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Recently, local headlines have focused on a multiplicity of local taxing entities struggling with significant budget deficits for their upcoming fiscal years. These are not simply a local problem. Municipalities across Texas, and indeed the Texas state government, are experiencing the same issues.
The era of state budget surpluses has ended — as well-illustrated by the governor’s recent directive that all state agencies lower their budgets by 3% moving forward. However, the state has ensured it has a level of financial flexibility by setting $27 billion in its Economic Stabilization Fund — also known as the rainy day fund.
Typically, explanations for these state and local shortfalls center on “falling property values and/or property tax revenues.”
But these explanations are both inaccurate and misleading.
As chair of the Bexar Central Appraisal District’s board and a longtime adviser to Northside ISD’s bond committee, I see firsthand how property values shape government entities’ fiscal landscapes.
The opinions expressed here are my personal assessment, and should not be construed to reflect the opinions of any organization or agency with which I am associated.
Appraisal values are actually stable or, at worst, slightly lower.
The deficits so many are experiencing right now arise from the fact that these revenue levels do not match financial growth projections — and thus do not fully fund the projects governments committed to in rosier times.
To understand why that is the case, you must understand both the fundamental dynamics of the assessment system, as well as recent economic history.
How countywide property appraisals change is governed by two primary factors: 1. The real estate market and 2. The levels of new construction/redevelopment with the county.
These can work together to create higher assessments or lower assessments — or they can work against one another to basically cancel things out.
From 2001 to 2020, Texas municipalities and especially the major urban counties experienced a pattern of ever-expanding real property appraisals based on the extraordinary growth of the Texas economy.
If you considered Texas as an independent nation, not a U.S. state, its economy in 2001 would have ranked the 14th largest in the nation, with a GDP of $780 billion. Today it would be the 8th largest economy in the world, with a GDP of nearly $3 trillion.
This progression was not linear. There were periods of economic distress that slowed revenue flows in the short term, particularly the great financial crisis of 2009 to 2012. However, after recovery from those events, Texas was able to rebound back to the underlying trends.
During that 20-year period, Bexar County in particular saw significant growth.
Our positive fundamental demographic and economic factors, combined with steady influx of new residents, assured an underlying dynamic of consistently higher real estate prices, as well as an active new construction and redevelopment cycle.
Even with a financial crisis, Bexar County’s property appraisals grew by an average of an astounding 5% per year during that two-decade span.
That’s as the local inflation rate remained close to the Federal Reserve’s 2% goal throughout this period, meaning property tax revenue was not only increasing, but government agencies and municipalities also had more purchasing power with that money year-over-year.
It was basically a “Goldilocks” age, where everything fell perfectly for the taxing entities.
This is not to say there have been no challenges for taxing entities. Rising property tax bills have become a pain point for homeowners and businesses alike, and the state’s response to ever more vocal complaints has resulted in the legislature introducing increasing property tax exemptions to address it.
In 1997, Texas’ Homestead Exemption was $15,000 when the average homestead appraisal was $62,900. That has increased in increments over the years, and in 2026 stands at $140,000 when the average homestead appraisal is $330,000.
Historically, the state recognized the squeeze that escalating homestead exemptions were putting on public school districts and compensated them for shortfalls to maintain the integrity of the school finance system. But other taxing entities have not been so supported, and other exemptions, such as those for veterans, have been added.
This 20-year period of economic expansion came to an abrupt halt in 2020 when the economic and social effects of the COVID-19 pandemic appeared.
Initially it was feared a property tax collapse was imminent, but those fears were wrong. The advent of the remote work economy during COVID resulted in a large migration of workers in high costs/high tax locations to move to friendlier environs. Many came to Texas.
This set off an unprecedented and volatile restructuring of the underlying property appraisal fundamentals that existed from 2001 to 2020. Property values spiked violently. At the same time, construction activities were significantly disrupted. Inflation spiked as well.
At its peak, average values in Bexar County rose approximately 25%. Travis County saw a more than 50% rise.
The situation has since stabilized, but many city-shaping projects were set in motion during an economic boom.
In aggregate, Bexar County has seen total appraisals rise by 2% per year over the last two appraisal cycles. This is composed of an approximately 1% rise in real estate values and a 1% rise in construction activity.
While property appraisals are tepid, they are not falling. It’s the rate at which appraisals are rising that has, in fact, fallen dramatically, and that should worry those making plans for the future.
The impacts of this tepid growth are further muted by an underlying inflation rate that has also dropped dramatically but persists at levels higher than the Fed’s 2% inflation goal.
Not only is growth stagnant, purchasing power is diminished.
While it is difficult to predict the future, it appears that these conditions reflect a fundamental structural change in the underlying property appraisal fundamentals.
It would seem likely that the period of steady growth has moderated and, given the overall state of the larger U.S. economy, that this moderation is not likely to change anytime soon.
