Dallas Lawmaker on Why Texas' Property Tax Cut Deal Could Haunt Us

State Sen. Nathan Johnson, a Dallas Democrat, told the Observer about his concerns regarding the $18 billion package.

Texas homeowners may soon see relief on property taxes. Photo by Tierra Mallorca on Unsplash

BY Simone Carter

PUBLISHED August 29, 2023

Dallas Observer

Earlier this summer, many Lone Star lawmakers celebrated after the announcement of an $18 billion property tax cut deal. Now, the legislation’s critics say that not all that glitters is gold. 

In an op-ed published last week in The Dallas Morning News, state Sen. Nathan Johnson warned readers that the sizable cut will likely incur a “big bill” down the line.

Lawmakers had a $32 billion surplus to play with this session, paving the way for the $18 billion property tax slash. Johnson, a Dallas Democrat, pondered in the piece: “[G]iven that we’ve created a permanent obligation to buy down future taxes, how are we going to pay for it when there isn’t a massive surplus?”

Great question.

Although Johnson agrees that residents are in need of a break in property taxes, he thinks the package — all things considered — is “reckless” and “unconservative.”

Johnson told the Observer on Friday that he believes in “honest conversations and sincere politics.” But he feels that at times, politics tends to lean toward populism rather than sustainable, responsible policies.

To some extent, the tax cut deal may have relieved lawmakers of the burden of having to decide how to invest in the state’s physical and social infrastructure, Johnson said. He cited a lack of “sincere political process” as motivation for writing the op-ed.

Looking ahead, we shouldn’t anticipate a gargantuan surplus like the one we saw this year, Johnson said. For instance, much of the $32 billion surplus came from pandemic-era COVID-19 funds — a (hopefully) one-time deal.

Texas shouldn’t expect the state to benefit from a similar federal infusion in future sessions.

“I felt like we were making a commitment that is more popular than it is wise,” Johnson told the Observer of the package. “Not because of what we were doing, but because of the scale at which we were doing it.”

The way Johnson sees it, lawmakers could have delivered a smaller-yet-still-handsome property tax cut for homeowners and still have had billions left to invest in areas like public education, water, healthcare, affordable housing and prison system upgrades — investments that would generate untold returns both economically and socially.

Oh, well.

The $18 billion amount that state leaders came up with was based on a campaign promise, not sound economic analysis, Johnson said. Prioritizing politics over policy can lead to unsavory consequences.

“[O]ne day, maybe because of and maybe irrespective of our politics, instead of a surplus we will face a deficit,” Johnson wrote in his op-ed. “What then? Will we fire school teachers to pay for property tax reductions for homeowners?”

“I felt like we were making a commitment that is more popular than it is wise.” – State Sen. Nathan Johnson

Luckily, lawmakers can pull from the state’s rainy day fund when needed, Johnson said — something that they typically try to avoid. “But I would pull money out of the rainy day fund before I’d fire a teacher,” he told the Observer.

But even that well may eventually dry up.

“What if we pulled money out of the rainy day fund and then two years later we have a deficit?” he said. “At that point, you're looking at two possibilities: cuts to state services, which are already cut pretty close to the bone, or new taxes, which everyone abhors.”

The property tax cut deal didn’t include relief for renters, something that a Democratic-proposed plan would have done.

The Texas Democrats’ proposal was spearheaded by Dallas state Rep. John Bryant. In addition to helping renters and homeowners, it would have boosted teacher pay.

Speaking with the Observer in July, Bryant said that he thinks the property tax deal will prompt Texans to “be angry at the Legislature, that they didn't really address the problem of people being taxed out of their homes. Because they gave away so much money to ... corporations that are not faced with the same pressure that homeowners and renters are faced with."

Dallas Mayor Eric Johnson is “supportive of any and all ways to lower property taxes,” a spokesperson for his office told the Observer on Monday. Johnson and City Council member Cara Mendelsohn wrote the governor in July urging him to sign the property tax legislation into law.

In June, during the city's inauguration ceremony, the mayor announced that property tax relief would be among his top three priorities. He wants Big D to be the city with the lowest tax rate in the region.

Mayor Johnson also noted in a newsletter on Sunday that the City Council had rejected an effort to lower residents’ property taxes. Instead, he wrote, members passed a tax rate ceiling that would potentially cost people more in city property taxes.

The mayor brought out a colorful toy boat during last Wednesday’s council meeting to illustrate that the city is “headed toward a fiscal iceberg.”

He’s urging Dallas residents to contact their city representative: “Together, we can turn this ship around and put Dallas on a path toward fiscal responsibility.”

Texas’ oversize property tax cut now will mean a big bill in the future

Politics dictated surplus spending, and we will pay in the long run.

By Nathan Johnson | Dallas News

Presented with an extra $32 billion of spending money this session, legislators spent more than half of it — $18 billion — on property tax reduction. Jubilation and self-congratulation followed. When the noise dies down, we’re left with a few questions: Should it have been more? Or less? How did we get to the number $18 billion anyway? Most importantly, given that we’ve created a permanent obligation to buy down future taxes, how are we going to pay for it when there isn’t a massive surplus?

Texas property taxes are high, and in recent years steep increases have created real financial strain for many residents and troubling incentives for others. Some level of property tax reduction was in order.

And though it took two contentious special sessions to get there, the final tax reduction package is well conceived: It raises the personal homestead exemption by 150%, compresses local school tax rates, temporarily caps dramatic spikes in commercial appraisal values, and in a related bill, exempts thousands of small businesses from the cost and nuisance of the dreaded margins tax. (Interesting note: The margins tax was created to pay for the last big property tax cut.)

These are major changes that will result in significant tax savings for homeowners and small businesses. That’s good, as far as it goes.

Unfortunately, it’s also reckless. You might even say it’s unconservative.

Dubbed “the largest tax cut in Texas history” (it actually is not, but never mind), it’s being funded this session by “the largest surplus in Texas history” (it actually is — but please read on). Large surpluses are not routine. We shouldn’t expect to have anything like this surplus in the future.

Consider why we had a $32 billion surplus this session. It’s mostly one-time money, with the rest owing to unsustainable deferral of expenses. More than $14 billion comes from various federal COVID funds, while another nearly $7 billion comes from inflation-inflated sales tax revenue. Meanwhile, funding public education in real dollars at 2019 levels would have cost an additional $15 billion. If you’re adding, that’s pretty much the entire “surplus.”

We’re not going to get another flood of unattached money from the federal government. We don’t want high inflation. Pretty soon we will have to fund our public schools like we said we would.

We must ask also about the consequences of not investing some of that $18 billion in other essential state responsibilities — one-shot investments like water infrastructure, affordable housing (renters were largely left out of the discussion, save for the disingenuous hope that landlords might pass on the tax savings they realize), and prison system upgrades; and recurring investments like education and health care. Investments like these produce economic (and social) returns in both the short and the long run.

So exactly how did we wind up at $18 billion? Why not $11 billion, or $13 billion, or $20 billion? The truth is uninspiring: It’s political. The number $18 billion did not come from a fiscal analysis aimed at determining the most beneficial and responsible way to spend the surplus, that is, as between tax reduction for the half of Texans who own homes, and investments in Texas’ lagging physical and social infrastructure. It was, for the most part, little more than an exciting and predictably effective campaign promise from the top. Another case of politics over policy.

Until the public demands more from government leaders, this is how policy will be made.

In the meantime, we have to deal with the consequences. I expect we’ll do just fine for a while. The Texas economy is marvelously strong, to some extent because of, and to some extent in spite of, our politics.

But one day, maybe because of and maybe irrespective of our politics, instead of a surplus we will face a deficit. What then? Will we fire school teachers to pay for property tax reductions for homeowners?

Fortunately and wisely we maintain a sizable Economic Stabilization Fund, better known as the Rainy Day Fund. We should not hesitate to draw upon it — heavily if necessary — to meet our responsibilities to the public. Perhaps that gets us past any shortfall. If not, legislators will have a difficult time cleaning up after the big tax reduction party of 2023, and the voters will not be happy when they see the mess.

Nathan Johnson is a Democrat representing Dallas in the Texas Senate. He wrote this column for The Dallas Morning News.

Texas Wants to Know: How will our power grid respond to the summer heat?

By Baylee Friday and Chris Blake

Published July 22, 2023

NBC DFW

As the number of 100-plus degree days pile up and Texans continue to set new records for energy demand, it begs the question: Can our power grid keep up with our growing population?

"We cannot build power plants as fast as people move in here and buy new air conditioners, or keep old air conditioners limping along," former advisor to the chair of the Public Utility Commission of Texas Alison Silverstein said. "As new businesses show up here and expand their usage of electricity, they're more and more things that we have to juggle operationally to keep the power reliable."

Even though Texas' population surpassed 30 million last year, joining California as the only state with as many people, state Sen. Nathan Johnson (D-Dallas) said he wasn't overly concerned with the grid's reliability this summer.

"Among other reasons, renewable power has been very steady. The wind has been sufficient to keep our mammoth fleet of wind turbines going," he said. "The sun obviously is shining brightly, brilliantly, and with a great deal of heat. But that's also providing solar power, including at some peak demand times late in the day."

The Texas Senate, of which Johnson is a part, sent a pair of energy bills to the House that did not pass early in this year's session. Meanwhile, in early May ERCOT officials warned that demand could outpace supply this summer. But just a few weeks later, they reversed course and said they had confidence in the grid.

"I believe that the change in policy was political and they were putting a spin on the available story because the legislature was in session and they were being told by some of the politicians whom they report to that they wanted to hear messages that supported state bills about let's build more power plants," Silverstein said.

ERCOT declined an interview request for this episode but issued the following statement.

"ERCOT will continue to operate the grid conservatively, bringing generating resources online early to mitigate sudden changes in generation or demand. ERCOT will continue to use all operational tools available, including implementation of new programs, like the new ERCOT Contingency Reserve Service (ECRS), as well as executing previous sessions’ legislative reforms (like summer and winter weatherization inspections). Depending on weather conditions and generation output, we could see tight grid conditions periodically this summer. ERCOT will continue to monitor conditions and keep Texans informed."

While the debate on which kind of energy to generate and how to pay for it was up for debate, the need to become more energy efficient was not.

"You leave the house for more than four hours, turn your thermostat up four degrees, and you'll save a lot of electricity when you're not at home," said J.P. Dowling of Houston-based Reliant Energy. "One thing we recommend to everybody is get an annual fact check to make sure it's running efficiently. And that way your electricity bills will be lower, even as it's working hard to keep people in your home."

Listen to Texas Wants to Know in the Audacy app or wherever you get your podcasts.