Texas Mayors Contest State Sales Tax Allocation

**Texas Mayors Warn of Fiscal Crisis as State Eyes Local Sales Tax Growth for Property Tax Relief**

AUSTIN, Texas – January 29, 2020 – A broad coalition of nearly 100 Texas mayors, representing cities from bustling metropolitan centers like Houston and Dallas to rapidly growing communities such as Sugar Land, have collectively sounded the alarm over a state budget proposal they contend will severely jeopardize essential local services by diverting critical sales tax revenue. The unified message was delivered late this month in a strongly worded letter to Lieutenant Governor Dan Patrick and House Speaker Dennis Bonnen.

At the heart of the contentious dispute is the state’s plan to allocate a portion of future local sales tax revenue growth to fund its property tax reform initiatives, specifically those stemming from the passage of Senate Bill 2 (SB 2) in 2019. Mayors argue that while the state claims this move aims to reduce property taxes statewide, it would effectively strip their communities of hundreds of millions of dollars annually, creating what they describe as a massive unfunded mandate.

The potential financial ramifications for Texas municipalities are significant. Houston, the state’s largest city, anticipates a staggering reduction of $155 million from its annual budget if the proposal moves forward. Dallas stands to lose $60 million, Fort Worth $50 million, and Austin $40 million. Even San Antonio faces a projected $30 million annual hit, while Sugar Land, a fast-growing suburban city, estimates a loss of around $10 million in future revenue.

These locally generated funds are the lifeblood of day-to-day city operations and crucial capital improvements. They are typically earmarked for essential public services, including maintaining public safety departments, repairing and building streets and infrastructure, funding local parks, and supporting libraries. The mayors contend that reallocating these dollars not only undermines local control and voter intent – as many sales tax measures are locally approved for specific projects – but also effectively shifts the tax burden from property owners to consumers through increased sales taxes, breaking a core promise to taxpayers.

Lieutenant Governor Patrick’s office, however, has pushed back forcefully against the mayors’ concerns, dismissing them as “fear-mongering.” A spokesperson for Patrick emphasized that the state’s budget fully funds the property tax reduction measure, which was a cornerstone of the 86th Legislative Session with the passage of SB 2. Crucially, Patrick’s office clarifies that the proposal does not seize existing sales tax revenue that cities currently collect. Instead, it allocates a portion of future *growth* in sales tax receipts to the state’s property tax relief fund. This distinction, they argue, means cities would not lose current operating funds but rather a share of their future revenue increases.

The 2019 legislative session saw property tax reform emerge as a top priority for state leaders. Senate Bill 2, known as the Texas Property Tax Reform and Transparency Act, went into effect on January 1, 2020. It significantly lowered the threshold for cities and counties to trigger an automatic election on their property tax rates, from an 8% revenue increase to 3.5%. Proponents argued this would slow the growth of property tax bills for homeowners. Critics, including many city officials, warned it would severely limit their ability to fund services for rapidly expanding populations without finding new revenue streams.

The current clash highlights the ongoing and often tense relationship between state-level reform goals and the financial autonomy and stability of Texas’s rapidly growing cities. While the state aims to deliver on its promise of property tax relief, local leaders argue that the proposed mechanism will ultimately handcuff their ability to provide essential services, a responsibility that falls squarely on local governments. This dispute is expected to be a significant point of contention as state leaders begin to formally craft the next biennial budget for the 2022-2023 fiscal years, leading into the 87th Legislative Session in 2021.