SRC-JGS S.J.R. 1 78(4) BILL ANALYSIS
Senate Research Center S.J.R. 1
By: Shapiro
Committee of the Whole
5/6/2004
As Filed
DIGEST AND PURPOSE
The four Texas Supreme Court decisions on the Edgewood school finance
litigation require a state school finance system that provides similar
revenue at similar tax effort (rates), establishing a taxpayer-equity
standard. In 1989, Edgewood I identified "fiscal neutrality" when it
required a "direct and close correlation between a district's tax effort
and the educational resources available." (Edgewood I, 777, S. W. 2nd at
397) In 1988, the year before the Edgewood decision, tax rates ranged from
21.3 cents to $1.77 per $100 valuation. School district property wealth
ranged from $20,000 per student to $6,936,634 per student, a ratio of
1:300. Total revenue per pupil ranged from $2,166 to $19,229, with an
average of $3,513 per pupil. In 1989 the legislature began a
guaranteed-yield system whereby the state guaranteed school districts tax
revenue per penny per student.
In 1991, the legislature created a new mechanism, county education
districts, to reduce the difference in the property-tax base of individual
districts by taxing all property in each county and distributing the
revenue based on a district's enrollment. The highest wealth county had a
tax base 70 times the value of the lowest wealth county or property tax
base on the county tax. That same year the Texas Supreme Court ruled that
the finance system relied too heavily on the local property tax and
violated the 1931 precedent set by Love v. Dallas, which prohibits the
state from requiring one school district to spend tax revenue to educate
students outside of the district.
In 1993, the legislature created a system that recaptured tax revenue
(Robin Hood) from school districts with property value above the equalized
wealth level of $280,000 per weighted student and that guaranteed
districts tax revenue equal to a property value of $200,500 per weighted
student. The legislature provided school districts five options to reduce
property value and meet the wealth limit: consolidate tax bases with a
lower wealth district; consolidate with a district of lower wealth;
transfer property to another district; purchase attendance credits from
the state; and educate students from another district. Later the law was
amended so that the debt service tax rate was not subject to recapture.
As the guaranteed yield applied to higher tax rates, rising from $ 1.17 in
1992 to $1.27 in 1993, and finally $1.50 in 1995, the districts' tax rates
increased. The school finance system encouraged high property tax rates to
maximize state and local revenue.
Benefits from increases in property assessments accrue to the state. The
state guarantees a certain funding level and when property values
increase, the state revenue needed to fulfill the guaranteed-yield
declines. Under the current system, districts can increase revenue by
increasing property tax rates up to $1.50 per $100 of property value. Many
Chapter 41 (property wealthy) districts partnered with Chapter 42 (nearly
all other) districts, but the recapture revenue did not increase Chapter
42 districts revenue above the state guarantee.
In addition to upholding recapture, the 1994 Edgewood IV decision allowed
for unequalized enrichment as long as the overall system remained
equalized. The Legislative Budget Board derived three standards for an
equalized system: 85 percent of students are in the equalized system, 98
percent of the revenue is within the foundation school program, and a $600
gap in revenue per weighted students is allowed between Chapter 41
districts and Chapter 42 districts.
The state has paid less than half the cost of public education for over a
decade; in 1988-1989 the state paid 41.3 percent. Over reliance on the
local property tax and a system that rewards high tax rates has created
the desire to reduce property tax rates and increase the state share of
public education costs.
S.J.R. 1 replaces the current school maintenance tax with a local school
district enrichment tax. The rate may not exceed the rate provided by
general law.
S.J.R. 1 provides that the Available School Fund distributions are made to
the Texas Education Fund rather than to the scholastic population of the
several counties.
The resolution creates the Texas Education Fund dedicating: (1) funds from
a 75 cent state ad valorem tax; (2) funds from sales tax base expansion
and rate increase; (3) funds from motor vehicle sales tax rate increase;
(4) funds from any state lottery; and (5) distributions from the Available
School Fund.
S.J.R. 1 repeals the ten percent restriction on the legislature's
authority to limit annual increases in the appraised value of residence
homesteads for ad valorem tax purposes.
S.J.R. 1 increases the state sales tax rate to 7.25 percent and expands
the sales tax base to include services unless specifically exempted in
law. The legislature is authorized to repeal or modify the rate or base
expansion, effective July 1, 2004.
S.J.R. 1 provides that an exemption of certain residences from ad valorem
taxes does not apply to homestead districts.
Finally, S.J.R. 1 increases the motor vehicle sales tax rate to 8.75
percent, effective July 1, 2004.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 3, Article VII, Texas Constitution, by amending,
Subsection (e) and adding Subsections (f) and (g), as follows:
(e) Authorizes the legislature, rather than requires the legislature to be
authorized, to pass laws for the management and control of the public
school or schools of school districts. Deletes text referring to the
assessment and collection of taxes in all school districts. Authorizes a
school district to levy and collect an ad valorem tax at a rate not to
exceed $0.10 for each $100 of taxable value of the property for the
purpose of providing an enriched educational program. Authorizes the
legislature to authorize an additional ad valorem tax to be levied and
collected within all school districts for the erection and equipment of
school buildings therein. Deletes text referring to whether districts are
composed of territory wholly within one or in parts of two or more
counties and text referring to further maintenance of public free schools.
Prohibits a school district from levying a tax under this subsection
unless the tax is approved by a majority of the qualified voters of the
district voting at an election held for that purpose. Makes
nonsubstantive changes.
(f) Authorizes the legislature to pass laws for the creation of junior
college districts, the management and control of those districts, and the
assessment and collection of ad valorem taxes in those districts.
Prohibits a junior college district from levying a tax under this
subsection unless the tax is approved by a majority of the qualified
voters of the district voting at an election held for that purpose.
Provides that a junior college is not a school district for the purposes
of this section.
(g) Provides that an ad valorem tax approved by the voters of a junior
college district under this section before November 4, 2003, is not
affected by the amendment of this section adopted November 4, 2003.
Provides that a junior college district is not required to hold a new
election to authorize the existing tax. Provides that this subsection
expires January 1, 2004.
SECTION 2. Amends Section 3-b, Article VII, Texas Constitution, as
follows:
Sec. 3-b. (a) Provides that a tax for the enrichment of public free
school voted in any independent school district, or a tax for the
maintenance of a junior college voted by a junior college district, and
any bonds voted in any such district, but unissued, are not abrogated,
cancelled, or invalidated by change of any kind in the boundaries of the
district. Deletes language providing that no tax for the maintenance of
public free schools voted in any independent school district and no tax
for the maintenance of a junior college voted by a junior college
district, not any bonds voted in any such district, but unissued shall be
abrogated, cancelled, or invalidated by change of any kind in the
boundaries thereof.
(b) Creates this subsection from existing text. Authorizes the governing
body of any such district, rather than requiring such a district to have
the power, after any change in boundaries without the necessity of an
additional election, to assess, levy, and collect ad valorem taxes on all
taxable property within the boundaries of the district as changed, for the
enrichment, rather than maintenance, of public free schools or the
maintenance of junior college and for the payment of certain debts
outstanding against, or attributable, adjusted, or allocated to, such
district or any territory in the district, in the amount, at the rate, or
not to exceed the rate, and in the manner authorized in the district
before the change in its boundaries and in accordance with the laws under
which all such bonds, respectively, were voted. Makes conforming changes.
(c) Authorizes the taxes to be levied for the purposes authorized by the
article, if the boundaries of any such independent school district are
changed by the annexation of or consolidation with, one or more whole
school districts, to be in the amount or at not to exceed the rate
previously voted in the district having the greatest scholastic
population, according to the latest scholastic census, at the time of such
change, and authorizes only the unissued bonds of such district voted
before such change to be subsequently sold and delivered. Prohibits
unissued bonds, rather than voted and unissued bonds, of the other school
districts involved in such annexation or consolidation from being issued
after the annexation or consolidation.
SECTION 3. Amends Subsection (a), Section (5) Article VII, Texas
Constitution, to set forth the composition of the permanent school fund.
Establishes of what the available school fund consists. Deletes text
referring to the principal of all bonds and other funds and principal
arising from the lands set apart to the school fund. Prohibits the
legislature, except as provided by this section, from enacting a law
appropriating any part of the permanent school fund or available school
fund for any other purpose. Prohibits the permanent and available school
funds from being appropriated to or used for the support of any sectarian
school. Deletes text referring to distribution of the available school
fund according to scholastic population.
SECTION 4. Amends Article VII, Texas Constitution, by adding Section 5A,
to set forth the composition of the Texas education fund.
SECTION 5. Amends Subsection (i), Section 1, Article VIII, Texas
Constitution to authorize the legislature by general law to limit the
maximum annual percentage increase in the appraised value of residence
homesteads for ad valorem tax purposes. Deletes language specifying that
the legislature's authority is to limit the maximum average annual
percentage increase in the appraised value to 10 percent, or a greater
percentage, for each year since the most recent tax appraisal.
SECTION 6. Amends Subsection (e), Section 1-b, Article VIII, Texas
Constitution, to authorize the governing body of a political subdivision
to exempt from ad valorem taxation a percentage of certain residences.
Deletes references to county education districts. Provides that an
exemption authorized by this subsection does not apply to ad valorem taxes
levied on a residence homestead by a school district under Section 3(e),
Article VII (Taxes for Benefit of Schools; School Districts), of this
constitution for the purpose of providing an enriched education program.
SECTION 7. Amends Section 1-e, Article VIII, Texas Constitution, as
follows:
Sec. 1-e. (a) Includes a reference to Subsection (b) as an exception to
the requirement that no state ad valorem taxes be levied upon any property
in Texas.
(b) Provides that a state ad valorem tax for elementary and secondary
public free school purposes is imposed on real property and tangible
personal property not otherwise exempted by this constitution or by the
legislature under the authority of this constitution. Provides that the
tax is imposed at a rate of 75 cents for each $100 of taxable value,
unless the legislature by general law enacted after January 1, 2004,
provides for the tax to be imposed at a lower rate.
(c) Authorizes the legislature to provide for the appraisal of property
subject to state ad valorem taxes, for the equalization of the taxable
values of that property, and for the collection of the state ad valorem
taxes imposed on that property.
(d) Provides that property described by Sections 1-j (Certain Tangible
Personal Property Exempt from Ad Valorem Taxation) or l-n (Authorization
to Exempt from Ad Valorem Taxation Personal Property) of this article is
not exempt from taxes imposed under Subsection (b) of this section in a
tax year if the property is located in a school district that taxes the
property for that tax year.
(e) Requires state ad valorem taxes to be assessed on the valuation of
property subject to those taxes as determined by the appraisal officials
in the county in which it is located. Provides that the assessment of a
state ad valorem tax on that valuation is not invalid if an appraisal
official uses generally accepted appraisal standards and practices to
appraise property subject to the state ad valorem tax and the valuation of
the property subject to that tax conforms to or is equalized by the local
appraisal review process to conform to the accepted standards and
practices. Provides that this subsection expires at the end of the 2004
ad valorem tax year.
SECTION 8. Amends Article VIII, Texas Constitution, by adding Sections 25
and 26, as follows:
Sec. 25. (a) Requires the state to impose the sales and use tax authorized
by Chapter 151 (Limited Sales, Excise, and Use Tax), Tax Code, or its
successor, at the rate of 7.25 percent.
(b) Authorizes the legislature by general law, notwithstanding Subsection
(a) of this section, to raise or lower the rate of the tax or modify or
repeal the tax.
(c) Requires the state to impose the tax described by Subsection (a) of
this section on the sale or use of all services, unless the legislature by
general law provides exemptions from the application of the tax. Provides
that this subsection does not apply to a service that is specifically and
not generally exempt, either wholly or partly, from taxation under Chapter
151 (Limited Sales, Excise, and Use Tax), Tax Code, regardless of whether
that exemption was enacted before the date this section takes effect.
(d) Sets forth the revenue required to be deposited to the credit of the
Texas education fund created under Section 5A, Article VII, of this
constitution, notwithstanding any other provision of this constitution.
(e) Provides that the effective date for this section is July 1, 2004,
and makes its application prospective.
Sec. 26. (a) Requires the state to impose the tax on the sale or use of a
motor vehicle authorized by Chapter 152 (Taxes on Sale, Rental, and Use of
Motor Vehicles), Tax Code, or its successor, at the rate of 8.75 percent.
(b) Authorizes the legislature by general law to raise or lower the rate
of the tax or modify or repeal the tax, notwithstanding Subsection (a) of
this section.
(c) Requires the net revenue derived from an increase in the rate of the
tax described by Subsection (a) of this section over the rate of the tax
on June 30, 2004, to be deposited to the credit of the Texas education
fund created under Section 5A, Article VII, of this constitution.
(d) Provides that this section takes effect July 1, 2004, and makes its
application prospective.
SECTION 9. Requires this proposed constitutional amendment to be
submitted to the voters at an election to be held November 4, 2003. Sets
forth the required content of the ballot.