The

Texas Property Tax Crisis and School Funding Shortfall

The property tax crisis in Texas is not driven by local school district spending. Investment on a
per-student basis has not increased for many years. The property tax crisis in Texas is the result
of the Republican fiscal policy of withdrawing state support from school districts.

In 2008 the state provided 50% of funding for public schools (excluding federal grants). By 2019,
the states proportion will have fallen to 38%. Local school districts have been forced to collect
more property taxes to make up the difference. 1

While property taxes paid per student have been steadily increasing, total investment per
student has remained flat. Property owners are being forced to pay more, but schools are not
receiving more. 2

Texas Republican leaders know that home appraisals will increase automatically, and they rely
on those increases to offset reductions in state support. Article III of the recently-passed state
budget assumes appraisals will increase by 7.0% and 6.44% in 2017 and 2018 respectively. By
comparison, student population is expected to increase by less than 2%.3

The fundamental problem with both property taxes and school funding in Texas is that
Republicans are deliberately shifting the burden of paying for schools onto the backs of
homeowners and small businesses.

Making matters much worse, a massive property tax loophole designed to benefit large
commercial and industrial property owners was signed into law in 1997. The law has allowed
these owners to under-pay their property taxes by billions of dollars, putting further pressure
on homeowners and small businesses to make up the difference.

1
Legislative Budget Board, Texas Education Agency, Center for Public Policy Priorities
2
Texas Education Agency, Legislative Budget Board, Senate Select Committee on Property Tax
Reform and Relief
3
Article III Texas budget, Biennial Rev Estimate, TEA
Texas can, in fact, invest more money in public education AND reduce property taxes for
homeowners and small businesses, provided:

1. The state returns to paying 50% of the cost of public schools.

2. We close the big corporate property tax loophole.

Closing the Property Tax Loophole

My proposal to increase funding for Texas public schools, restore benefits that were taken away
from retired teachers, and reduce property taxes for homeowners and small businesses starts
with closing the big corporate property tax loophole and requiring owners of commercial and
industrial properties to pay property taxes based on fair market value.

The loophole was created in 1997 by Senate Bill 841 known as the Equal and Uniform law.
The theory underpinning Equal and Uniform is good, but the wording creates the loophole. The
theory is that property owners should be able to appeal their appraisal if they can show that
comparable properties are appraised at a lower value. Equal and Uniform is a good idea
because it protects taxpayers from overly-aggressive appraisers.

But loose wording in the law allows owners of large, complex, hard-to-value properties to
shake down appraisal districts and shave billions of dollars off their appraisals. Few, if any,
homeowners or small businesses have the time, money, or expertise to do the same.

The loophole was almost immediately apparent after the 1997 law went into effect. It was
widely reported by 2006 that $4 billion per year in revenues was missing because owners of
large commercial and industrial properties stopped paying their fair share of taxes. Nobody
knows what the number is today. Many believe it is much larger.

For every dollar that the big corporate owners dont pay, its one more dollar Texas
homeowners and small businesses have to pay, or its one less dollar for public education.

Recovering billions of dollars per year by closing the loophole and holding every taxpayer
accountable to pay their fair share of taxes will provide funds to (a) increase investment in
public education, (b) restore retired teacher benefits that were dramatically reduced this year,
and (c) cut property taxes for homeowners and small businesses.

As Lt. Governor, I will propose the corrective measures to close the loophole as follows:

1. The owners of large commercial and industrial properties that attempt to reduce their
appraisals by reference to comparable properties shall be required to show that the
comparable properties are, in fact, comparable. Today, large corporations cherry pick
 cheaper properties, sometimes in other states, and the courts let them get away with it.
This must stop.

2. Sales prices for real property transactions must be made public so everyone knows what
market value truly is. Not only will sales price disclosure give appraisal districts the
information they need to accurately value commercial and industrial properties,
homeowners who appeal their appraisals will have more information to win their fights.

3. Large corporations that lawyer up to fight their local appraisal district will not be
reimbursed for legal fees. In practice, appraisal districts fear going to court because they
risk being forced to reimburse massive legal fees on behalf of the large corporations. So
they simply settle for below-market valuation.

Recovering billions in lost revenues by closing the loophole is not a policy choice that should be
open to debate. It is a matter of requiring all tax payers, including large corporations, to pay the
full amount of taxes due under the Texas Constitution. Requiring homeowners to pay taxes
based on market value, but then allowing big corporations to pay taxes on something below
market value, is unfair and unconstitutional.

Despite the $$ Billions of dollars of lost revenue due to the commercial and industrial
property loophole;

Despite the fact that homeowners and small businesses are paying higher property
taxes as a result; and

Despite the fact that lost revenue contributes to under-funded schools in a material
way,

the recent Senate Select Committee on Property Tax Reform & Reliefs only mention
of the problem was in a letter appended to the report -- stating that the report failed
to mention the problem (despite testimony that was, needless to say, omitted from
the report).4

Achieving Education Excellence

Texas is under-investing in public education in comparison to other states, and it is obvious to
parents and teachers that we need to increase funding. By restoring the states former support
of public education, and by closing the large corporate property tax loophole, more money will

4
Letter Dated November 15, 2016 from Senator Carlos Uresti to Senator Paul Bettencourt and
included as pages 29-30 in report dated November 30, 2016 by The Senate Select Committee
on Property Tax Reform and Relief.
be available for public education, teacher retirement, and cuts in property taxes for
homeowners and small businesses.

Yet more money for schools, teachers, and property tax cuts is not the entirety of my reform
agenda.

As Lt Governor, I will also:

1. Completely change the dialogue regarding public education in Texas. Todays
(Republican) leaders vilify public education and teachers, and that is unacceptable. We
will never have excellent public schools if our leaders continue to work toward their
demise. I will be public educations most vocal champion and I will look to teachers and
parents for input as to policy that makes our schools great. I will not be beholden to
lobbyists, hedge funds, and fringe political movements who are clueless about
education.

2. End the disaster we call high stakes testing which does not contribute to a childs
intellectual development and which drives teachers to the point of despair. There is a
time and place for measuring our childrens knowledge and growth, but high stakes
testing as we know it today is not the answer. Professional educators who understand
learning and teaching should provide the leadership around testing methodology, not
politicians, lobbyists, and testing companies.

3. Ensure teacher reward systems, including compensation, retirement security, and the
respect of the entire community, attract and retain the best teachers in America.

When Texas honors its teachers the men and women who choose the most noble
profession and firmly resolves to have a public education system that is a model for all
others, will we achieve results that will make Texas proud.