Once the most reliable pillar of K-12 revenue, local property taxes are now at the center of partisan tax wars. And there are growing signs that the foundation of public-school finance may be cracking under political pressure.
In school year 2022-2023—the last year that consolidated revenues for K-12 public schools were reported by the National Center for Education Statistics (NCES)—local funds accounted for 42% of total education revenues. That share of revenue was low by historical standards due to one-time federal stimulus, and we believe that local revenues as a percentage of total education revenues are significantly higher in the current school year than in 2023. Local revenues are primarily derived from property taxes, which have historically been viewed as more recession-resilient than other K-12 revenues, as local officials retain the flexibility to adjust tax rates to address school district financial needs.
The stability of local property taxes for school districts, however, is under attack in several states. A hot housing market and limited new housing supply have driven up assessed property values, creating a corresponding increase in property tax burdens. Republican governors and legislatures in several states are considering comprehensive property tax overhauls that threaten to undermine the stability of local school district revenues.
The debate over property tax reform is playing out most prominently in Florida, Ohio, and Texas, where state leaders are pursuing divergent approaches with common risks for school funding.
Florida
The Florida Education Association reports that local property taxes account for $13.6 billion in annual education revenue. All told, local funds account for nearly half of the state’s education funds.
Gov. Ron DeSantis (R) has vocally criticized the state’s current property tax system, calling for the complete abolition of residential property taxes. Gov. DeSantis’ mini-DOGE in the state has repeatedly accused municipal officials of using rising property tax revenues to support wasteful spending. In October, House Speaker Danny Perez (R) put forth a series of property tax reform options. In the release, however, Speaker Perez promised that each measure would spare local school district revenues. Gov. DeSantis has clashed with Speaker Perez, lambasting both the substance of the property tax reform measures and the House’s inability to coalesce around a single reform.
Exhibit 1: Florida Property Tax Proposals from Florida’s Select Committee on Property Taxes
| House Joint Resolution | Description |
|---|---|
| HJR 201 | Eliminates all non-school homestead property taxes |
| HJR 203 | Phases out non-school homestead property taxes over a ten-year period |
| HJR 205 | Exempts Florida residents over age 65 from paying non-school homestead property taxes |
| HJR 207 | Establishes a new homestead exemption for non-school property taxes equal to 25% of the assessed value of the house |
| HJR 209 | Creates a new property insurance relief homestead tax exemption. Homestead property owners who have property insurance will be entitled to an additional $100k exemption on non-school property taxes |
| HJR 211 | Eliminates a cap on homestead tax portability. Currently, a portion of homestead exemptions are portable up to certain thresholds. This proposal would eliminate that cap. |
| HJR 213 | Limits the growth in assessed value of non-school homestead property taxes to 3% over 3 years (currently capped at 3% annually) |
As property tax rules are enshrined in the Florida Constitution, changes must be accomplished through a ballot initiative. For any of the proposed measures to be enacted, they must first be approved by a 60% majority in each legislative chamber and then be approved by a 60% voter majority in the general election. Currently, the state legislative leadership appears poised to try to spare schools from a loss of property tax revenue, but Gov. DeSantis remains committed to a more streamlined, aggressive property tax approach that would likely undercut school revenues. The state legislature will work through both the Select Committee’s proposals and possible alternatives from DeSantis supporters in the coming months before reform options appear on the 2026 ballot.
Ohio
In Ohio, Gov. Mike DeWine’s Property Tax Working Group recently delivered a series of recommendations intended to guide executive and legislative budget conversations. The group made 16 separate recommendations for property tax reform. The Working Group specifically endorsed two concepts, ensconced in HB 186 and HB 355, that would dim revenue forecasts for schools. The two bills would essentially limit the rate at which school district property taxes grow, even as assessed property values rise. HB 186 would provide a tax credit to property owners in school districts such that property tax increases do not exceed the rate of inflation. HB 355 would similarly impose an inflation-based limit on the growth of “inside millage” taxation – or allowable property taxes that are not voter-approved. Both HB 186 and HB 355 have been approved in the Ohio House of Representatives and are pending in the state Senate.
The impact of passage for school district revenues would be significant, and school leaders have vocally opposed both pieces of legislation. Fiscal estimates of HB 355 indicate that school districts in the state would lose between ~$295-$373M in revenue between 2026-2028. Ohio Policy Matters, a left-leaning policy organization in the state, estimates that HB 186 would erode nearly 10% of expected local revenues in 170 districts in 2027, if enacted.
Texas
On November 4th, voters in Texas approved a host of constitutional amendments, including raising the value of the state’s homestead exemption and increasing the business personal property tax exemption. The homestead exemption proposal was accompanied by a Senate measure that commits the state to backfill some amount of lost local revenue for school districts. Critics of that approach note that the backfill may not cover all lost revenue and that the state may struggle to maintain that commitment in any future fiscal crunch. Similar backfill measures were established for the business personal property tax change, but are not projected to be sufficient to cover all lost revenue. The state’s Legislative Budget Office forecasts that school districts will lose up to $140M in local revenue in 2027 as a result of increased business exemptions.
The political push in red states for property tax relief comes at a unique inflection point for school budgets, particularly in these three states. School districts continue to grapple with the expiration of stimulus funds, which enabled needed investments in staff and facilities, but have resulted in painful budgeting choices as funding has rolled off. Further, while Capstone believes overall federal funding is stable and unlikely to decline, local education agency (LEA) decision makers continue to be spooked by headlines and threats of federal education funding upheaval. In Florida, Ohio, and Texas in particular, public school districts are also beginning to grapple with funding pressure created by large school choice programs and a diversion of public education funds to private schools. While property tax measures resulting in local revenue declines for schools are far from guaranteed in Florida, Ohio, or other red states – the ongoing dialogue around property tax reform casts a shadow over the stability of local revenues – long considered the most stable source of LEA revenue. For education vendors, monitoring property tax reform efforts over the next six months will be important for understanding the near- and medium-term local funding picture in key red states.
The details will matter greatly. But more thematically, the renewed focus on property taxes marks a structural shift in how states balance tax relief with education stability—a shift investors and companies in the space can’t afford to ignore.
