

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the federal government, and so we had a huge expansion

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in that we collected more revenues from the sales tax,

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and so we've run you know, really large surpluses for

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much of the past eight or nine years, with the

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exception maybe of twenty twenty. And so those surpluses have

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been used to buy down the tax rates or expand

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the homestead exemption. And yes, it has seemed much like

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it was a free you know, a free property tax break.

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But those are revenues that are being collected from either

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taxpayers here in Texas or in the case of the

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federal grants and subsidies, taxpayers in the US. So you know,

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we all know there's no such thing as a free launch.

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But overall, I thought your explanation was was pretty much

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spot on.

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Speaker 1: I mean, as we've sort of continue to say in

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this conversation, where like the money does have to go

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come from somewhere, school districts, counts, you know, cities, counties

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do need money to pay for some things.

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Speaker 3: So how do you how do you then, like, let's

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let's talk specifically about Abbott's plan here, because you know

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he he rolled out in a press conference a big

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event late last year, this sort of idea of this

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is going to be my big issue in twenty twenty six,

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as I run for reelection getting rid of the school

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property tax, given all the context of you know what

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we just heard and what we just talked about, how

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possible do you think that is? How do you sort

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of evaluate this proposal? As we you know this guy's

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probably going to win reelection.

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Speaker 2: We can well for sure anything as possible.

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Speaker 1: I'm not a gun of a crystal ball, but let

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me just briefly go through the three main prongs of

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his proposal. So, the one prong, as we've talked about,

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accounts for sort of the largest chunk of most people's

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property bills, which is school district taxes. Abbott wants to

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allow voters to decide whether to abolish school property taxes

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on homeowners because he believes the state's collecting enough revenue

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to sort of backfill that money. They want to make

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it harder for cities and counties to raise local taxes

359
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by requiring a two thirds vote at the ballot box, which,

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as one expert that our colleague Josh Vector talked to, said, basically,

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there's no way that would ever pass in most places,

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so you're really tying people's hands. And then also put

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a cap on property on the increase in property values

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so that your property value cannot increase more than three

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percent a year and it's a praised value. Some of

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which experts say could work, some of which they say,

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you know, would likely be a problem.

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Speaker 2: Is you sort of alluded to?

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Speaker 1: But yeah, I mean, so what do you of these

370
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you know, three prongs, John, What do you sort of

371
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make of the feasibility putting aside, honestly the politics of it,

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just of this effectively lowering people's property tax bills and

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also continuing to get people the services that they expect.

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Speaker 4: Well, you could definitely, you know, is it feasible? Let's

375
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just start there. It's absolutely feasible, you know. I mean,

376
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I've written a paper on replacing the school M and

377
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O property tax and it could be done. It would

378
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require some base broadening on the sales tax side, and

379
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a reduction and expenditures to keep the rate below ten percent.

380
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Speaker 3: When you say base blinding, do you basically mean like

381
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increasing the tax rate?

382
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Speaker 4: No, I mean increase See the number of goods that

383
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are subject to the sales tax, so you know the

384
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age old. The one that comes up is you could

385
00:25:07,359 --> 00:25:12,640
tax services like golf lessons, gotcha? Other types of lessons.

386
00:25:12,680 --> 00:25:17,160
There's a lot of services that are untaxed that we

387
00:25:17,319 --> 00:25:22,200
could include and that would bring in additional revenue at

388
00:25:22,240 --> 00:25:23,079
the current rate.

389
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Speaker 3: Underson.

390
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Speaker 4: You know, I have proposed before switching from a sales

391
00:25:29,519 --> 00:25:33,079
tax to a value added tax, and actually that this

392
00:25:33,279 --> 00:25:38,000
was proposed by Governor Bush back in nineteen ninety seven,

393
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I think it was. It didn't last very long politically,

394
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but a value added tax would would be a more

395
00:25:47,279 --> 00:25:52,839
efficient version of a sales tax. That would both be

396
00:25:52,839 --> 00:25:56,119
more efficient on the business side and it would allow

397
00:25:56,240 --> 00:26:01,240
for collecting more you know, more or stages of the

398
00:26:01,319 --> 00:26:05,839
production process. But that's another discussion. So it is feasible,

399
00:26:07,839 --> 00:26:11,000
you know, the appraisal cap I mean, so let's say

400
00:26:11,039 --> 00:26:14,319
it is feasible. Obviously, there are the problems with expanding

401
00:26:14,319 --> 00:26:17,880
the sales tax rate too high. You know, appraisal caps.

402
00:26:17,920 --> 00:26:21,839
We know that those are fraught with problems, especially a

403
00:26:21,880 --> 00:26:25,440
three percent cap. You know, would it work to bring

404
00:26:25,519 --> 00:26:30,039
down people's taxes, Yes, it would work to bring down

405
00:26:30,279 --> 00:26:33,960
some people's taxes. If you buy a house and you

406
00:26:34,000 --> 00:26:36,960
stay in it for a long time, you would see

407
00:26:37,880 --> 00:26:41,359
a tax reduction. But if you have to sell, or

408
00:26:41,400 --> 00:26:47,079
if you're an entrant into the housing market. Then you know,

409
00:26:47,160 --> 00:26:51,359
your property would pre ap pray would reappraise at market value,

410
00:26:51,400 --> 00:26:54,559
and so there you would end up with the haves

411
00:26:54,640 --> 00:26:57,640
and the have nots. The havelves would be the people

412
00:26:57,759 --> 00:27:00,799
that locked in a really low value and they would

413
00:27:00,839 --> 00:27:04,799
get locked into their house, much like people are locked

414
00:27:04,839 --> 00:27:08,680
into their houses with low interest rates. So because you

415
00:27:08,759 --> 00:27:13,720
have this financial benefit of a really low appraised value,

416
00:27:13,799 --> 00:27:17,720
it becomes too expensive to move to a new property,

417
00:27:17,880 --> 00:27:21,400
just like currently we see people with really low mortgage

418
00:27:21,440 --> 00:27:24,599
interest rates. They just can't afford to move out of

419
00:27:24,640 --> 00:27:27,680
their house because you know, going from a you know,

420
00:27:27,720 --> 00:27:30,200
a three hundred thousand dollars house with a two percent

421
00:27:30,279 --> 00:27:34,279
mortgage rate to a three hundred thousand dollars house with

422
00:27:34,400 --> 00:27:38,319
a six percent mortgage interst rate is not feasible for

423
00:27:38,359 --> 00:27:40,680
their budget. And so you get what's called a lock

424
00:27:40,759 --> 00:27:48,200
in effect. And so all of this is feasible. The

425
00:27:48,279 --> 00:27:51,079
problem is it's all from one side. I mean, so

426
00:27:51,160 --> 00:27:55,680
we're talking only about the tax side and state I

427
00:27:55,680 --> 00:27:59,400
mean in local governments also have a spending side to

428
00:27:59,440 --> 00:28:02,839
look at, and you know, those two things have to

429
00:28:02,880 --> 00:28:06,599
align because they have to balance their budgets. And so

430
00:28:07,079 --> 00:28:11,839
there is you know, there is concern over that, but

431
00:28:12,200 --> 00:28:15,160
mainly for me, I mean, the problem on the tax

432
00:28:15,240 --> 00:28:17,920
side is that the way we're trying to do this

433
00:28:18,079 --> 00:28:22,640
is a little disjointed, and I really think the appraisal

434
00:28:22,720 --> 00:28:26,440
cap the appraisal caps bring in a lot of inefficient

435
00:28:26,519 --> 00:28:36,640
aspects that would you know, that would be detrimental to

436
00:28:36,799 --> 00:28:40,599
the housing market and for many people in the housing market,

437
00:28:40,599 --> 00:28:44,000
although it would benefit a fair number of people that

438
00:28:44,039 --> 00:28:46,119
are able to stay in their house for a long time.

439
00:28:47,440 --> 00:28:50,440
Speaker 3: Yeah, I think a key point you made there too

440
00:28:50,519 --> 00:28:52,359
is right, like we talk a lot about this of

441
00:28:52,359 --> 00:28:55,759
like replacing revenue and everything like that. I'm sure Governor

442
00:28:55,759 --> 00:28:58,079
Abbott and other people who would advocate for this plan

443
00:28:58,160 --> 00:29:00,880
would say that this is you pay for this three

444
00:29:00,880 --> 00:29:05,200
different ways, right you You know, maybe there's some like

445
00:29:05,240 --> 00:29:08,359
tweaks to expanding the base, like you talk about. There's

446
00:29:08,400 --> 00:29:12,920
also just the long ongoing economic growth of Texas. You know,

447
00:29:12,960 --> 00:29:15,400
you hear folks who have advocated for this talk about that,

448
00:29:15,519 --> 00:29:19,640
like Texas has had this economic miracle for you know,

449
00:29:19,799 --> 00:29:23,240
decades now, and that can help pay for that too.

450
00:29:23,519 --> 00:29:26,039
And then on the other side is of course reductions

451
00:29:26,079 --> 00:29:29,480
and spending. You probably can't do this without some kind

452
00:29:29,519 --> 00:29:33,400
of you know, spending cuts in these areas too, which

453
00:29:33,440 --> 00:29:35,359
you know, when you're talking about schools is a is

454
00:29:35,359 --> 00:29:39,519
a difficult thing to do, and and we can certainly

455
00:29:39,599 --> 00:29:44,480
draw blowback well, difficult, difficult politically at least, whether.

456
00:29:44,400 --> 00:29:47,359
Speaker 4: I was gonna I was gonna throw in. So something

457
00:29:47,359 --> 00:29:50,559
we've seen here in Houston. Houston HISD just put out

458
00:29:50,640 --> 00:29:57,720
there data on their school population for this year and

459
00:29:57,759 --> 00:30:02,440
it's down by eighty three hundred students. That's a four

460
00:30:02,480 --> 00:30:08,400
point seven percent decrease in the size of their student body.

461
00:30:08,599 --> 00:30:13,319
Their student body has population has decreased every year since

462
00:30:13,400 --> 00:30:20,440
twenty fifteen. There's been no decrease in property taxes over

463
00:30:20,480 --> 00:30:23,759
that same period. And when we look at the data

464
00:30:23,799 --> 00:30:25,720
that's out there right now, and this is you know,

465
00:30:26,039 --> 00:30:29,759
we talk about economic growth a lot, and one thing

466
00:30:29,799 --> 00:30:34,599
that everybody is kind of ignoring in the long term,

467
00:30:36,400 --> 00:30:40,200
which is a really important issue, is the reduction and

468
00:30:40,319 --> 00:30:46,039
fertility across the United States, here in Texas, everywhere in Japan,

469
00:30:46,680 --> 00:30:50,200
in Europe, pretty much everywhere in the world except Sub

470
00:30:50,240 --> 00:30:55,920
Saharan Africa, birth rates are below the replacement rate, which

471
00:30:55,960 --> 00:30:59,240
means populations are going to be shrinking, and so the

472
00:30:59,319 --> 00:31:05,319
only way to continue growing the Texas population is to

473
00:31:05,400 --> 00:31:10,880
do it through immigration, and given current policies, I think

474
00:31:12,200 --> 00:31:16,720
I'm skeptical of how much immigration growth we're going to

475
00:31:16,759 --> 00:31:21,559
get in the next four years because at this point

476
00:31:21,640 --> 00:31:24,400
a lot of the immigration over the last five years

477
00:31:24,759 --> 00:31:29,960
has been concentrated in international migration, and I think we're

478
00:31:29,960 --> 00:31:32,559
going to see a lot less of that. So the

479
00:31:32,599 --> 00:31:37,200
only way to increase the population going forward is just

480
00:31:37,279 --> 00:31:43,000
going to be through internal US migration. I don't know

481
00:31:43,039 --> 00:31:47,599
how much more gas is left in that tank, but

482
00:31:47,759 --> 00:31:52,640
I do know at some point, Texas, just like everywhere

483
00:31:52,680 --> 00:31:54,720
else in the world, is going to have to deal

484
00:31:54,799 --> 00:31:58,839
with and think about how do you plan for a

485
00:31:58,920 --> 00:32:03,400
shrinking population, because that is on the thirty year horizon,

486
00:32:03,880 --> 00:32:07,519
and when you're thinking about building school buildings and stuff

487
00:32:07,640 --> 00:32:10,920
like that, you need to be thinking thirty years out well.

488
00:32:10,920 --> 00:32:13,039
Speaker 3: And of course, I mean, we are talking to you

489
00:32:13,039 --> 00:32:15,799
from Austin, where you know they have been trying to

490
00:32:15,839 --> 00:32:18,799
close schools for years and that has been its own

491
00:32:18,799 --> 00:32:22,240
political fight as well. But another example of what you say,

492
00:32:22,400 --> 00:32:25,160
but I mean, I guess also presuming that we're talking

493
00:32:25,160 --> 00:32:28,559
about population decline, we're also probably talking about decline and

494
00:32:29,160 --> 00:32:34,039
other types of revenues. Like, you know, there's likely a

495
00:32:34,200 --> 00:32:36,720
decline in economic growth or at least a slowing of

496
00:32:36,720 --> 00:32:39,359
economic growth there as well, that would affect revenue, you

497
00:32:39,359 --> 00:32:40,240
would think as well.

498
00:32:41,759 --> 00:32:45,799
Speaker 1: Yeah, I mean, you know, we've got I think an

499
00:32:45,839 --> 00:32:48,359
extraordinary amount of detail from Governor Abbott about how he

500
00:32:48,359 --> 00:32:50,319
would like to see this play out. We've also heard

501
00:32:50,319 --> 00:32:53,559
from Lieutenant Governor Dan Patrick with sort of I think

502
00:32:53,839 --> 00:32:56,599
an agreement on the principle, which is we should find

503
00:32:56,599 --> 00:33:01,240
a way to reduce property taxes, some pretty significant disagreements

504
00:33:01,279 --> 00:33:04,079
on how we should do it. Lieutenant Governor Dan Patrick

505
00:33:04,160 --> 00:33:08,799
has his plan called Operation Double Nickel, which you know

506
00:33:09,200 --> 00:33:10,599
he who names.

507
00:33:09,960 --> 00:33:11,240
Speaker 2: His plan first.

508
00:33:11,839 --> 00:33:16,079
Speaker 1: Maybe he comes out comes out a little in front essentially,

509
00:33:16,079 --> 00:33:19,079
which would increase the homestead exemption by another forty thousand

510
00:33:19,079 --> 00:33:25,119
dollars and allow people to qualify for the increased exemption

511
00:33:25,240 --> 00:33:28,519
you get when you are considered elderly or disabled, would

512
00:33:28,519 --> 00:33:32,240
lower that to age fifty five. The double nickel of that,

513
00:33:34,200 --> 00:33:37,079
and I mean Lieutenant Governor Patrick has said, like we

514
00:33:37,119 --> 00:33:41,240
can eliminate school property taxes over the coming years, we

515
00:33:41,319 --> 00:33:46,240
cannot eliminate all property taxes. We're not likely to eliminate

516
00:33:46,279 --> 00:33:50,079
all property taxes and like remain fiscally solvent. So he

517
00:33:50,160 --> 00:33:54,240
sort of is ideologically different than Abbot in that regard.

518
00:33:54,960 --> 00:33:58,440
Speaker 3: Yeah, and you know, first of all, I feel like

519
00:33:58,839 --> 00:34:02,160
we're getting rid of property taxes, has like a bit

520
00:34:02,200 --> 00:34:04,960
more of a grabby ring to it, an Operation Double Nickel,

521
00:34:05,039 --> 00:34:09,760
But we can discuss the branding later. I do think

522
00:34:09,880 --> 00:34:12,559
it's going to be really interesting to watch this from

523
00:34:12,599 --> 00:34:18,159
just a political perspective, right, because the story of twenty

524
00:34:18,159 --> 00:34:23,559
twenty four and twenty four elections was Abbot getting behind

525
00:34:23,719 --> 00:34:27,480
school vouchers as an issue and really really asserting his

526
00:34:27,599 --> 00:34:30,960
will so that when the next legislature came in, they

527
00:34:31,000 --> 00:34:34,360
were aligned with him, and he had sort of like

528
00:34:34,840 --> 00:34:38,000
shown his political strength in saying we're going to get

529
00:34:38,000 --> 00:34:43,360
this through. The difference of course between you know, So

530
00:34:43,400 --> 00:34:45,719
now fast forward to twenty twenty six and Abbot is

531
00:34:45,760 --> 00:34:49,559
sort of signaling that property taxes, school property tax in

532
00:34:49,599 --> 00:34:53,000
general is like my issue like that as well. The

533
00:34:53,039 --> 00:34:56,559
difference between those two issues is that in twenty twenty

534
00:34:56,559 --> 00:34:59,760
four he was on the same side as Dan Patrick.

535
00:35:00,079 --> 00:35:02,960
Dan Patrick, you know, it was not a coincidence that

536
00:35:03,119 --> 00:35:06,800
Patrick called that press conference where he announced Operation double nickel.

537
00:35:07,119 --> 00:35:11,400
You know, days, if not weeks after Abbott came out

538
00:35:11,440 --> 00:35:13,800
with his own plan, Right, they do not seem to

539
00:35:13,800 --> 00:35:17,360
be perfectly aligned right here, And how willing are these

540
00:35:17,440 --> 00:35:21,920
to you know, fight over this is going to be

541
00:35:21,920 --> 00:35:27,199
a really fascinating thing to watch over the next you know,

542
00:35:27,280 --> 00:35:28,159
year and a half.

543
00:35:28,039 --> 00:35:31,760
Speaker 1: Basically, and property taxes are just really complicated. Like I

544
00:35:31,760 --> 00:35:34,960
think it is easier to say are you in on vouchers?

545
00:35:35,000 --> 00:35:36,079
Speaker 2: Are you out on vouchers?

546
00:35:36,280 --> 00:35:39,079
Speaker 1: Versus saying, well, we all agree we want to reduce

547
00:35:39,119 --> 00:35:41,400
property taxes. We're all coming in from the same position.

548
00:35:41,480 --> 00:35:43,920
How are we going to do it? That's where the

549
00:35:43,960 --> 00:35:46,159
splintering happens. And I mean we saw that in twenty

550
00:35:46,199 --> 00:35:49,039
twenty three. I mean, disagreement over property taxes and how

551
00:35:49,039 --> 00:35:52,960
to do it. You really messed up some reporters summer

552
00:35:53,000 --> 00:35:57,840
plans like we I don't think, you know, the nuance

553
00:35:57,880 --> 00:36:00,280
of how this gets done is going to be very monkey,

554
00:36:00,360 --> 00:36:03,079
very in the weeds and leave a lot of daylight

555
00:36:03,159 --> 00:36:06,599
between people who are like otherwise pretty ideologically aligned.

556
00:36:06,719 --> 00:36:08,599
Speaker 3: Yeah, and you know, I mean one of the things

557
00:36:08,679 --> 00:36:11,719
that they fought over this was Dade Feeling and Dan

558
00:36:11,760 --> 00:36:13,800
Patrick fighting back in twenty twenty three. One of the

559
00:36:13,800 --> 00:36:17,320
things they fought over was capping property values right, and

560
00:36:17,400 --> 00:36:21,440
Dan Patrick was very passionately. You know, the nickname California

561
00:36:21,559 --> 00:36:24,840
Dad is a reference to the fact that California has

562
00:36:24,880 --> 00:36:29,559
property property value caps and a lot of people blame that,

563
00:36:29,639 --> 00:36:32,840
as as John was kind of referring somewhat earlier to

564
00:36:33,599 --> 00:36:37,480
a lot of people blame that on the the extremely

565
00:36:37,559 --> 00:36:41,519
high housing values in California, on that, you know, incentive

566
00:36:41,599 --> 00:36:44,800
to sort of stay inside your house. And so, you know,

567
00:36:44,840 --> 00:36:47,360
are we going to get a California Greg in twenty

568
00:36:47,400 --> 00:36:49,079
twenty seven. It'll be interesting to see.

569
00:36:49,679 --> 00:36:52,519
Speaker 4: And I think, you know, when I think back on that,

570
00:36:52,679 --> 00:36:56,280
I mean, so to think about the Lieutenant Governor's plan,

571
00:36:57,239 --> 00:36:59,000
you know how I like to state it is, it's

572
00:36:59,079 --> 00:37:03,119
not really a lot different. So you've got the double

573
00:37:03,199 --> 00:37:09,159
nickel portion. Well, all that does is freeze people's property

574
00:37:09,280 --> 00:37:13,519
values when they turn fifty five. So it's basically a

575
00:37:13,599 --> 00:37:21,000
redistribution of the property tax burden from people that are

576
00:37:21,039 --> 00:37:23,760
fifty five and older to people that are fifty five

577
00:37:23,800 --> 00:37:28,719
and younger. And that's similar, not exactly, but it's similar

578
00:37:28,760 --> 00:37:32,519
to what you get under appraisal cap. You also get

579
00:37:32,519 --> 00:37:35,719
the lock in effect for people then that are fifty

580
00:37:35,760 --> 00:37:40,519
five and older, so they both redistribute property taxes to

581
00:37:40,559 --> 00:37:45,719
the younger generation. That they both cause some extent of

582
00:37:45,760 --> 00:37:50,039
a lock in effect, one depending on how long you've

583
00:37:50,079 --> 00:37:52,440
been in your house and one depending on your age

584
00:37:52,480 --> 00:37:55,880
and once you turn fifty five. It's not quite as

585
00:37:55,960 --> 00:37:59,719
powerful as the three percent cap, but it is there,

586
00:38:02,559 --> 00:38:05,719
you know. The thing I like about the Lieutenant Governor's

587
00:38:05,800 --> 00:38:10,400
plan is that he did include a three point five

588
00:38:10,519 --> 00:38:16,679
percent cap on spending, so he just didn't the tack side.

589
00:38:17,320 --> 00:38:21,559
He also brought in a proposal to limit growth on

590
00:38:21,800 --> 00:38:26,719
the spending side, and I think spending limits such as

591
00:38:27,960 --> 00:38:33,719
Colorado's spending limit that they've imposed, has been much more

592
00:38:33,840 --> 00:38:39,480
successful at reducing the growth of the local government sector

593
00:38:40,199 --> 00:38:43,360
relative to appraisal caps, which I don't think have been

594
00:38:44,159 --> 00:38:53,800
all that effective in reducing growth. And similar the homestead

595
00:38:54,719 --> 00:38:59,000
exemptions that we've passed in the last ten years, as

596
00:38:59,039 --> 00:39:03,199
well as the compression of the property tax right that

597
00:39:03,280 --> 00:39:07,760
have been passed in several sessions, those haven't done much

598
00:39:08,400 --> 00:39:13,400
to contain the growth of the local government sector either.

599
00:39:13,639 --> 00:39:18,719
So I think the one great thing or the one

600
00:39:18,760 --> 00:39:22,920
thing I was pleased to see in Operation Double Nickel

601
00:39:23,039 --> 00:39:26,480
was at least some attention paid to both the tax

602
00:39:26,559 --> 00:39:32,199
and the spending side instead of looking slowly solely at

603
00:39:33,039 --> 00:39:34,639
the tax side.

604
00:39:35,519 --> 00:39:39,480
Speaker 3: And I'm largely joking about California. Greg, I do not

605
00:39:39,559 --> 00:39:42,960
anticipate Dan Patrick pulling out that nickname.

606
00:39:42,719 --> 00:39:44,960
Speaker 2: But give anybody any ideas.

607
00:39:44,599 --> 00:39:46,599
Speaker 3: But I think it is an interesting thing. You know,

608
00:39:46,679 --> 00:39:51,039
people have watched the delicate dance between Greg Abbott and

609
00:39:51,119 --> 00:39:54,679
Dan Patrick for years, and you know, how well do

610
00:39:54,760 --> 00:39:58,800
they get along, how much willing are they to work together.

611
00:40:00,039 --> 00:40:04,119
I'm not sure we have. In that twenty twenty three fight,

612
00:40:04,199 --> 00:40:06,880
you know, there was I think frustration from both the

613
00:40:06,960 --> 00:40:11,039
Speaker and the Lieutenant governor about whether Abbott should be

614
00:40:11,039 --> 00:40:14,039
being more vocal and sort of pointing the direction that

615
00:40:14,119 --> 00:40:15,880
he wants.

616
00:40:16,679 --> 00:40:20,119
Speaker 4: Now they figured that out will be interesting another yeah,

617
00:40:20,159 --> 00:40:22,639
you know, another issue that was raised in that really

618
00:40:22,679 --> 00:40:25,719
by Dad Feelin was that, you know, one of the

619
00:40:25,760 --> 00:40:30,320
biggest problems with all of these solutions is that and

620
00:40:30,360 --> 00:40:32,639
I wrote a paper on this, so that in twenty

621
00:40:32,639 --> 00:40:41,000
three there was the twenty percent cap on non homestead

622
00:40:41,079 --> 00:40:46,440
properties valued under five million dollars, and what you saw

623
00:40:46,639 --> 00:40:53,239
in that was that when you cap something like that.

624
00:40:53,400 --> 00:40:57,719
Any cap all it does is shift taxes somewhere else.

625
00:40:57,760 --> 00:41:01,880
And this is true for expansions the homestead exemption as well.

626
00:41:02,400 --> 00:41:04,559
And so what we've been seeing in much of the

627
00:41:04,639 --> 00:41:09,000
last ten years is just a shifting of the property

628
00:41:09,039 --> 00:41:14,280
tax burden from households to businesses. And I don't think

629
00:41:14,360 --> 00:41:19,719
that's a sustainable way to reduce property taxes. And so

630
00:41:19,760 --> 00:41:21,960
at some point we're going to have to have some

631
00:41:22,079 --> 00:41:26,880
better plans than what our politicians are trying to sell us.

632
00:41:27,920 --> 00:41:29,880
But for now, this is the.

633
00:41:29,800 --> 00:41:32,639
Speaker 1: Best we have, and I think there will eventually be

634
00:41:32,960 --> 00:41:38,639
political pushback in Texas to continuing to put burden on businesses, right,

635
00:41:38,840 --> 00:41:42,519
you're not putting on individuals. Well, I think it is

636
00:41:42,599 --> 00:41:44,960
clear that this is going to be the issue of

637
00:41:45,039 --> 00:41:47,440
the year, the issue of next year, the issue of

638
00:41:47,559 --> 00:41:53,840
probably the next decade of Texans' lives, but certainly something

639
00:41:53,880 --> 00:41:55,280
we are going to continue to dig in on.

640
00:41:55,760 --> 00:41:57,800
Speaker 2: John. Thank you so much for joining us this week

641
00:41:57,840 --> 00:42:00,519
on trip Cast. We appreciate it absolutely.

642
00:42:00,519 --> 00:42:01,320
Speaker 4: Thank you for having me.

643
00:42:01,920 --> 00:42:04,559
Speaker 1: You can find Tripcast anywhere you get your podcasts. Our

644
00:42:04,599 --> 00:42:06,840
theme music is by Rob and Chris, who are also

645
00:42:06,880 --> 00:42:09,440
our producers, and we will see you next week,