HBA-NRS S.B. 914 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 914 By: Ogden Higher Education 5/5/2001 Engrossed BACKGROUND AND PURPOSE Current law permits a city to create a higher education authority (authority) or a nonprofit corporation to exercise powers similar to those of an authority. The nonprofit organization can issue tax exempt bonds to buy educational facilities or dormitories within or outside the city that created the corporation. If the project is a dormitory, the bonds are to be paid from the rent from the dormitory. The dormitories must be rented exclusively to students or other persons officially connected with a university. The educational or dormitory facilities built by an authority are exempt from ad valorem property taxes. Some cities and private individuals, through the use of an authority, are financing the construction of student apartment complexes outside of their extraterritorial jurisdiction and claiming a property tax exemption. Senate Bill 914 establishes that educational and student housing facilities owned by higher education authorities or certain nonprofit entities that are financed by an authority must have a connection to an educational institution to qualify for tax exempt status. 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 Senate Bill 914 amends the Education Code to provide that an educational facility or housing authority is exempt from taxation if the facility is owned by a higher education authority (authority), by a nonprofit corporation created by a city to exercise the powers of an authority, or by a nonprofit foundation created on behalf of an institution of higher education, an accredited primary or secondary school, or an authorized charter school (institution or school), if the facility is financed in whole or in part under the Higher Education Authority Act (Act), if the facility is held for the exclusive benefit of an institution or school that has approved that ownership and financing, if the facility is held for the exclusive use of the students, faculty, and staff members of the benefitted institution or school, and if the facility would be exempt from taxation under other applicable law if the facility were owned by the institution or school. The bill provides that a housing facility is exempt from taxation by a taxing unit if the facility is owned by an authority created by a municipality or created on behalf of an institution or school, if the facility is financed or acquired in whole or in part under the Act, and if all net revenues derived from the facility are devoted exclusively to the granting of scholarships in the form of reduced room and board or room or board changes. The bill requires that the exemption from taxation by a taxing unit applies only to an authority or nonprofit corporation created or to be created under the Act by a city if an authority or nonprofit corporation created by the same city had granted room and board scholarships prior to September 1, 2001, to students residing in facilities owned by the authority or nonprofit corporation. If the net revenue of a housing facility is devoted exclusively to the granting of scholarships fails to award scholarships having a value at least equal to the amount of ad valorem taxes that would have been owed if the facility had not been exempt, the bill requires the facility to make a payment in the amount of the taxes that would be due for the proportional benefit of the applicable taxing jurisdictions in the amount of the difference between the value of the scholarships and the taxes that otherwise would have been payable. The bill prohibits this provision from altering an agreement in existence prior to September 1, 2001, without permission of the affected taxing authority. The bill requires the local taxing unit to determine the amount of the difference between the value of the scholarship and the taxes that would have been payable. The bill provides that a housing facility is eligible for a rebate of the ad valorem property taxes paid to a taxing unit if the facility is owned by an authority, by a nonprofit corporation created by a city to exercise the powers of an authority, or by a nonprofit foundation created on behalf of an institution or school, the facility is financed in whole or in part under the Act, and all net revenues derived from the facility are devoted exclusively to the granting of scholarships in the form of reduced room and board charges or in other lawful forms. The bill requires the governing body of the taxing unit to determine the amount of the rebate except that the amount of the rebate is prohibited in any year from exceeding the lesser of the amount of ad valorem taxes paid to the taxing unit in that year or the fair market value of scholarships awarded from all net revenue derived from the facility in the preceding year. EFFECTIVE DATE On passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001.