Relief Without Restraint: Why Property Tax Relief Costs More

Estimated Time to Read: 30 minutes

Texas will commit an estimated $51 billion during the 2026–27 budget cycle to maintain and expand school property tax relief enacted since 2019. Even so, school districts are projected to collect about $29.3 billion in maintenance and operations (M&O) property taxes in 2026.

Those figures come from a Legislative Budget Board (LBB) staff presentation to the Texas House Committee on Ways and Means on September 15, 2026. The presentation explains how the state funds public schools, reviews recent property tax relief measures, and illustrates the continuing financial commitment required to maintain them.

The figures measure different things. The $51 billion is a two-year estimate of the state cost of maintaining and adding relief. The $29.3 billion is a one-year projection of school district M&O collections. Neither figure alone represents the cost of eliminating school property taxes.

Together, they highlight the question facing lawmakers as the 90th Texas Legislature approaches: How can Texas move from recurring property tax relief toward a durable reduction in the property tax burden?

How Texas School Funding and Property Taxes Work

As Texas Policy Research (TPR) explains, the Foundation School Program (FSP) is the primary mechanism through which Texas distributes state funding to school districts. A district’s funding entitlement is determined by statutory formulas that account for student attendance, student characteristics, and other factors.

Local property tax revenue generally pays for a district’s entitlement first, with state funding covering the remaining amount. The system also includes recapture, which requires property-wealthy districts to send a portion of their local property tax revenue to the state for redistribution to other districts.

Under that structure, reducing school district property tax revenue through rate compression or exemptions generally requires the state to commit additional funding to meet its school finance obligations. Property owners receive relief, but the associated state funding commitment continues into future budget cycles.

The LBB presentation distinguishes between M&O taxes, which support school operations, and interest and sinking (I&S) taxes, which generally pay for facilities debt. School district M&O taxes have two components: foundation and enrichment. Enrichment taxes give districts the option to raise additional funding.

That difference is important because eliminating school M&O taxes would leave in place school district debt service taxes, as well as property taxes imposed by cities, counties, and other local governments, unless lawmakers address those separately.

How Texas Property Tax Relief Has Changed Since 2019

In 2019, the Legislature passed House Bill 3 (HB 3), which established a process to compress school district Tier 1 M&O tax rates as property values grow. Before that legislation, most Tier 1 rates were $1 per $100 of property valuation, according to the LBB.

Lawmakers have since combined continued rate compression with increases in the school district homestead exemption. The exemption rose from $25,000 to $40,000 following legislation in 2021 and then to $100,000 under the 2023 property tax relief package. That package also reduced Tier 1 rates by an additional 10.7 cents per $100 of valuation beyond the existing compression mechanisms. It also created a temporary 20% limit on annual appraisal increases, often called a circuit breaker, for certain non-homestead real property during tax years 2024 through 2026.

In 2025, lawmakers raised the homestead exemption again to $140,000 and increased the additional exemption for homeowners who are 65 or older or disabled from $10,000 to $60,000. They also expanded the business personal property exemption from $2,500 to $125,000 and added 3.31 cents of new rate compression. Voters approved the 2025 homestead increase with about 79% support, down from 94% for the first increase in 1997 and the lowest margin of any homestead exemption amendment since.

Altogether, the state’s maximum compressed school M&O rate has fallen from $1.00 per $100 of valuation before HB 3 to about 62.5 cents for 2026, according to Texas Education Agency (TEA) figures.

These measures provide relief in different ways. A homestead exemption reduces the taxable value of a qualifying residence. Rate compression reduces the applicable school tax rate across the taxable property base, including property that does not qualify for a homestead exemption.

What the $51 Billion Texas Property Tax Relief Estimate Includes

The LBB estimates that the 2026–27 budget includes $51 billion to maintain property tax relief enacted since 2019 and to provide new relief.

Of that amount, about $41 billion equals the cost of maintaining prior relief during the 2024–25 biennium. The remaining $10 billion covers the higher cost of maintaining earlier measures in the current budget cycle, new rate compression, and a contingency for the 2025 homestead and business personal property exemption legislation.

The $51 billion should therefore not be described as an entirely new tax cut. Texas Policy Research’s property tax dashboard breaks the figure down further. About $44.5 billion maintains compression and exemptions already in place, leaving roughly $6.5 billion, about 13% of the headline figure, as genuinely new relief.

The cost of keeping that older relief has also grown far beyond what lawmakers were told. When the 2019, 2021, and 2023 measures passed, the projected 2026–27 cost of maintaining them was about $22.3 billion. The LBB now puts it at $44.5 billion, roughly double, because local spending and appraisals kept climbing underneath the relief.

The estimate demonstrates that property tax relief is not a one-time budget decision. As Texas assumes a larger share of school finance costs, lawmakers must account for that commitment in future budgets while deciding whether and how to provide additional relief.

Texas School Property Tax Collections Remain High

The LBB’s presentation shows that school district M&O property tax collections fell after the 2023 relief package, from about $32.9 billion in tax year 2022 to $27.5 billion in 2023.

Collections then rose to about $29 billion in 2024. The LBB estimates collections of $29.2 billion for 2025 and projects $29.3 billion for 2026. Its 2026 projection assumes 3.6% growth in district property values.

The figures show that lawmakers’ actions produced a substantial reduction in aggregate school M&O collections in 2023, followed by renewed growth. They do not show how much any individual property owner paid. Each bill depends on the property’s appraised value, its exemptions, and the rates adopted by every local taxing unit that levies on it.

They also represent only school district M&O collections. They do not include school debt service taxes or property taxes imposed by other local governments.

The broader levy data show the same pattern. Texas Policy Research’s dashboard of Comptroller data shows that total property tax levies rose from $66.5 billion in 2019 to $89.4 billion in 2025, a 34% increase over the same years lawmakers were buying down school tax rates. Since 1998, levies have grown 378%, compared with 210% for population and inflation combined. School districts levied $41.65 billion in 2025, including debt service, or nearly half the statewide total. As TPR found in its review of 2025 levies, school taxes are only one part of the total property tax burden facing Texans.

What Homestead Tax Bills Show

The LBB figures measure aggregate collections. New data from State Sen. Paul Bettencourt (R-Houston), who chairs the Senate Committee on Local Government, show what the relief has meant on individual homestead tax bills.

Bettencourt’s office gathered tax bill data from appraisal districts and tax assessor-collectors in all 254 counties. Its September 1 presentation reports that about 1.45 million of the state’s roughly 2.38 million over-65 and disabled homesteads, or 61%, owed no school district property tax in 2025, up from 44% in 2024. Among general homesteads, about 949,000, or 25%, paid nothing to their school district, up from 19%. In all, about 39% of the state’s 6.1 million homesteads had a zero school tax bill.

For homeowners who still owe school taxes, the average general homestead bill fell 13.6%, from $1,037 to $896, between 2024 and 2025. The average bill for over-65 and disabled homeowners fell 32.7%, from $565 to $380.

Those are real reductions for the homeowners who received them. The same presentation, however, shows that total school district levies were essentially unchanged, at $41.66 billion in 2024 and $41.65 billion in 2025, according to Comptroller data. When homestead bills fall but total school taxes do not, a larger share of the levy falls on property that does not receive the exemption: rental housing, businesses, and other non-homestead property.

Bettencourt has also noted that once a senior’s school tax bill reaches zero, the tax ceiling keeps it there. That protection applies only to school taxes. City, county, and special district levies, which Bettencourt’s own data show growing faster than school levies since 2019, can still rise.

Texas Property Tax Exemptions and Rate Compression

The LBB presentation also provides context for the continuing debate over how lawmakers should deliver property tax relief.

Increasing the homestead exemption can provide significant savings to qualifying homeowners, but it does not lower the school tax rate itself. Renters, small businesses, and owners of non-homestead property receive none of that benefit. Rate compression lowers the rate for all taxable property, and continued compression can serve as a mechanism for the phased elimination of school M&O taxes.

For that reason, TPR has consistently opposed further homestead exemption increases as the primary vehicle for relief. Each increase is absorbed within a session or two by rising appraisals and local spending. Meanwhile, renters, small businesses, and owners of non-homestead property carry a larger share. Rate compression lowers the tax for every taxpayer and moves the system toward elimination.

Appraisal caps raise similar concerns. The 2023 "circuit breaker" expires after the 2026 tax year, and lawmakers will need to decide what follows it. A Rice University Baker Institute study of five counties found that tax rates rose in every county studied to recover the revenue the cap removed. A Texas Taxpayers and Research Association (TTARA) analysis found that the existing 10% homestead appraisal cap shifted roughly $4 billion in tax burden onto renters, first-time buyers, and businesses in 2022 alone. Exemptions and caps change who pays. Only spending restraint changes how much.

Texas Policy Research has previously examined the competing approaches advanced by Gov. Greg Abbott (R) and Lt. Gov. Dan Patrick (R). Those proposals reflect a broader disagreement over whether lawmakers should prioritize targeted exemptions and freezes or pursue changes to the structure of the property tax system.

Why Property Tax Relief Keeps Getting Absorbed

Every dollar of property tax relief is a dollar of state spending. When the state buys down school tax rates, it replaces local revenue with state general revenue, and that relief competes with every other program in the budget.

That competition has not favored taxpayers. Our analysis of LBB data shows that state funds grew 42.8% between the 2022–23 and 2026–27 budgets, from $166 billion to $237 billion. That is more than twice the roughly 20% growth in population and inflation over the same period. Had state spending grown only with population and inflation, the 2026–27 budget would have used $30 billion to $38 billion less in state funds, more than a full year of projected school M&O collections.

Some spending never appears in the budget at all. Since 2023, lawmakers and voters have committed nearly $40 billion to constitutionally dedicated funds for energy, water, broadband, parks, and other purposes. Because money placed in a constitutional fund is dedicated by definition, it falls outside the state’s tax spending limit. In 2025, lawmakers also passed HB 500, a $16 billion supplemental budget that spent surplus dollars before the new budget was written.

Sen. Bettencourt has argued that the relief was financed with surplus general revenue rather than a new tax, so no taxpayer paid more to provide it. But a surplus means Texans were taxed more than the budget required. Once it is spent on new programs and dedicated funds, it is no longer available to buy down rates, and relief that depends on recurring surpluses is only as durable as the next revenue estimate.

The Path to Eliminating Texas School Property Taxes

The LBB presentation does not estimate the future cost of eliminating school M&O taxes or propose a financing plan. The $29.3 billion in projected 2026 collections provides a picture of the revenue currently raised, but it is not a complete elimination price tag. A plan would also need to account for future changes in property values, school finance formulas, enrichment funding, and recapture. Recapture alone moved about $5 billion from property-wealthy districts in 2024, revenue the state now counts on to meet its school finance obligations.

The question is already on the table. Gov. Abbott has proposed a constitutional amendment that would let voters decide whether to eliminate school district property taxes for homeowners, bringing elimination directly into the 2027 debate. Texas has done something like this before: in 1982, voters approved a constitutional amendment abolishing the state property tax.

Lawmakers would need to identify how to fund remaining school finance obligations while maintaining fiscal discipline. That discussion should include scrutiny of government spending and priorities, as well as consideration of revenue alternatives where needed.

As TPR previously explored, eliminating property taxes also creates an opportunity to evaluate what government should fund and how those services should be financed.

A durable approach would also address the other property taxes Texans pay. School M&O compression does not directly reduce city, county, special district, or school debt service taxes. Without attention to local spending and debt, increases elsewhere on a tax bill can offset some of the savings provided through school property tax relief. That is why, as TPR has noted, even seniors whose school taxes are frozen still face rising property tax bills.

For that reason, TPR has consistently argued that local government spending limits should accompany efforts to reduce school property taxes. The Texas Liberty Compact pairs eliminating property taxes with limiting local spending and debt, and TPR will use those reforms, among others, to evaluate property tax legislation in the 90th session. In practice, that means capping total state spending at population plus inflation with a supermajority required to exceed it, counting transfers into constitutional funds against that cap, dedicating surpluses to compressing school M&O rates every session, and enforcing local spending limits so that compression dollars reach taxpayers.

What Texas Property Tax Relief Means for the 90th Legislature

The LBB presentation shows both the scale of the state’s commitment and the work that remains. Texas has devoted tens of billions of dollars to lowering school property tax rates and expanding exemptions, yet school districts continue to collect substantial M&O revenue, and other local property taxes remain.

As lawmakers prepare for the 2027 legislative session, the central policy choice is whether to continue adjusting exemptions and rates from session to session or establish a measurable path toward reducing and ultimately eliminating school M&O property taxes.

A lasting plan will require more than a target. It will require disciplined budgeting, a clear financing strategy, attention to recapture and school funding, and limits on the growth of other local tax burdens. The LBB’s figures provide a useful starting point for that debate, and Texas Policy Research’s position remains the same: Compress the rate. Discipline the spending. Eliminate the tax.

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