LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
75th Regular Session
April 5, 1997
TO: Honorable Kenneth Armbrister, Chair IN RE: Senate Bill No. 841
Committee on State Affairs By: Cain
Senate
Austin, Texas
FROM: John Keel, Director
In response to your request for a Fiscal Note on SB841 ( Relating
to ad valorem taxation.) this office has detemined the following:
Biennial Net Impact to General Revenue Funds by SB841-As Introduced
Implementing the provisions of the bill would result in a net
impact of $0 to General Revenue Related Funds through the biennium
ending August 31, 1999.
The bill would make no appropriation but could provide the legal
basis for an appropriation of funds to implement the provisions
of the bill.
Fiscal Analysis
The bill would amend Title 1 of the Tax Code to allow appraisal
district board members to be elected from county commissioner
precincts, with one at-large member elected from the county.
Appraisal district directors are currently selected by vote
of the county, cities, school districts, and in some instances,
conservation and reclamation districts participating in the
appraisal districts. The taxing units cast votes in proportion
to their tax levies within the appraisal districts.
The annual
increase in valuation of a residence homestead in the preceding
year would be limited to the lesser of the market value of the
property or 105 percent of the appraised value of the property
for the preceding year, plus the market value of new improvements.
The Legislature has determined, with some exceptions, that
all taxable property would be appraised at its market value
as of January 1 of the tax year.
Chief Appraisers would be
required to follow generally accepted appraisal methods and
techniques recognized by the Uniform Standards of Professional
Appraisal Practice. The bill would require chief appraisers
to follow specific statutory standards when applying any of
the three approaches to determining market value (market, cost,
and income). Section 23.01(b) of the Tax Code only requires
chief appraisers to determine market value by application of
generally accepted appraisal techniques, with consideration
given to each property's individual characteristics affecting
market value.
The bill would expand the current 65-and over
tax limitation on school taxes to include city and county taxes.
Article VIII, Section 1-b(d) of the Texas Constitution and
Section 11.26 of the Tax Code currently provide that once a
person receives a 65-and over homestead exemption, the person
would receive a tax ceiling for that home on total school taxes.
The school taxes on that home cannot increase as long as the
person owns and lives in that home.
Under current law, property
owners lose their 65-and over school tax freeze if they move
to a different home. This bill would allow an owner to continue
to pay the frozen amount of taxes on a subsequent homestead.
The
bill would impose an additional delinquent tax penalty on persons
who are delinquent because they have multiple homestead exemptions
or receive 65-and over or 55-and over surviving spouse homestead
exemptions and failed to meet the statutory age requirements.
The penalty would be 50 percent of the amount of tax.
The
chief appraiser would be required to deliver with a property
owner's notice of appraised value a detailed explanation of
the time and procedure for protesting the owner's value. Section
25.19 of the Tax Code requires the chief appraiser to provide
only a brief explanation of time and procedures.
This bill
would take effect September 1, 1997.
Methodolgy
Sections 14 and 15 would require chief appraisers to follow
the Uniform Standards of Professional Appraisal Practice and
meet new statutory appraisal requirements in determining market
value by each of the three methods of appraisal (market, cost,
and income). Current law only requires that a chief appraiser
determine market value by applying generally accepted appraisal
techniques. The additional appraisal requirements proposed
in this bill could increase appraisal costs to appraisal districts
and local governments. The Harris County Appraisal District
has estimated that this provision would result in an increase
in annual district administrative costs of $296 million. These
costs would be passed on to local taxing units, including school
districts.
The bill would also impose a penalty on persons
who have multiple homestead exemptions or who receive 65-and
over or 55-and over surviving spouse homestead exemptions and
failed to meet the statutory age requirements. Passage of the
bill and imposition of the proposed penalty could increase revenues
to local governments. The potential revenue would depend on
the incidence of the penalty and the amount of tax due.
The
requirement that chief appraisers provide property owners with
a detailed explanation of the time and procedure for protesting
before an Appraisal Review Board (ARB) could result in additional
printing and distribution costs to the Comptroller. The Comptroller
might have to print and distribute additional copies of the
publication "Taxpayers' Rights, Remedies and Responsibilities"
to appraisal districts. The proposal could also increase printing,
mailing and distribution costs to appraisal districts.
The
requirement that chief appraisers cap appraised value increases
at 105 percent of the prior year's appraised value would generate
costs to the state and local governments. The amount of property
value that would be excluded from the tax rolls was estimated
by analyzing property category value increases from 1995 to
1996 in each school district. The first-year estimate was trended
up to account for growth in the state's property tax base.
An overall property category value increase of 5 percent means
that about one half of the properties are increasing by more
than 5 percent and one half by less than 5 percent. The proportion
of property increasing by more than 5 percent was adjusted upward
or downward for overall property category value increases of
more or less than 5 percent. Property value increases of more
than 5 percent are lost for levy purposes. The school funding
formula would reimburse school districts after a one-year lag,
resulting in a state cost and a corresponding reduction in the
cost to school districts.
The bill would allow persons 65
years of age or older who move from one homestead to another
to continue a tax freeze that they would otherwise lose under
current law, creating a cost to local governments and to the
state. A mobility factor was estimated by dividing the national
number of 65-and over homesteads moving within their states
by the total US number of 65-and over homesteads. The mobility
factor times the number of 65-and over homesteads in Texas equals
the number of Texas 65-and over homesteads moving. The number
of Texas 65-and over homesteads moving times the average freeze
value loss times the 1996 average tax rate equals the yearly
levy loss from movers. The levy loss was trended over the projection
period. Each year's levy loss, net of 65-and over deaths, is
cumulative. The school funding formula would reimburse school
districts after a one-year lag, resulting in a state cost and
a corresponding reduction in the cost to school districts.
The
bill's extension of tax ceilings on homesteads of the elderly
(65-and over tax freeze) to cities and counties would create
a cost for counties and cities. To estimate this cost, the
value of eligible property and the tax rates applicable to the
property were trended over the projection period. Average city
and county tax rates were applied to the eligible property values
and incremental property tax levies were calculated from a base
year (fiscal 1998). The incremental levies would be lost to
the taxing units and would be cumulative over the projection
period. Deaths and out-migration were assumed to equal new
65-and over taxpayers and in-migration of 65-and over taxpayers.
The probable fiscal implications of implementing the provisions
of the bill during each of the first five years following passage
is estimated as follows:
Five Year Impact:
Fiscal Year Probable Revenue Probable Revenue Probable Revenue Probable Revenue
Gain/(Loss) from Gain/(Loss) from Gain/(Loss) from Gain/(Loss) from
General Revenue School Districts Cities Counties
Fund
0001 LCL-SCHOOL LCL-CITY LCL-COUNTY
1998 $0 $0 $0 $0
1998 0 (49,500,000) (31,500,000) (27,500,000)
2000 (49,500,000) (14,400,000) (47,700,000) (39,300,000)
2001 (63,900,000) (13,800,000) (63,200,000) (50,500,000)
2002 (77,700,000) (12,700,000) (79,200,000) (62,200,000)
Net Impact on General Revenue Related Funds:
The probable fiscal implication to General Revenue related funds
during each of the first five years is estimated as follows:
Fiscal Year Probable Net Postive/(Negative)
General Revenue Related Funds
Funds
1998 $0
1999 0
2000 (49,500,000)
2001 (63,900,000)
2002 (77,700,000)
Similar annual fiscal implications would continue as long as
the provisions of the bill are in effect.
Source: Agencies: 304 Comptroller of Public Accounts
LBB Staff: JK ,JD ,BR