Texas ends special session without limiting property tax revenue increases

The Texas Legislature wrapped up its second special session early Thursday without final passage of a high-priority and contentious bill to rein in city and county property tax revenue increases. 

The Republican-controlled House and Senate passed different versions of Senate Bill 10, which sent the measure to a conference committee.

The version the Senate approved on Aug. 19 would have tightened the state’s limit on annual growth in maintenance and operations property tax revenue for cities and counties with populations of 75,000 or more to 2.5% from 3.5% unless voters approve a higher tax rate.

The House amended that bill to include all Texas cities and counties and to reduce the growth rate to 1% for local governments with populations of 75,000 or more, while exempting their public safety-related expenditures from the lower limit. 

Another amendment added municipal utility districts, which finance water and other infrastructure for new or growing developments using property taxes, to the legislation.

On Aug. 26, the Senate rejected the changes, which the conference committee then also omitted from the bill. 

The House on Monday defeated the committee measure in a 60-71 vote, with some members contending it failed to deliver meaningful tax relief. 

Bill sponsor Republican State Sen. Paul Bettencourt said the House version would have allowed “an unlimited property tax revenue increase on public safety expenditures.”

“Only an agreed-upon Conference Committee Report can provide desperately needed property tax relief to the hard-pressed taxpayers in the state,” he said in a statement. “The (75,000) population bracket in SB 10 would have helped a super majority of Texas taxpayers pay less on their property tax bills in 2026.”

Limiting property taxes was included on special session agendas by Gov. Greg Abbott in an effort to prevent local governments from eroding $51 billion in state-funded tax relief in the biennium that began on Monday.

Another bill involving city property taxes and annual audits that became law and took effect on Monday enhances transparency, Moody’s Ratings said in a comment this week.

The law authorizes anyone to submit a complaint to the Texas Attorney General alleging that a city failed to comply with a state Local Government Code requirement to file its annual audit within 180 days of the end of its fiscal year.  

If verified by the attorney general, the city would be prohibited from adopting a property tax rate that exceeds its no-new-revenue tax rate for the tax year that begins on or after the date of the attorney general’s determination. 

“The deadline and enforcement are transparency enhancements for market participants,” Moody’s said. “The law will compel timely audit reporting providing reliable insights into fiscal health and potential operational risks, all key variables in assessing credit quality.”