Speaker 1: Hello, and welcome to the Texas Tribune Tribe Cast for Tuesday,
Speaker 1: January thirteenth. I'm Eleanor Klibanoff Law and politics reporter, joined
Speaker 1: as always by Editor in chief Matthew Watkins.
Speaker 2: It's going well, yeah, yeah, we're talking about my favorite topic. Yes, well,
Speaker 2: I was gonna say.
Speaker 1: I mean, one of the great joys of being a
Speaker 1: Texas politics reporter is even numbered years where you get
Speaker 1: to watch your colleagues across the country go back to
Speaker 1: their state capitals and cover legislative sessions and we get
Speaker 1: to just, you know, totally check out, basically, take a
Speaker 1: year off. Nobody's talking about anything interesting, nobody's really getting
Speaker 1: that into politics at all.
Speaker 2: Frankly, no, if only that was the case.
Speaker 1: Our beloved elected officials are giving us no time off. Obviously,
Speaker 1: we have the twenty twenty six primary election in like
Speaker 1: thirty five minutes from now, and it's becoming increasingly clear
Speaker 1: what the main topic for the twenty twenty six election,
Speaker 1: and obviously the twenty twenty seven legislative session is going
Speaker 1: to be, and it.
Speaker 3: Is property taxes.
Speaker 1: Property taxes, which you know, just already we've got our
Speaker 1: elected officials at each other's throats about this.
Speaker 3: And I would just like to know that I have
Speaker 3: no idea what that drum roll sounded like to our podcast.
Speaker 1: I realized relatedly, that's probably the worst thing you can
Speaker 1: do other than like chew gum while doing this, So
Speaker 1: sorry about that. You know, this is going to be
Speaker 1: just a very very important topic. That's we're already getting
Speaker 1: very in the weeds, like shockingly in the weeds, considering
Speaker 1: we are a year out from the next legislative session.
Speaker 1: To talk about the different proposals that are different lawmakers
Speaker 1: are talking about and why this issue just continues to
Speaker 1: be such a hot topic in Texas. We are joined
Speaker 1: by John Diamond, the senior director of the Center for
Speaker 1: Tax and Budget Policy at the Baker Institute.
Speaker 2: John, thanks for being here.
Speaker 4: It's a pleasure to be here. Thank you for having me.
Speaker 1: Yeah, I mean, for all we talk about property taxes,
Speaker 1: and that our state wide elected officials talk about property taxes.
Speaker 1: You know, Texas does not actually have a statewide property tax.
Speaker 1: We have local taxes set by cities, counties, and school
Speaker 1: districts that pay for a wide range of services that
Speaker 1: many other states choose to cover with income tax, which
Speaker 1: we obviously don't have, John, maybe you can sort of
Speaker 1: give us a little bit the lay of the land
Speaker 1: on where things stand now before we get into all
Speaker 1: the where things people want things to go. This has
Speaker 1: been a big hot button issue in the legislature for
Speaker 1: a couple of sessions.
Speaker 2: Now you know.
Speaker 1: What property taxes do people in Texas have to pay
Speaker 1: and sort of what are some of the like Where
Speaker 1: have those recent fights taken us in terms of progress
Speaker 1: on that?
Speaker 4: Well, so you mentioned I mean there's property taxes. Cities
Speaker 4: have them, counties have them, school districts have them, and
Speaker 4: we have these strange entities called these special districts, which
Speaker 4: include flood districts and many other smaller groups that impose
Speaker 4: a property tax on Texas residents. There's been a lot
Speaker 4: of changes since twenty fifteen. So we've had reforms in
Speaker 4: twenty fifteen, twenty nineteen, twenty twenty three, and twenty twenty
Speaker 4: five that have all aimed to reduce the bite of
Speaker 4: the property tax on Texas homeowners and business business. It's
Speaker 4: done very little to lighten the voter disapproval of the
Speaker 4: amount that they have to pay in property taxes. And
Speaker 4: that's mostly because home values over that period have gone
Speaker 4: up substantially, have gone up faster than median incomes, and
Speaker 4: I think that's put a squeeze on the tax player budget.
Speaker 4: While counties, districts and other government entities also complain about.
Speaker 3: Their budgets, one of the one of my favorite things
Speaker 3: to sort of say about property taxes is that they
Speaker 3: were perfectly designed to make people angry. Right, Like, when
Speaker 3: your sales tax bill goes up. I mean, I know
Speaker 3: you don't get a sales tax bill, but when the
Speaker 3: amount you're paying in sales tax goes up, it's because
Speaker 3: you're buying more things, which is fun, and you get
Speaker 3: some stuff out of it. Right, If your federal income
Speaker 3: tax goes up, it's probably because you've gotten a raise, right,
Speaker 3: and you again, like you might not feel it, and
Speaker 3: you might associate it with a good right, But your
Speaker 3: property tax cut, your property tax payments can go up
Speaker 3: without you doing anything or realizing any immediate benefit. Right,
Speaker 3: you buy a house, you're the value of your house
Speaker 3: goes up. That's good, right, it raises your net worth
Speaker 3: and all that, But it's a benefit that you can't
Speaker 3: realize until you probably sell the house or I guess
Speaker 3: maybe like take a loan out on the House or
Speaker 3: any of those types of things. Right, but your taxes
Speaker 3: already go up, and that's just an incredibly frustrating thing
Speaker 3: to experience. You're like, I didn't do anything here, but
Speaker 3: my tax bill went up, and like that to me
Speaker 3: is like the reason why basically we're in this world
Speaker 3: right now where we can talk about what Greg Abbott
Speaker 3: wants to do here in a minute, but basically, like,
Speaker 3: basically politicians are asked every year, no matter what they
Speaker 3: did the previous session, what are you going to do
Speaker 3: about my property taxes? Because that frustrating growth continues to happen.
Speaker 1: Yeah, I mean I'm curious and like Johnny, like since
Speaker 1: twenty fifteen, we've seen a lot of these reforms. I
Speaker 1: think for a while before that, you know, there were
Speaker 1: people calling for property tax reforms. It did not have
Speaker 1: as much political salience as it does now. No one
Speaker 1: is ever happy when they get their tax bill. Is
Speaker 1: what change that brought made things start moving on? This
Speaker 1: that made is an actual political have some more political
Speaker 1: pressure behind it.
Speaker 4: You know. Again, I'll go back to the rise in
Speaker 4: housing values and how much faster housing values were rising
Speaker 4: than income, and so you know that yearly hit when
Speaker 4: you know, so when housing prices go up, you kind
Speaker 4: of double WHAMMI in that if you move to a
Speaker 4: new house, you know, you have to pay more for
Speaker 4: your mortgage. And then on top of that, we were
Speaker 4: in a very low interest rate period, so houses were
Speaker 4: very cheap in terms of the monthly payment. But then
Speaker 4: starting in twenty seventeen, intrat rates started to creep up,
Speaker 4: and then they after COVID, they ramped up fairly quickly,
Speaker 4: and that made owning a house even more expensive. So
Speaker 4: all of the additional cost added to this yearly property
Speaker 4: tax payment that was going up rapidly and faster than
Speaker 4: people felt they could afford. Even though during that period
Speaker 4: the state government kept saying, we're going to solve this problem.
Speaker 4: Here's you know, we're going to compress the school tax
Speaker 4: rate by ten cents. We're going to raise your property
Speaker 4: tax exemption from you know, fifteen thousand to twenty five
Speaker 4: thousand to forty thousand to one hundred thousand. But taxpayers
Speaker 4: continued to feel, you know, the pressure of higher property
Speaker 4: tax payments, even though the state government was telling them
Speaker 4: we're acting, we are going to solve this problem. We're
Speaker 4: going to bring these taxes down, but they've been relatively ineffective.
Speaker 4: I mean, they have brought them down some, but the
Speaker 4: increase in house prices have just eaten away at that
Speaker 4: over that same time period.
Speaker 1: I mean, I think what we're hearing now from some
Speaker 1: sort of loudest voices is, you know, eliminate property taxes, right,
Speaker 1: I mean a little bit more rhetoric around like you're
Speaker 1: basically paying the government rent to live on your private property.
Speaker 1: I feel like there's a little bit more of a
Speaker 1: hardened ideology forming around this that you know, property taxes
Speaker 1: are you know theft or you know theft from the government,
Speaker 1: And is there a world in which you know we're
Speaker 1: going to go through again the specifics of the plan
Speaker 1: for like, here's how we could pull some of this back.
Speaker 1: Can Texas eliminate property taxes? And what would happen if
Speaker 1: we just were like we're done allowing you know, anyone
Speaker 1: to tax your property.
Speaker 4: So I've written two papers on this, so I would
Speaker 4: run a total repeal of property taxes. So if we
Speaker 4: were to eliminate property taxes and replace them with an
Speaker 4: increase in the sales tax rate but no other change,
Speaker 4: so we don't broaden the base. We don't reduce expenditures.
Speaker 4: It's just a swab sales tax for property tax. And
Speaker 4: you know, the results I got were that you would
Speaker 4: need about a twenty two percent rate, assuming that there's
Speaker 4: no evasion of the higher sales tax rate. But we
Speaker 4: know from the literature that if you raise the sales
Speaker 4: tax rate to twenty two percent, people are going to
Speaker 4: avoid and evade that tax. And so if you just
Speaker 4: build in a very modest amount, say ten percent, evasion
Speaker 4: of the sales tax, that the rate would need to
Speaker 4: go to twenty six percent. And so that is to
Speaker 4: replace the roughly eighty billion in property taxes that are
Speaker 4: collected at all levels, city, county, school district, and special
Speaker 4: purpose districts. I read another paper in I think it
Speaker 4: was around twenty seventeen, it maybe twenty eighteen that looked
Speaker 4: at just replacing the O and M portion of school tax.
Speaker 4: So this is roughly forty billion dollars. And in that
Speaker 4: paper I allowed the sales tax base to be expanded.
Speaker 4: I think I took it from about sixty percent of
Speaker 4: goods were tax to write around seventy leaving a bunch
Speaker 4: of the most controversial or the most desired goods that
Speaker 4: people want to be untaxed, like food, and so worth
Speaker 4: leaving those untaxed and just expanding to things like services
Speaker 4: and that kind of thing. And that raised the sales
Speaker 4: tax base to about seventy percent of total final sales.
Speaker 4: And then I reduced expenditure by a small amount each year.
Speaker 4: And in that paper I estimated that you would need
Speaker 4: to raise the sales tax just to get rid or
Speaker 4: just to eliminate the school tax, the operations and maintenance
Speaker 4: tax by about you'd have to rise it to about
Speaker 4: nine point seven percent, So it's about a percentage point
Speaker 4: and a half that is actually doable where complete elimination
Speaker 4: of school district taxes as well as city count and
Speaker 4: special purpose districts, raising the rate to twenty two or
Speaker 4: twenty six percent is not feasible. I mean economically that
Speaker 4: would not work out well. The inefficiencies in that system
Speaker 4: would be much larger than the inefficiencies in the current
Speaker 4: with a property tax system. And so I think that's
Speaker 4: where we are. So is it reasonable to think in
Speaker 4: other states? And we actually know this is true. So
Speaker 4: if you a state like Michigan and lots of other states,
Speaker 4: actually they don't fund schools locally through property taxes. So
Speaker 4: we could easily fund our education system at the state
Speaker 4: level and carve out, or get rid of, or eliminate
Speaker 4: the property taxes for school districts at a local level,
Speaker 4: although you would still leave property taxes to finance long
Speaker 4: term debt, so things like building school buildings or sports
Speaker 4: stadium their football stadiums or whatever, those could still be
Speaker 4: financed by property taxes at the local level. And I
Speaker 4: will point out that one of the problems with replacing
Speaker 4: all property taxes is on the back end. So once
Speaker 4: you replaced the taxes, let's say we replaced all property
Speaker 4: taxes with a sales tax, we raise the rate to
Speaker 4: twenty six percent. The state then has to allocate that money.
Speaker 4: And how do you allocate that money between cities, counties,
Speaker 4: special purpose districts, and school districts. That's a very complicated formula.
Speaker 4: It's one California has had to deal with post Prop
Speaker 4: thirteen and nineteen seventy eight. And what they do, the
Speaker 4: way they do it, when you actually look at it
Speaker 4: and look at the data is pretty strikingly bad. Like
Speaker 4: it's something we definitely want to avoid. So I will
Speaker 4: stop there. Well, I mean yes, it is possible in
Speaker 4: some sense, but not in a total sense.
Speaker 1: Right.
Speaker 2: I mean, I think.
Speaker 1: You eventually have to pay for some government services, right,
Speaker 1: like some the money has to come from somewhere. And
Speaker 1: to your point, yes, I mean I think sales tax
Speaker 1: is more appealing in that like, well, you're at least
Speaker 1: getting something. But a twenty you know, twenty five thirty
Speaker 1: percent sales tax increase I think would.
Speaker 2: I don't know that people would love that?
Speaker 3: No, probably not. And I mean it's worth noting that
Speaker 3: in twenty nineteen, I might be getting the date wrong.
Speaker 3: You can correct me if I am the Big Three
Speaker 3: At the time, Speaker bond In I believe, Speaker Or
Speaker 3: and then Lieutenant Governor Dan Patrick Governor Greg Abbott proposed
Speaker 3: increasing the sales tax by one cent, essentially in an
Speaker 3: effort to buy down property taxes. They did this late
Speaker 3: in the session after there was a big push to
Speaker 3: reduce property taxes, and it quickly generated major pushback and
Speaker 3: ended up failed. So if they can't get a one
Speaker 3: percent increase, a one cent increase, can you do a
Speaker 3: twenty two cent you know, sales tax? I would be
Speaker 3: highly skeptical of that. The other thing that I think
Speaker 3: is worth noting here is that sales tax is also
Speaker 3: a very regressive tax, right, and a poorer people pay
Speaker 3: a higher proportion of their incomes towards sales taxes than
Speaker 3: they do, you know, other kinds of taxes. You know,
Speaker 3: whether that would be a concern of say, lawmakers or
Speaker 3: not is hard to say, but another possible drawback from
Speaker 3: doing that.
Speaker 1: And like, I mean, just when we think about I mean,
Speaker 1: I rent my apartment. I understand that they're you know,
Speaker 1: in the long run, people say, like property tax reform
Speaker 1: does eventually help renters, you know, you know, all all
Speaker 1: of that. But at the end of the day, if
Speaker 1: I'm you know, I don't have to pay a property
Speaker 1: tax bill every year, but if I have to pay
Speaker 1: twenty two percent more every time I go to the
Speaker 1: grocery store, that's sort of more persistent annoyance, which obviously,
Speaker 1: as we're saying, sort of a non starter. But I
Speaker 1: think for the people who are saying, you know, abolish
Speaker 1: property tax, not anything less is unacceptable, I haven't heard
Speaker 1: a ton of sort of sitting with the reality of
Speaker 1: what that might look like.
Speaker 4: John, I wanna ask you what we need another revenue source.
Speaker 4: I mean, you definitely need to replace at least a
Speaker 4: large portion of the revenue. So maybe there would be
Speaker 4: some spending cuts that could all sets for sure, you know.
Speaker 4: But another problem with the sales tax that doesn't often
Speaker 4: get attention is that about forty percent forty to fifty
Speaker 4: percent of the sales tax space is on business purchases,
Speaker 4: and so you know, as economists, we call that a
Speaker 4: cascading tax, and those are not very efficient taxes. And
Speaker 4: so the sales tax system does have its wards, and
Speaker 4: that makes it actually hard to raise the rate too
Speaker 4: much more than where we have it. I think you
Speaker 4: could go to around ten percent, although I agree with
Speaker 4: Matt politically that's a much bigger lift than it is economically.
Speaker 4: But I think that's where you're capped. Anything over ten
Speaker 4: percent and there's going to be some major inefficiencies that
Speaker 4: creep into the system more so than we currently have.
Speaker 4: And so my view is that you really would need
Speaker 4: to replace if you really wanted to eliminate property taxes,
Speaker 4: you would need to replace the sales tax with a
Speaker 4: more efficient version of a consumption tax.
Speaker 3: John, I want to ask you talked to about how
Speaker 3: you know, if you get rid of property taxes, you
Speaker 3: have to replace it. I mean, for the last let's say,
Speaker 3: seven or eight years, the state has essentially been able
Speaker 3: to lower property taxes for free. It's not for free,
Speaker 3: of course, because we're spending money on it, but economic
Speaker 3: growth in taxes has been so significant that they have
Speaker 3: had the surplus revenue largely from sales tax increase spending
Speaker 3: and you know, maybe some inflation that is driving increased
Speaker 3: sales tax revenues as well, that they've been able to
Speaker 3: take money from the sales tax pool and use it
Speaker 3: to buy down property taxes, specifically in schools. The number
Speaker 3: that was sort of you know, reported by the Legislative
Speaker 3: Budget Board last year was the state has essentially committed
Speaker 3: in recent sessions fifty one billion dollars in order to
Speaker 3: do this. I think there are a lot of people
Speaker 3: asking the question of like, is that era of sort
Speaker 3: of free property tax reduction still possible given where we
Speaker 3: might be economically right and that you know, the sales
Speaker 3: tax revenues other revenues in the state might be stagnant
Speaker 3: or even down next year in twenty twenty seven's, it
Speaker 3: might be very hard to even continue paying for the
Speaker 3: cuts that we did these past few sessions. Let alone
Speaker 3: significantly reduce school property taxes, or as Governor Bett is asking,
Speaker 3: completely get rid of them. I wonder if you could
Speaker 3: just sort of reflect on that situation for me. Do
Speaker 3: you feel like the way I've framed it is accurate?
Speaker 3: How does that factor into these conversations do you think
Speaker 3: going forward?
Speaker 4: I think you've framed it pretty well. So, starting in
Speaker 4: around twenty a little before twenty seven, we started to
Speaker 4: see an increase in sales taxes. This was partly due
Speaker 4: to the way that we treat online UH sales, and
Speaker 4: that actually led to a significant increase in sales tax
Speaker 4: revenues by taxing anyone that sells goods online that has
Speaker 4: a nexus in Texas UH. And so we've seen this
Speaker 4: surplus of revenues both because of higher sales tax revenues
Speaker 4: as well as the other big revenue increase. It wasn't
Speaker 4: a revenue well, it's a it's a money increase in
Speaker 4: Texas was the large expansion in fiscal health from the
Speaker 4: federal And so when you look at Texas's budget, about
Speaker 4: a third of it comes from inner governmental transfers from
Speaker 4: the federal government, and so we had a huge expansion
Speaker 4: in that we collected more revenues from the sales tax,
Speaker 4: and so we've run you know, really large surpluses for
Speaker 4: much of the past eight or nine years, with the
Speaker 4: exception maybe of twenty twenty. And so those surpluses have
Speaker 4: been used to buy down the tax rates or expand
Speaker 4: the homestead exemption. And yes, it has seemed much like
Speaker 4: it was a free you know, a free property tax break.
Speaker 4: But those are revenues that are being collected from either
Speaker 4: taxpayers here in Texas or in the case of the
Speaker 4: federal grants and subsidies, taxpayers in the US. So you know,
Speaker 4: we all know there's no such thing as a free launch.
Speaker 4: But overall, I thought your explanation was was pretty much
Speaker 4: spot on.
Speaker 1: I mean, as we've sort of continue to say in
Speaker 1: this conversation, where like the money does have to go
Speaker 1: come from somewhere, school districts, counts, you know, cities, counties
Speaker 1: do need money to pay for some things.
Speaker 3: So how do you how do you then, like, let's
Speaker 3: let's talk specifically about Abbott's plan here, because you know
Speaker 3: he he rolled out in a press conference a big
Speaker 3: event late last year, this sort of idea of this
Speaker 3: is going to be my big issue in twenty twenty six,
Speaker 3: as I run for reelection getting rid of the school
Speaker 3: property tax, given all the context of you know what
Speaker 3: we just heard and what we just talked about, how
Speaker 3: possible do you think that is? How do you sort
Speaker 3: of evaluate this proposal? As we you know this guy's
Speaker 3: probably going to win reelection.
Speaker 2: We can well for sure anything as possible.
Speaker 1: I'm not a gun of a crystal ball, but let
Speaker 1: me just briefly go through the three main prongs of
Speaker 1: his proposal. So, the one prong, as we've talked about,
Speaker 1: accounts for sort of the largest chunk of most people's
Speaker 1: property bills, which is school district taxes. Abbott wants to
Speaker 1: allow voters to decide whether to abolish school property taxes
Speaker 1: on homeowners because he believes the state's collecting enough revenue
Speaker 1: to sort of backfill that money. They want to make
Speaker 1: it harder for cities and counties to raise local taxes
Speaker 1: by requiring a two thirds vote at the ballot box, which,
Speaker 1: as one expert that our colleague Josh Vector talked to, said, basically,
Speaker 1: there's no way that would ever pass in most places,
Speaker 1: so you're really tying people's hands. And then also put
Speaker 1: a cap on property on the increase in property values
Speaker 1: so that your property value cannot increase more than three
Speaker 1: percent a year and it's a praised value. Some of
Speaker 1: which experts say could work, some of which they say,
Speaker 1: you know, would likely be a problem.
Speaker 2: Is you sort of alluded to?
Speaker 1: But yeah, I mean, so what do you of these
Speaker 1: you know, three prongs, John, What do you sort of
Speaker 1: make of the feasibility putting aside, honestly the politics of it,
Speaker 1: just of this effectively lowering people's property tax bills and
Speaker 1: also continuing to get people the services that they expect.
Speaker 4: Well, you could definitely, you know, is it feasible? Let's
Speaker 4: just start there. It's absolutely feasible, you know. I mean,
Speaker 4: I've written a paper on replacing the school M and
Speaker 4: O property tax and it could be done. It would
Speaker 4: require some base broadening on the sales tax side, and
Speaker 4: a reduction and expenditures to keep the rate below ten percent.
Speaker 3: When you say base blinding, do you basically mean like
Speaker 3: increasing the tax rate?
Speaker 4: No, I mean increase See the number of goods that
Speaker 4: are subject to the sales tax, so you know the
Speaker 4: age old. The one that comes up is you could
Speaker 4: tax services like golf lessons, gotcha? Other types of lessons.
Speaker 4: There's a lot of services that are untaxed that we
Speaker 4: could include and that would bring in additional revenue at
Speaker 4: the current rate.
Speaker 3: Underson.
Speaker 4: You know, I have proposed before switching from a sales
Speaker 4: tax to a value added tax, and actually that this
Speaker 4: was proposed by Governor Bush back in nineteen ninety seven,
Speaker 4: I think it was. It didn't last very long politically,
Speaker 4: but a value added tax would would be a more
Speaker 4: efficient version of a sales tax. That would both be
Speaker 4: more efficient on the business side and it would allow
Speaker 4: for collecting more you know, more or stages of the
Speaker 4: production process. But that's another discussion. So it is feasible,
Speaker 4: you know, the appraisal cap I mean, so let's say
Speaker 4: it is feasible. Obviously, there are the problems with expanding
Speaker 4: the sales tax rate too high. You know, appraisal caps.
Speaker 4: We know that those are fraught with problems, especially a
Speaker 4: three percent cap. You know, would it work to bring
Speaker 4: down people's taxes, Yes, it would work to bring down
Speaker 4: some people's taxes. If you buy a house and you
Speaker 4: stay in it for a long time, you would see
Speaker 4: a tax reduction. But if you have to sell, or
Speaker 4: if you're an entrant into the housing market. Then you know,
Speaker 4: your property would pre ap pray would reappraise at market value,
Speaker 4: and so there you would end up with the haves
Speaker 4: and the have nots. The havelves would be the people
Speaker 4: that locked in a really low value and they would
Speaker 4: get locked into their house, much like people are locked
Speaker 4: into their houses with low interest rates. So because you
Speaker 4: have this financial benefit of a really low appraised value,
Speaker 4: it becomes too expensive to move to a new property,
Speaker 4: just like currently we see people with really low mortgage
Speaker 4: interest rates. They just can't afford to move out of
Speaker 4: their house because you know, going from a you know,
Speaker 4: a three hundred thousand dollars house with a two percent
Speaker 4: mortgage rate to a three hundred thousand dollars house with
Speaker 4: a six percent mortgage interst rate is not feasible for
Speaker 4: their budget. And so you get what's called a lock
Speaker 4: in effect. And so all of this is feasible. The
Speaker 4: problem is it's all from one side. I mean, so
Speaker 4: we're talking only about the tax side and state I
Speaker 4: mean in local governments also have a spending side to
Speaker 4: look at, and you know, those two things have to
Speaker 4: align because they have to balance their budgets. And so
Speaker 4: there is you know, there is concern over that, but
Speaker 4: mainly for me, I mean, the problem on the tax
Speaker 4: side is that the way we're trying to do this
Speaker 4: is a little disjointed, and I really think the appraisal
Speaker 4: cap the appraisal caps bring in a lot of inefficient
Speaker 4: aspects that would you know, that would be detrimental to
Speaker 4: the housing market and for many people in the housing market,
Speaker 4: although it would benefit a fair number of people that
Speaker 4: are able to stay in their house for a long time.
Speaker 3: Yeah, I think a key point you made there too
Speaker 3: is right, like we talk a lot about this of
Speaker 3: like replacing revenue and everything like that. I'm sure Governor
Speaker 3: Abbott and other people who would advocate for this plan
Speaker 3: would say that this is you pay for this three
Speaker 3: different ways, right you You know, maybe there's some like
Speaker 3: tweaks to expanding the base, like you talk about. There's
Speaker 3: also just the long ongoing economic growth of Texas. You know,
Speaker 3: you hear folks who have advocated for this talk about that,
Speaker 3: like Texas has had this economic miracle for you know,
Speaker 3: decades now, and that can help pay for that too.
Speaker 3: And then on the other side is of course reductions
Speaker 3: and spending. You probably can't do this without some kind
Speaker 3: of you know, spending cuts in these areas too, which
Speaker 3: you know, when you're talking about schools is a is
Speaker 3: a difficult thing to do, and and we can certainly
Speaker 3: draw blowback well, difficult, difficult politically at least, whether.
Speaker 4: I was gonna I was gonna throw in. So something
Speaker 4: we've seen here in Houston. Houston HISD just put out
Speaker 4: there data on their school population for this year and
Speaker 4: it's down by eighty three hundred students. That's a four
Speaker 4: point seven percent decrease in the size of their student body.
Speaker 4: Their student body has population has decreased every year since
Speaker 4: twenty fifteen. There's been no decrease in property taxes over
Speaker 4: that same period. And when we look at the data
Speaker 4: that's out there right now, and this is you know,
Speaker 4: we talk about economic growth a lot, and one thing
Speaker 4: that everybody is kind of ignoring in the long term,
Speaker 4: which is a really important issue, is the reduction and
Speaker 4: fertility across the United States, here in Texas, everywhere in Japan,
Speaker 4: in Europe, pretty much everywhere in the world except Sub
Speaker 4: Saharan Africa, birth rates are below the replacement rate, which
Speaker 4: means populations are going to be shrinking, and so the
Speaker 4: only way to continue growing the Texas population is to
Speaker 4: do it through immigration, and given current policies, I think
Speaker 4: I'm skeptical of how much immigration growth we're going to
Speaker 4: get in the next four years because at this point
Speaker 4: a lot of the immigration over the last five years
Speaker 4: has been concentrated in international migration, and I think we're
Speaker 4: going to see a lot less of that. So the
Speaker 4: only way to increase the population going forward is just
Speaker 4: going to be through internal US migration. I don't know
Speaker 4: how much more gas is left in that tank, but
Speaker 4: I do know at some point, Texas, just like everywhere
Speaker 4: else in the world, is going to have to deal
Speaker 4: with and think about how do you plan for a
Speaker 4: shrinking population, because that is on the thirty year horizon,
Speaker 4: and when you're thinking about building school buildings and stuff
Speaker 4: like that, you need to be thinking thirty years out well.
Speaker 3: And of course, I mean, we are talking to you
Speaker 3: from Austin, where you know they have been trying to
Speaker 3: close schools for years and that has been its own
Speaker 3: political fight as well. But another example of what you say,
Speaker 3: but I mean, I guess also presuming that we're talking
Speaker 3: about population decline, we're also probably talking about decline and
Speaker 3: other types of revenues. Like, you know, there's likely a
Speaker 3: decline in economic growth or at least a slowing of
Speaker 3: economic growth there as well, that would affect revenue, you
Speaker 3: would think as well.
Speaker 1: Yeah, I mean, you know, we've got I think an
Speaker 1: extraordinary amount of detail from Governor Abbott about how he
Speaker 1: would like to see this play out. We've also heard
Speaker 1: from Lieutenant Governor Dan Patrick with sort of I think
Speaker 1: an agreement on the principle, which is we should find
Speaker 1: a way to reduce property taxes, some pretty significant disagreements
Speaker 1: on how we should do it. Lieutenant Governor Dan Patrick
Speaker 1: has his plan called Operation Double Nickel, which you know
Speaker 1: he who names.
Speaker 2: His plan first.
Speaker 1: Maybe he comes out comes out a little in front essentially,
Speaker 1: which would increase the homestead exemption by another forty thousand
Speaker 1: dollars and allow people to qualify for the increased exemption
Speaker 1: you get when you are considered elderly or disabled, would
Speaker 1: lower that to age fifty five. The double nickel of that,
Speaker 1: and I mean Lieutenant Governor Patrick has said, like we
Speaker 1: can eliminate school property taxes over the coming years, we
Speaker 1: cannot eliminate all property taxes. We're not likely to eliminate
Speaker 1: all property taxes and like remain fiscally solvent. So he
Speaker 1: sort of is ideologically different than Abbot in that regard.
Speaker 3: Yeah, and you know, first of all, I feel like
Speaker 3: we're getting rid of property taxes, has like a bit
Speaker 3: more of a grabby ring to it, an Operation Double Nickel,
Speaker 3: But we can discuss the branding later. I do think
Speaker 3: it's going to be really interesting to watch this from
Speaker 3: just a political perspective, right, because the story of twenty
Speaker 3: twenty four and twenty four elections was Abbot getting behind
Speaker 3: school vouchers as an issue and really really asserting his
Speaker 3: will so that when the next legislature came in, they
Speaker 3: were aligned with him, and he had sort of like
Speaker 3: shown his political strength in saying we're going to get
Speaker 3: this through. The difference of course between you know, So
Speaker 3: now fast forward to twenty twenty six and Abbot is
Speaker 3: sort of signaling that property taxes, school property tax in
Speaker 3: general is like my issue like that as well. The
Speaker 3: difference between those two issues is that in twenty twenty
Speaker 3: four he was on the same side as Dan Patrick.
Speaker 3: Dan Patrick, you know, it was not a coincidence that
Speaker 3: Patrick called that press conference where he announced Operation double nickel.
Speaker 3: You know, days, if not weeks after Abbott came out
Speaker 3: with his own plan, Right, they do not seem to
Speaker 3: be perfectly aligned right here, And how willing are these
Speaker 3: to you know, fight over this is going to be
Speaker 3: a really fascinating thing to watch over the next you know,
Speaker 3: year and a half.
Speaker 1: Basically, and property taxes are just really complicated. Like I
Speaker 1: think it is easier to say are you in on vouchers?
Speaker 2: Are you out on vouchers?
Speaker 1: Versus saying, well, we all agree we want to reduce
Speaker 1: property taxes. We're all coming in from the same position.
Speaker 1: How are we going to do it? That's where the
Speaker 1: splintering happens. And I mean we saw that in twenty
Speaker 1: twenty three. I mean, disagreement over property taxes and how
Speaker 1: to do it. You really messed up some reporters summer
Speaker 1: plans like we I don't think, you know, the nuance
Speaker 1: of how this gets done is going to be very monkey,
Speaker 1: very in the weeds and leave a lot of daylight
Speaker 1: between people who are like otherwise pretty ideologically aligned.
Speaker 3: Yeah, and you know, I mean one of the things
Speaker 3: that they fought over this was Dade Feeling and Dan
Speaker 3: Patrick fighting back in twenty twenty three. One of the
Speaker 3: things they fought over was capping property values right, and
Speaker 3: Dan Patrick was very passionately. You know, the nickname California
Speaker 3: Dad is a reference to the fact that California has
Speaker 3: property property value caps and a lot of people blame that,
Speaker 3: as as John was kind of referring somewhat earlier to
Speaker 3: a lot of people blame that on the the extremely
Speaker 3: high housing values in California, on that, you know, incentive
Speaker 3: to sort of stay inside your house. And so, you know,
Speaker 3: are we going to get a California Greg in twenty
Speaker 3: twenty seven. It'll be interesting to see.
Speaker 4: And I think, you know, when I think back on that,
Speaker 4: I mean, so to think about the Lieutenant Governor's plan,
Speaker 4: you know how I like to state it is, it's
Speaker 4: not really a lot different. So you've got the double
Speaker 4: nickel portion. Well, all that does is freeze people's property
Speaker 4: values when they turn fifty five. So it's basically a
Speaker 4: redistribution of the property tax burden from people that are
Speaker 4: fifty five and older to people that are fifty five
Speaker 4: and younger. And that's similar, not exactly, but it's similar
Speaker 4: to what you get under appraisal cap. You also get
Speaker 4: the lock in effect for people then that are fifty
Speaker 4: five and older, so they both redistribute property taxes to
Speaker 4: the younger generation. That they both cause some extent of
Speaker 4: a lock in effect, one depending on how long you've
Speaker 4: been in your house and one depending on your age
Speaker 4: and once you turn fifty five. It's not quite as
Speaker 4: powerful as the three percent cap, but it is there,
Speaker 4: you know. The thing I like about the Lieutenant Governor's
Speaker 4: plan is that he did include a three point five
Speaker 4: percent cap on spending, so he just didn't the tack side.
Speaker 4: He also brought in a proposal to limit growth on
Speaker 4: the spending side, and I think spending limits such as
Speaker 4: Colorado's spending limit that they've imposed, has been much more
Speaker 4: successful at reducing the growth of the local government sector
Speaker 4: relative to appraisal caps, which I don't think have been
Speaker 4: all that effective in reducing growth. And similar the homestead
Speaker 4: exemptions that we've passed in the last ten years, as
Speaker 4: well as the compression of the property tax right that
Speaker 4: have been passed in several sessions, those haven't done much
Speaker 4: to contain the growth of the local government sector either.
Speaker 4: So I think the one great thing or the one
Speaker 4: thing I was pleased to see in Operation Double Nickel
Speaker 4: was at least some attention paid to both the tax
Speaker 4: and the spending side instead of looking slowly solely at
Speaker 4: the tax side.
Speaker 3: And I'm largely joking about California. Greg, I do not
Speaker 3: anticipate Dan Patrick pulling out that nickname.
Speaker 2: But give anybody any ideas.
Speaker 3: But I think it is an interesting thing. You know,
Speaker 3: people have watched the delicate dance between Greg Abbott and
Speaker 3: Dan Patrick for years, and you know, how well do
Speaker 3: they get along, how much willing are they to work together.
Speaker 3: I'm not sure we have. In that twenty twenty three fight,
Speaker 3: you know, there was I think frustration from both the
Speaker 3: Speaker and the Lieutenant governor about whether Abbott should be
Speaker 3: being more vocal and sort of pointing the direction that
Speaker 3: he wants.
Speaker 4: Now they figured that out will be interesting another yeah,
Speaker 4: you know, another issue that was raised in that really
Speaker 4: by Dad Feelin was that, you know, one of the
Speaker 4: biggest problems with all of these solutions is that and
Speaker 4: I wrote a paper on this, so that in twenty
Speaker 4: three there was the twenty percent cap on non homestead
Speaker 4: properties valued under five million dollars, and what you saw
Speaker 4: in that was that when you cap something like that.
Speaker 4: Any cap all it does is shift taxes somewhere else.
Speaker 4: And this is true for expansions the homestead exemption as well.
Speaker 4: And so what we've been seeing in much of the
Speaker 4: last ten years is just a shifting of the property
Speaker 4: tax burden from households to businesses. And I don't think
Speaker 4: that's a sustainable way to reduce property taxes. And so
Speaker 4: at some point we're going to have to have some
Speaker 4: better plans than what our politicians are trying to sell us.
Speaker 4: But for now, this is the.
Speaker 1: Best we have, and I think there will eventually be
Speaker 1: political pushback in Texas to continuing to put burden on businesses, right,
Speaker 1: you're not putting on individuals. Well, I think it is
Speaker 1: clear that this is going to be the issue of
Speaker 1: the year, the issue of next year, the issue of
Speaker 1: probably the next decade of Texans' lives, but certainly something
Speaker 1: we are going to continue to dig in on.
Speaker 2: John. Thank you so much for joining us this week
Speaker 2: on trip Cast. We appreciate it absolutely.
Speaker 4: Thank you for having me.
Speaker 1: You can find Tripcast anywhere you get your podcasts. Our
Speaker 1: theme music is by Rob and Chris, who are also
Speaker 1: our producers, and we will see you next week,