LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
April 10, 2001
TO: Honorable Paul Sadler, Chair, House Committee on Public
Education
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB3259 by Green (Relating to the abolition of school
district property taxes, an increase in the rate of the
state sales and use tax and the application of the state
sales and use tax to any transaction in this state,
including a sale for resale, involving real property,
and the distribution of the proceeds from the sales and
use tax to replace school district property tax
revenue.), As Introduced
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB3259, As Introduced: negative impact of $(2,285,677,973) *
* through the biennium ending August 31, 2003. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
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The bill repeals and amends sections in the Tax Code, the Education Code,
and the Government Code to abolish the school property tax in Texas.
Cities, counties, and special districts would continue to levy a property
(or ad valorem) tax and would continue to fund appraisal district
budgets.
The bill eliminates the local property tax as a revenue source for the
Foundation School Program (FSP) and amends the Texas Education Code,
eliminating Tier II and Tier III of the school finance system in which
tax rates and property values form the basis for FSP state aid
entitlements to school districts.
The bill amends Chapter 151 of the Tax Code to tax the sale, rental, or
lease of real property under the limited sales and use tax. "Real
property" would be defined as property including a building, structure,
or other improvement to real property. Real property would be added to
the definition of "sale," "purchase," and "taxable item"; and the sale or
purchase of real property would include any sale of real property,
without regard to whether the purchaser acquired the property with the
intention of selling it.
The bill increases the state limited sales and use tax rate to 8 percent
from 6.25 percent.
Articles 1 and 2 of the bill, relating to property taxes and sales and
use taxes, take effect January 1, 2002. Article 3, relating to school
finance, take effect September 1, 2002.
Note: The following fiscal impact to Fund 0001 and the State Highway
Fund 0006 reflects estimated dynamic tax feedback effects created by
the net reduction in industry and consumer tax burdens.
General Revenue-Related Funds, Five-Year Impact:
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* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $4,307,315,311 *
* 2003 (6,592,993,284) *
* 2004 (6,937,925,380) *
* 2005 (7,472,327,380) *
* 2006 (7,911,829,380) *
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All Funds, Five-Year Impact:
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*Fiscal Probable Probable Probable Probable *
* Year Revenue Savings/(Cost) Revenue Revenue *
* Gain/(Loss) from General Gain/(Loss) Gain/(Loss) *
* from General Revenue Fund from State from School *
* Revenue Fund 0001 Highway Fund Districts *
* 0001 0006 *
* 2002 $4,315,750,000 $0 $3,737,000 $0 *
* 2003 8,242,673,000 4,378,000 *
* (14,830,000,000) (14,830,000,000) *
* 2004 8,639,733,000 6,499,000 *
* (15,572,000,000) (15,572,000,000) *
* 2005 8,883,331,000 14,235,000 *
* (16,350,000,000) (16,350,000,000) *
* 2006 9,261,829,000 19,986,000 *
* (17,168,000,000) (17,168,000,000) *
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As a result of abolishing the school property tax, it was assumed other
taxing units in the state would bear a larger share of appraisal
district budgets. The Comptroller's Appraisal District Operations
Report, 1999 and 2000 Data, shows an aggregate appraisal district budget
of $227,621,815 for 2000. Recent trends indicate a 5 percent annual
increase in appraisal district budgets.
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*Fiscal Probable Probable Probable Probable *
* Year Savings/(Cost) Savings/(Cost) Savings/(Cost) Savings/(Cost) *
* from School from Cities from Counties from Other *
* Districts Appraisal Appraisal Special *
* Appraisal Districts Districts Districts *
* Districts Appraisal *
* Districts *
* 2002 $141,000,000 $(56,000,000) $(51,000,000) $(34,000,000) *
* 2003 149,000,000 (59,000,000) (54,000,000) (36,000,000) *
* 2004 156,000,000 (61,000,000) (57,000,000) (38,000,000) *
* 2005 164,000,000 (64,000,000) (60,000,000) (40,000,000) *
* 2006 172,000,000 (68,000,000) (63,000,000) (41,000,000) *
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*Fiscal Probable Probable Probable Change in *
* Year Revenue Revenue Savings/(Cost) Number of State *
* Gain/(Loss) Gain/(Loss) from General Employees from *
* from Cities from Revenue Fund FY 2001 *
* Counties/SPD 0001 *
* 2002 $418,764,000 $49,539,000 $(8,434,689) 85.0 *
* 2003 852,369,000 100,834,000 (5,666,284) 86.0 *
* 2004 867,805,000 102,660,000 (5,658,380) 86.0 *
* 2005 883,690,000 104,539,000 (5,658,380) 86.0 *
* 2006 899,862,000 106,452,000 (5,658,380) 86.0 *
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Technology Impact
The Information Technology Division of the Comptroller's office would
require approximately $1,232,000 in fiscal 2002 to make all necessary
programming changes. The technology impact also would include $175,540
for electronic data processing equipment.
Fiscal Analysis
The state limited sales and use tax rate would be increased by 1.75
percent to 8 percent from 6.25 percent. Estimates from the 2002-2003
Biennial Revenue Estimate were adjusted to reflect the incremental
increase. The resulting figures were adjusted for prior contracts,
behavioral response to the higher rate, and the effective date.
Note: This bill would authorize school districts to adopt a sales and
use tax, to be governed by the municipal sales tax chapter of the Tax
Code. That chapter provides that the total local tax rate may not exceed
2 percent at any place in the jurisdiction. This analysis does not
reflect the adoption of a school district sales tax because of the
existing 2 percent cap.
Note: The bill would add one million new taxpayers to the sales tax
base. The new tax base would include all building owners, apartment
owners, people who rent houses to others, billboard owners, dormitories,
pipelines, hotels, bed and breakfasts, public storage facilities, real
estate brokers, and attorneys.
Methodology
This estimate is based on analyses done by the Comptroller's Office.
School districts reported $13.4 billion in school property tax levy for
the 2000 tax year. To estimate the impact of abolishing the tax for
subsequent years, the 2000 reported levy was trended to reflect a five
percent annual increase in school property tax levies over the five-year
projection period.
Data on the sale and rental of real property were gathered from public
and private sources. Sales and rental payments were adjusted for assumed
economic effects, multiplied by the state sales tax rate, adjusted for
effective date, and extrapolated through 2006 to determine the gain to
Fund 0001 that would be available for distribution to Fund 0193. The
fiscal impact on cities and counties and special purpose districts were
estimated proportionally.
Note: The analysis of broadening the sales tax base to include real
property includes an adjustment for anticipated revenue effects
attributable to likely behavioral responses associated with the increase
in effective price of such property.
Note: The total amount that would be transferred from Fund 0001 to Fund
0193 is assumed to be the same amount of property tax revenue that school
districts would raise if not for the provisions of this bill.
Once the static impact was calculated, the dynamic fiscal impact was
calculated using a Texas-specific general equilibrium model to
distribute the savings that otherwise would have been paid in taxes by
consumers and businesses among the state's economic sectors. The
revenue feedback calculation was based on the historical relationship
between state tax revenues and associated economic factors.
Local Government Impact
The fiscal impacts on local units of government are reflected in the
above tables.
Source Agencies: 701 Texas Education Agency, 304 Comptroller of
Public Accounts
LBB Staff: JK, CT, WP, BR