How Will New Federal Income Tax Laws About Property Tax Deductions Affect a TRE?

It’s a drum several Dallas ISD trustees have been beating for a while — a Tax Ratification Election that would allow the district to increase services and programs at dozens of at-risk schools with the money raised by increasing property taxes rates.

But they’ve yet to get it on the ballot.

Recently, I outlined some of the things you should know about how your federal income taxes would be impacted by the new tax bill signed into law. Specifically, we talked about property taxes, for which (combined with local and state taxes) the deduction is capped at $10,000 per year.

That in and of itself will affect many homeowners in pricier areas of town where property values have skyrocketed. Gov. Greg Abbott recently bandied the idea of property tax reform, but the prospect is dodgy for two reasons: one, the state doesn’t levy property taxes, the local government does, and the state doesn’t do appraisals, and so it can’t control how a particular property is valued.

And two, his plan would limit local governments to annual revenue increases of 2.5 percent, require two-thirds of voters to approve any additional debt  — which could impact the services cities and counties offer their citizens.

I have no quarrel with the idea of making property appraisal boards more accountable to voters, giving taxpayers a little more in their toolbox to protest valuations, and a mandate to for the legislature to stop forcing unfunded mandates on cities and counties (which is the other part of his proposal).

However, Abbott is only speaking of future law — not any current laws on the books that previous sessions have foisted on taxing governments.

And this still doesn’t address the most obvious way to lower property taxes — equitably funding education. If the state funded education at the levels it should, it would take the pressure off local school districts — who in turn would not have to ask taxpayers to approve property tax increases.

How will this affect Dallas ISD and any hope it has for passing a TRE? Polling the last time revealed that many were seemingly on board — even those who would get the bigger tax bills because of it. But what about now, when there’s a cap on what you can deduct, and the state won’t consider the obvious solution?

Trustee Edwin Flores, who represents District 1, sees the new tax law making an already uphill battle just that steeper.

“Yes, I think the new tax law changes the political equation,” he said. “I think that voters in D2, D1, and the Kessler Park area of D7 (Pinkerton), who are less than 65 years old (not capped) will pay more in taxes because they will max out and exceed the new cap on their property tax deduction.”

“This is a change in the federal tax law, not a local change,” he continued. “For those voters, at least, the TRE would affect their bottom line on a dollar-to-dollar basis after they max-out their deduction.”

In other areas of the city where property values are not as great, he said, the standard deduction will probably cover a homeowner’s property tax — TRE or no.

It was estimated during the last go around that about 83 percent of the increase would be paid by property owners who were represented by trustees who were in favor of the TRE, and 73 percent of those who would benefit from programs paid for by the increased funds generated by the TRE came from districts where trustees voted no.

Flores pointed out that really two issues are at play when it comes to what Dallas ISD asks of property owner when it comes to property taxes — federal law, and sustained decreases in public school funding by the Texas legislature.

“The fact that voters in D2, D1, and the Kessler Park area of D7, will lose some of their tax deduction is a result of legislators in Austin using local property taxes to balance their budget,” he said.”If Austin provided more funding for schools, then local property taxes would be lower, and voters would be less likely to max-out their federal tax deduction.”

“By relying on local taxpayers to fund the majority (or all) of the school funding, the legislature in Austin is directly responsible for the increase in what taxpayers will pay the federal government, rather than that money being sent to the state or local government,” he added.

“Ironic, isn’t it?”

But both Flores and fellow trustee Dustin Marshall are hopeful that if a TRE could get on the ballot, people would see the value in increasing education dollars — especially if they were targeted for specific, measurable endeavors.

“I’m not sure anyone knows for sure how this would impact the passage of a TRE, but we know from previous polling that DISD voters strongly support the idea of giving DISD more funds to improve student outcomes,” said Marshall, who represents District 2, “so I hope, and believe that this desire will outweigh the changes in personal tax benefits of deducting property taxes.”

Flores agrees.

“I think that voters could support the TRE if they perceive that their added sacrifice (via taxes) will be money that is well spent,” he said. “Certainly the success of the ACE school program, the new school choice offerings, and the collegiate academies are significant evidence when it comes to showing that we are doing a good job with our existing dollars.”

Flores said that if the district is smart about how it explained and structured the TRE — pointing to the city of Dallas’ easily passed bond election, it could still find success.

“I still think that voters would favor specific, targeted types of TRE funding if they were focused on specific programs, like the City of Dallas did with their bond program and the various propositions,” he said.

Bethany Erickson is the education, consumer affairs, and public policy columnist for CandysDirt.com. Contact her at [email protected].