SLR C.S.H.J.R. 4 75(R)    BILL ANALYSIS


REVENUE & PUBLIC EDUCATION FUNDING, SELECT
C.S.H.J.R. 4
By: Sadler, Hilbert, Brimer, Chisum, Craddick, Hernandez, Hochberg,
Junell, Stiles, Williamson, Wilson 
4-17-97
Committee Report (Substituted)



BACKGROUND 

The Governor submitted a constitutional proposal to the legislature which
provided for the creation of the Texas School Trust Fund, increased
residential homestead exemptions on maintenance and operations of school
districts, and excluded the business activity tax from Article VIII,
section 24 and Article VII, section 3.  The Select Committee on Revenue
and Public Education Funding, after extensive examination, developed a
plan to provide additional property tax relief and create a reliable
stream of revenue for public education.  


PURPOSE

C.S.H.J.R. 4 ensures a stable source of  revenue for public education and
provides property tax relief by establishing first priority spending for
public education; dedicating lottery proceeds; creating a limited tax on
non-residential property; authorizing a franchise tax on business entities
other than sole proprietorships; and allowing portability of the school
property tax freeze for the elderly. The constitutional amendment would be
placed on the uniform election date in August, 1997. 


RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency or
institution. 


SECTION BY SECTION ANALYSIS

SECTION 1.  Adds Section 1(b), Article VII, Texas Constitution, to
establish the financial support of elementary and secondary public school
education as the first priority among state spending and appropriations,
subject only to constitutional revenue dedications and the payment of
lawfully incurred state debt.  Authorizes the legislature by general law,
notwithstanding certain other constitutional restrictions, to fulfill its
priority financial support obligations by providing spending priorities
and minimum financial effort including guaranteed draws against
undedicated revenue. 

SECTION 2.  Amends Section 1-e, Article VIII, Texas Constitution, to
qualify the prohibition on state ad valorem taxes.  Authorizes the
legislature to impose a state ad valorem tax for public school purposes,
at a rate not to exceed $1.05 per $100 of taxable value, on nonexempt,
nonresidential property.  Authorizes the legislature to provide for
appraisal, equalization of value, and tax collection, and to honor, for
purposes of the state tax, abatement agreements on property entered into
by a school district before 1997.  Removes obsolete language relating to
the disposition of the balance from the previous state ad valorem tax.
Adds a temporary subsection providing for appraisal at the county level
through the end of the 1999 tax year, and validating such appraisal if the
appraisal and equalization process conform to accepted standards and
practices. 

 SECTION 3.  Amends Section 3, Article VII, Texas Constitution, to provide
that lottery proceeds, less prize money and administrative costs, may be
spent only for elementary and secondary public education.  Standardizes
certain terminology and remove obsolete references to poll taxes.  Revises
language to reflect and cross reference the new version of the state ad
valorem tax in SECTION 2.  Deletes specification of certain maximum tax
rates but allows the legislature to set a statutory cap on school district
ad valorem tax rates.  Revises school district taxation powers to apply to
residential property, as such property may be defined by law, for purposes
of maintenance and operations, and also to all otherwise nonexempt
property for purposes of the erection and equipment of school buildings
(debt service) if approved by school district voters. 

SECTION 4.  Amends Section 1, Article VIII, Texas Constitution, to
authorize the legislature to impose privilege or franchise taxes, measured
by income or capital, on businesses entities other than sole
proprietorships.  Provides that the prohibition against the application of
certain taxes to municipal corporations does not prohibit the imposition
of taxes on a municipal gas, electric, or water utilities.  Adds a
temporary provision to provide that the use of income earned income or
receipts after 1997 to measure or apportion a privilege or franchise tax
is not prohibited. 

SECTION 5.  Amends Section 1-b, Article VIII, Texas Constitution, to limit
the optional school district exemption for the elderly and disabled, and
the optional school district residence homestead exemption, to taxes for
debt service.  Saves previously adopted exemptions, applicable to both
debt service and maintenance and operations, and continues them for debt
service purposes rather than requiring readoption.  Authorizes the
legislature to provide for the portability of the tax freeze on residence
homesteads of the elderly.  Provides that if the tax imposed on an elderly
homeowner's property in 1997 under a lower school district tax rate is
less than the cap previously imposed, the 1997 amount becomes the new cap
for that homeowner. Removes obsolete references to county education
districts. 

SECTION 6.  Amends Section 1-j, Article VIII, Texas Constitution, to
provide that the freeport exemption on certain property does not apply to
the state ad valorem tax if the property is located in a school district
that taxes it for the tax year. 

SECTION 7.  Adds Section 22(d), Article VIII, Texas Constitution, to make
a change conforming to the new constitutional subsection in SECTION 1.
Provides that the restriction on the rate of growth of appropriations from
nondedicated revenue does not apply to the establishment of the financial
support of elementary and secondary public school education as the state's
first spending priority. 

SECTION 8.  Adds Section 24(k), Article VIII, Texas Constitution, to
provide that the restrictions on imposition of a personal income tax does
not apply to a privilege or franchise tax measured by the income of a
business entity other than a sole proprietorship. 

SECTION 9.  Establishes an election date of August 9, 1997, for the
constitutional amendment proposed by the joint resolution.  Establishes
the ballot language for the amendment proposition. 


COMPARISON OF ORIGINAL TO SUBSTITUTE

Both H.J.R. 4 and C.S.H.J.R. 4 propose constitutional amendments providing
for local property tax relief and substituting various forms of state
funding for public education purposes. 

H.J.R. 4 grants an additional constitutional residential homestead
exemption of $20,000 for school district property taxes for maintenance
and operation.  The legislature may limit school district actions to
reduce or repeal exemptions, and may provide for the exemption of tangible
personal property held for sale or consumption as inventory.  C.S.H.J.R. 4
revises school district ad valorem taxation powers to apply only to
residential property, and authorizes the legislature by law to set a cap
on school district tax rates.  It transfers nonresidential property for
school funding purposes to ad valorem taxation by the state, and caps the
state rate at $1.05 per $100 of taxable value.  C.S.H.J.R. 4 limits
certain optional school district exemptions just to taxes for  debt
service only.  Allows portability for over-65 exemption. 

H.J.R. 4 creates a Texas School Trust Fund to repay revenue lost by school
districts requires transfers of state revenue to the fund as necessary to
make those repayments.  It channels to the trust fund any revenue from
taxes on business activities, the revenue from one half-cent of the state
sales and use tax rate, and any other revenue the legislature statutorily
deposits or transfers to the credit of the fund.  C.S.H.J.R. 4 does not
create the trust fund, but establishes the financial support of public
schools a first priority for state spending, and authorizes the
legislature to provide for a first draw of certain available revenue to
support that obligation, notwithstanding other constitutional provisions.
C.S.H.J.R. 4 dedicates lottery revenue to public education funding and
authorizes, in addition to the state ad valorem tax, the imposition by the
legislature of privilege or franchise taxes on business entities other
than sole proprietorships.  It allows the taxation of gas, electric, or
water utilities of a municipal corporation. 

H.J.R. 4 clarifies that the constitutional prohibition relating to
personal income taxes does not apply to taxes on business entities, nor do
certain constitutional dedications apply.  An established rate of a tax on
business activities may not be increased except by a law enacted by an
extraordinary majority of three-fifths of the membership of each house of
the legislature. C.S.H.J.R. 4 clarifies that the constitutional
prohibition relating to personal income taxes does not apply to a
privilege or franchise tax measured by income, for entities other than a
sole proprietorship. 

Both H.J.R. 4 and C.S.H.J.R. 4 provide for a uniform election date of
August, 1997.