Honorable Paul Bettencourt, Chair, Senate Committee on Local Government
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
SB2526 by Campbell (relating to the appraisal for ad valorem tax purposes of real property used as a municipal solid waste facility or the buffer zone of such a facility.), Committee Report 1st House, Substituted
Passage of the bill would change the appraisal method applied to all real property of a landfill facility and related buffer zone from the income approach to a market data comparison method. As it is unclear how an appraiser may implement the method of appraisal required by the bill, but is clear that an appraiser may not use the cost method or income method of appraisal, which is the typical approach for property in commercial use for which data on comparable sales is often nonexistent, the fiscal implications of the bill cannot be determined. It is anticipated that implementing the provisions of the bill would result in decreased taxable property and increased costs to the Foundation School Fund through the operation of the school finance formulas.
The bill would amend Chapter 23 of the Tax Code to direct the chief appraiser to use the market data comparison method when appraising municipal solid waste landfill real property, taking into account the dollar amount of the most recent closure cost estimate for the municipal solid waste facility prepared by the owner or operator of the facility pursuant to rules adopted and procedures developed by the Texas Commission on Environmental Quality. The bill would provide definitions and allow the chief appraiser to require a property owner to submit the most recent closure cost estimate for the municipal solid waste facility for which the property is being used.
The bill would change the appraisal method applied to all real property of a landfill facility and related buffer zone. Per the bill, the municipal solid waste facility (public or privately owned) includes all contiguous land, structures, other appurtenances, and improvements on the land used for processing, storing, or disposing of solid waste, and the buffer zone is a zone free of municipal solid waste processing and disposal activities within and adjacent to the facility boundary on property owned or controlled by the owner or operator.
Currently the most common approach to appraising operating landfills is using the income approach with a medium to high discount rate applied. The bill would preclude an appraiser from choosing the most appropriate method of appraisal for the type of property and require instead that the value determination be based on market value of comparable properties, taking into consideration the dollar amount of the most recent closure cost estimate of the facility per TCEQ rules and procedures.
The bill does not specify how the closure cost estimate is to be used when appraising the market value of a solid waste management facility, nor how the market data comparison method is to be applied when there are no recent sales of other landfill properties with which comparison may be made.
As it is unclear how an appraiser may implement the method of appraisal required by the bill, but is clear that an appraiser may not use the cost method or income method of appraisal as is more appropriate for property in commercial use for which data on comparable sales is often nonexistent, the fiscal implications of the bill cannot be determined. It is anticipated that implementing the provisions of the bill would result in decreased taxable property and increased costs to the state through the operation of the school finance formulas.
Local Government Impact
Passage of the bill would change the appraisal method applied to all real property of a landfill facility and related buffer zone from the income approach to a market data comparison method. As a result, taxable property value could decrease. However, the no-new-revenue and voter-approval tax rates as provided by Section 26.04, Tax Code could be higher as a consequence of the reduction in taxable property value proposed by the bill. Under provisions of the Education Code, the school district tax revenue loss would be partially transferred to the state.