Office of the Governor Rick Perry

Governor Proposes Comprehensive Plan To Cut Property Taxes and Increase Funding to Schools

Plan Increases Equity, Boosts Funding by Average of $375 per Student

Thursday, April 08, 2004  •  Press Release

SAN ANTONIO - Gov. Rick Perry today announced a comprehensive Educational Excellence and Equity Plan that will cut school property taxes by $6 billion, pump $2.5 billion new dollars into public schools, significantly increase funding equity, and preserve Texas' strong job creation climate.

"My plan offers Texans a fiscally responsible approach: It invests an additional $2.5 billion in education excellence and it gives millions of Texas homeowners who are over-taxed an immediate $3.2 billion - or 17 percent - average reduction in school property taxes," Perry said. The governor's plan also provides additional revenues for other education and tax cut measures.

Highlights of the school finance portion of Perry's plan include:

  • $2.5 billion in new funding for public schools, including the $1 billion per biennium Perry previously proposed in incentive-based rewards to schools that demonstrate excellence in the classroom. The Governor also is recommending that the one-time $150 per student funding granted in 2003 be continued, for a total school funding package of $3.7 billion.
  • $3.2 billion to reduce residential property tax rates by 17 percent, thereby erasing a decade's worth of property tax increases for homeowners.
  • Additional tax savings of $3.3 billion for homeowners and employers over the next biennium from Perry's appraisal and revenue caps on school property taxes.
  • An average increase of $375 per student in funding to school districts for the 2006-07 school year (on top of the one-time $150 per student funding).
  • Increased equity in public schools, with 98 percent of students in the equalized system - a significant increase in equity over the current system. The increased equity includes $ 1.2 billion to raise the guaranteed yield to $29.50 per student by 2007 and $100 million per biennium to provide additional help for students who speak a language other than English when they enter school.
  • Increase in the state's share of education funding.
  • A constitutionally linked tax base that will provide the foundation for additional school property tax cuts in the future and guarantee employers that their property tax rates will be reduced as residential rates are reduced.
  • Preservation of the state's healthy job creation climate with revenue sources that do not make education gains at the expense of jobs.

The constitutionally linked tax base will allow local residential property tax dollars to remain in local communities and be spent on local schools by local leaders, Perry said. Business, industrial and commercial property taxes will become part of a new statewide employer property tax base, and those dollars will be allocated to school districts across the state.

"My plan will immediately raise the state's share of public education funding to about 60 percent and lower local districts' share to 40 percent," Perry noted.

Under his constitutionally linked tax roll, Perry's plan will:

  • Provide an immediate 25 cent reduction in school property tax rates for residential payers.
  • Set a statewide school property tax rate for employers at $1.40 per $100 of valuation.
  • Establish new caps on school property of $1.25 for residences and $1.40 for businesses.

Under the constitutionally linked tax roll, all residential taxpayers and most employers will see a tax cut.

School districts will be allowed to seek voter approval for local enrichment, but that enrichment cannot exceed 5 cents per two-year budget cycle beginning in 2007 for a maximum of 15 cents.

The governor's plan also provides the framework for additional property tax cuts in future years and more money for schools in future years. It does so by constitutionally dedicating one-third of future state budget surpluses to buying down school property tax rates until rates eventually reach to 75 cents for homeowners and employers, a third for increased funding of schools, and a third for other state priorities.

"That means in times of economic growth, Texas homeowners and employers will see their school property tax rates go down even further, and Texas public schools will get additional resources," Perry said.

Perry said that his constitutionally linked tax roll is "vastly different" from what some call a split tax roll because it prevents tax burdens from being shifted to the job sector, as has happened in states with true split tax rolls.

Perry's plan to cap residential property tax appraisals at 3 percent and limit growth in property tax revenues to inflation plus population growth will also provide Texans an additional $3.3 billion in tax savings in the next biennium and $24.6 billion in tax savings over the next six years.

Perry said he will pay for his plan through a variety of revenue sources that target tax fairness, unhealthy behaviors or voluntary actions. His revenue proposals include a $1 per pack cigarette tax hike, fees on adult entertainment, closing the franchise and auto sales tax loopholes, and - if Texas voters approve - video lottery at specified venues.

"I believe we can reform our school finance system without a major tax hike, without a broad based business tax, and without an across-the-board rate hike on the existing sales tax base," Perry said.

"I will further protect Texans by opposing a personal income tax in any shape or form - to the disappointment of those who are calling for one."

Perry said his funding plan offers "a fine balance" of providing homeowner tax relief without implementing broad-based job-killing taxes.

Perry said he will continue to work with legislators in seeking the consensus he believes is necessary before calling the legislature back into session.

Perry previously has proposed a Taxpayer Protection Plan and Educational Excellence Incentives that are part of his comprehensive Educational Excellence and Equity Plan.

Under the Taxpayer Protection Plan, local taxing entities would be prohibited from raising appraisals on residential properties by more than 3 percent a year. Local taxing entities also would be required to seek voter approval if they want to raise more revenue from property taxes than what is needed to meet inflation and population growth. To balance the revenue cap, Perry said he will support efforts to prohibit the legislature from passing unfunded state mandates on local entities.

Perry also has proposed a seven-point Educational Excellence Incentive that will provide $500 million a year in new funding for schools and refocus attention from minimum expectations to maximum achievement.

"My comprehensive plan will take Texas down the pathway to prosperity, a place that balances job creation and education, without harming one in the name of the other," Perry said. "It is a blueprint for progress that improves our schools, preserves the job climate and protects Texans' wallets."

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