81(R) HB 2555 - Enrolled version

TO:	Honorable David Dewhurst , Lieutenant Governor, Senate Honorable Joe Straus, Speaker of the House, House of Representatives

FROM:	John S. O'Brien, Director, Legislative Budget Board

IN RE:	HB2555 by Hilderbran (Relating to the exemption from ad valorem taxation of certain property acquired to provide low-income housing or used for charitable purposes. ), Conference Committee Report

Estimated Two-year Net Impact to General Revenue Related Funds for HB2555, Conference Committee Report: a negative impact of ($420,000) through the biennium ending August 31, 2011.

Passage of the bill would also extend the period for which a property may be exempted as lowincome housing from three to five years. As a result, taxable property values could be reduced and the related costs to the Foundation School Fund could be increased.

The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.

Fiscal Year	Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2010	$0
2011	($420,000)
2012	($488,000)
2013	($521,000)
2014	($558,000)

All Funds, Five-Year Impact:

Fiscal Year	Probable Savings/(Cost) from Foundation School Fund 193	Probable Revenue Gain/(Loss) from School Districts - Net Impact	Probable Revenue Gain/(Loss) from Counties	Probable Revenue Gain/(Loss) from Cities
2010	$0	$0	$0	$0
2011	($420,000)	($139,000)	($178,000)	($152,000)
2012	($488,000)	($108,000)	($188,000)	($160,000)
2013	($521,000)	($121,000)	($201,000)	($170,000)
2014	($558,000)	($133,000)	($215,000)	($182,000)

The bill would amend various sections of the Tax Code regarding taxable property and exemptions and would also amend Section 11.181(b) of the Tax Code to extend the period for which a property
may be exempted as low-income housing from three to five years.

Property held by a charitable organization on which housing is built or repaired primarily with
volunteer labor to sell without profit to qualified low income families or individuals is currently
exempt for up to three years. The value, length of time exempted, and likely holding period for such
property is unknown. Although extending the exemption period to a maximum of five years would
create a cost to local taxing units and the state through the operation of the school finance formulas,
the fiscal impact cannot be determined.

The bill would make an ad valorem taxation exemption for qualified charitable organizations mandatory, if certain conditions are met. Section 11.184(b) of the Code, which currently makes this exemption optional, would be repealed.

The bill would extend an exemption from ad valorem taxation to property owned by corporation that is not a qualified charitable organization, if certain conditions were met. The required conditions include (1) qualifying as a 501(c)(2) organization under federal tax law; (2) holding title to the property, collecting income from the property, and turning the income less expenses over to a qualified charitable organization; and (3) the property would be exempt from ad valorem taxation if it was owned by the qualified charitable organization. The qualified charitable organization would be required to get a determination letter from the Comptroller's Office.

The bill's requirement of mandatory exemptions for qualifying charitable organizations would create a cost to cities, counties, school districts, and the state through the operation of the school finance formulas. Currently, some taxing units grant the exemption and some do not. The cost was estimated based on a survey of large appraisal districts to determine the value of currently non exempt property that would be exempted under the bill. The appropriate tax rates were applied to the value losses to estimate the tax revenue losses. All costs were estimated over the five year projection period.

The mechanics of the school finance system would transfer the costs related to the compressed tier to the state and would transfer a portion of the debt (facilities funding) and enrichment costs to the state, reducing the fiscal impact to school districts.

Passage of the bill would extend the period for which a property may be exempted as low-income
housing from three to five years. As a result, taxable property values and the related ad valorem tax
revenue for units of local government could be reduced.

Because of the operation of the hold harmless provisions of HB 1, 79th Legislature, Third Called Session (2006), the school district cost related to the compressed tier would be transferred to the state. Portions of the enrichment cost and the school district debt (facilities) cost would also be transferred to the state after a one-year lag because of the operation of the enrichment and facilities funding formulas.

LEGISLATIVE BUDGET BOARD
Austin, Texas

FISCAL NOTE, 81ST LEGISLATIVE REGULAR SESSION


May 30, 2009