This bill would amend Section 23.23 of the Tax Code to reduce the current 10 percent maximum annual percentage cap in the appraised value of a residence homestead to a maximum of 5 percent.

The bill would redefine "new improvement" to exclude repairs to an existing structure.

This bill would take effect January 1, 2004, contingent upon passage of a constitutional amendment authorizing such a limitation.

Because the state is constitutionally prohibited from imposing a state property tax, there would be no direct fiscal impact on the state; however, Section 403.302 of the Government Code requires the Comptroller to conduct a property value study to determine the total taxable value for each school district. Total taxable value is an element in the state's school funding formula. Passage of this bill would cause a change in school district taxable values reported to the Commissioner of Education by the Comptroller.

The proposed bill would reduce the current 10 percent per year cap on homestead appraisal increases to 5 percent. Actual 2002 reported school district value losses to the 10 percent cap are $14.2 billion. This translates to a 2002 revenue loss to school districts of over $225 million. For the purposes of this analysis, an annual 5 percent statewide residential growth rate is projected.

This estimate assumes the appraised value of properties currently subject to the cap would not be increased to market value by passage of the proposed bill. As a result, the existing base stock of capped properties becomes the starting point for the estimate and the proposed reduced percentage cap would increase the loss attributable to these properties, as well as increasing the number of properties added to the "capped" stock each year.

The projected growth rate was compared to the recent historical growth rate to predict a fiscal 2003 loss under current law. The total predicted loss under the proposed cap was estimated by increasing the predicted fiscal 2003 loss by the ratio of the proposed cap to the old cap. The predicted fiscal 2003 loss was subtracted from the total predicted loss under the proposed bill to estimate the incremental loss. The predicted fiscal 2003 loss was used as a base to project future losses.

Losses were phased in over the first two years and trended at 5 percent through the projection period to account for value and rate increases. School district losses would shift to the state after a one-year lag through the operation of the school funding formulas. The fiscal implications of provision that would redefine "new improvement" cannot be estimated.

The dynamic tax feedback effects are shown only with respect to the gain/(loss) incurred by the General Revenue Fund 0001.

This bill would have a negative effect on the state's cash flow.

There would be no administrative costs to the Comptroller's Office.

There would be no technology impact to the Comptroller's Office.

Similar fiscal implications would continue after 2008.

Note: The values in Section II relate to changes in macroeconomic variables relative to the Comptroller's baseline economic forecast for each individual year.

After ten years, by 2013, this bill could be expected to have increased employment by 33,000 workers, investment by $915.3 million, and Texas Personal Income by $1.3 billion.

A Texas-specific general equilibrium model was employed in calculating the economic impacts. The model distributes the value that otherwise would have been paid/saved in taxes by businesses and/or consumers among the state's economic sectors. The revenue feedback calculation was based on the historical relationships between state tax revenues and associated economic factors.