| TO: | Honorable Jim Keffer, Chair, House Committee on Ways & Means |
| FROM: | John S. O'Brien, Director, Legislative Budget Board |
| IN RE: | HB3130 by Cook, Robby (Relating to the appraisal for ad valorem tax purposes of certain property used to provide affordable housing.), As Introduced |
The bill would amend Section 23.21 of the Tax Code, relating to the appraisal of certain property used to provide affordable housing.
The bill would require appraisal districts to use an income method with a capitalization rate of at least 13.5 percent when appraising affordable housing meeting certain requirements, unless the appraisal district conducted and published a study of sales of comparable properties in the appraisal district to determine a lower market capitalization rate.
The bill would provide that taxes and other defined expenses be deducted in determining the net income from the property. Before March 1 of the tax year, the property owner would have to submit to the chief appraiser: 1) a copy of the governmental regulations or governmental contract applicable to the subject property; and 2) an audited operating statement for the preceding fiscal year showing the operating income of the property and the operation and maintenance expenses for the subject property.
Capitalization rates used in an income appraisal express the relationship between income and market value. The higher the capitalization rate, the lower the market value, and vice-versa. Market capitalization rates vary from year to year, depending on changes in interest rates, supply, demand, and other variables.
The bill would allow an appraisal district to use a capitalization rate less than 13.5 percent if the appraisal district conducted a study based on sales of comparable properties proving the lower rate. Depending on the volume of sales of rent-restricted, low- and moderate-income housing, it could be difficult for all appraisal districts to conduct such a study. To the extent that appraisal districts used the 13.5 percent capitalization rate proposed in the bill, and that rate exceeded the market capitalization rate in a given year, the bill would impose a cost on local taxing units and the state.
The bill would take effect January 1, 2008.
Because future market capitalization rates, the availability of future comparable sales, and the extent to which appraisal districts would be able to conduct market capitalization rate studies cannot be predicted, the fiscal impact on local taxing units cannot be determined.
| Source Agencies: | 304 Comptroller of Public Accounts
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| LBB Staff: | JOB, CT, SD, SJS
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