HBA-KDB, MSH C.S.H.B. 602 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 602 By: Zbranek Ways & Means 3/27/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Under current law, a commissioner's court of a county may call for an election to create a hospital district after being petitioned by the voters affected by the proposed district. A property tax may be levied to service the district's debts and pay district expenses. To lower property taxes, the district is authorized to levy a sales and use tax, but it must account for those taxes in calculating the district's effective and rollback tax rates. An already burdened taxpayer in a small county would potentially not favor an election to create a hospital district that would include the imposition of another property tax without an adjustment to the district's effective and rollback tax rates. C.S.H.B. 602 authorizes a small county with a population of 75,000 or less to create a hospital district under general law by the petition and election process by imposition of a sales and use tax only to service the district's debt and pay for the district's expenses. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS C.S.H.B. 602 amends the Health and Safety Code relating to the creation and financing of hospital districts. The bill authorizes a hospital district located in a county with a population of less than 75,000 to lower the ad valorem tax or to adopt a sales and use tax approved by a majority of voters in an election held in the district (Secs. 285.061 and 286.171). The bill requires that any new tax adopted not cause the combined rates of all state and local taxes to exceed two percent in any part of the district (Secs. 285.161 and 286.172). The bill authorizes the district to increase or decrease the sales and use tax rate upon the approval of a majority of voters in the district and sets forth election procedures (Secs. 285.162, 285.163, 285.062, 286.062, and 286.174). The bill specifies that when a district is located within the boundaries of another taxing authority, an adopted or increased tax cannot raise the combined state and local tax rate to above two percent (Secs. 285.164, 286.101, and 286.173). The bill provides that an election to approve or increase the tax to over two percent has no effect unless one or more of the other taxing authorities holds an election in accordance with the law governing that authority on the same date as the election to reduce the tax rate of that authority to a rate that will result in a combined tax rate by the district and other political subdivisions of not more than two percent at any location in the district, and the combined tax rate is reduced to not more than two percent as a result of that election (Secs. 285.164 and 286.173). The bill authorizes the district to use the tax to pay debts or maintenance and operating expenses of the district (Secs. 286.165 and 286.175). The bill amends the requirements for a petition to create a hospital district to require that it also include whether the district will impose a property tax or a sales tax and the maximum tax rate to be voted on at the creation election (Sec. 286.022). The bill prohibits the commissioners court from granting a petition for the creation of hospital district that will impose a sales and use tax if the district will be located within a county or counties each with a population greater than 75,000 (Sec. 286.023). The bill requires that upon the dissolution of the district the board of directors of the district (board) impose a property tax that is in proportion of the debt of the district to the property value of the property on the district's tax rolls, if the district had imposed a property tax. The bill also requires that the board continue a sales tax in the district until the debt of the district is repaid (Sec. 286.104). The bill authorizes the district to impose a property tax upon approval by a majority of voters in the district at a district election (Sec. 286.161). The bill amends Tax Code to amend the definition of "additional sales and use tax" to exempt hospital districts in a county or counties with a population less than 75,000 and created after September 1, 2001 (Sec. 26.012). EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 602 modifies the original bill by providing that when a combined state and local tax rate of a district located within the boundaries of another taxing authority exceeds two percent, then an election to approve or increase the tax has no effect unless one or more of the other taxing authorities holds an election in accordance with the law governing that authority on the same date as the election to reduce the tax rate of that authority to a rate that will result in a combined tax rate by the district and other political subdivisions of not more than two percent at any location in the district, and the combined tax rate is reduced to not more than two percent as a result of that election. The original provided that when the election would result in a tax rate that exceeds two percent the election must allow the voters to choose which taxing authority's tax will be decreased. The substitute removes the provision that prohibited an election from being held after notification that the resulting decrease in the other taxing authority's tax rate would impair any existing contracts or bonds (Secs. 285.164 and 286.173).