Honorable Harvey Hilderbran, Chair, House Committee on Ways & Means
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
HB1338 by Bell (Relating to a limitation on the maximum appraised value of real property for ad valorem tax purposes of 105 percent of the appraised value of the property for the preceding tax year.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB1338, As Introduced: a negative impact of ($236,363,000) through the biennium ending August 31, 2015.
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
2014
$0
2015
($236,363,000)
2016
($770,673,000)
2017
($1,325,585,000)
2018
($1,942,767,000)
Fiscal Year
Probable Savings/(Cost) from Foundation School Fund 193
Probable Revenue Gain/(Loss) from School Districts
Probable Revenue Gain/(Loss) from Counties
Probable Revenue Gain/(Loss) from Cities
2014
$0
$0
$0
$0
2015
($236,363,000)
($375,504,000)
($186,547,000)
($206,696,000)
2016
($770,673,000)
($487,569,000)
($382,248,000)
($424,261,000)
2017
($1,325,585,000)
($600,997,000)
($583,218,000)
($648,423,000)
2018
($1,942,767,000)
($800,322,000)
($827,484,000)
($921,554,000)
Fiscal Year
Probable Revenue Gain/(Loss) from Other Special Districts
2014
$0
2015
($136,354,000)
2016
($279,173,000)
2017
($425,608,000)
2018
($603,377,000)
Fiscal Analysis
This bill would amend Section 23.23, Tax Code, to apply the current limitation on the annual increase in a residence homestead's appraised value to all real property and to lower the limit from 10 percent to 5 percent. The bill would amend Section 403.302, Government Code, to require the Comptroller to deduct the resulting property value losses from the values determined for school funding purposes.
This bill would take effect January 1, 2014, contingent on the passage of a constitutional amendment.
Methodology
Contingent on the passage of a constitutional amendment, the bill would require appraisal districts to reduce the limit on the growth in the appraised value of a homestead from 10 percent to 5 percent per year and would extend the 5 percent limit to all real property creating a fiscal impact on the state and units of local government. The analysis was based on appraisal roll information reported electronically by appraisal districts. The year to year percent change in value for a large random sample of properties that were listed on the appraisal roll in each of the two most recent years was calculated and the results were sorted by percent change. The value loss resulting from the proposed limitation was calculated for properties that increased in value more than five percent. Value lost to the existing 10 percent value limitation on homestead property was excluded. The results were extrapolated to all Texas real property except raw land. The great majority of land is already appraised at a reduced value under Section 1-d-1 of the Texas Constitution.
Value losses would occur in proportion to future real property growth rates. Mathematical modeling supported by historical data from the existing 10 percent cap shows that, when property value growth rates are relatively stable, value losses increase substantially in the second year after the imposition of a value growth cap and then increase at a decreasing rate. The value loss was adjusted in the second and succeeding years of the analysis to reflect this growth pattern.
Projected tax rates were applied to estimate the levy loss to special districts, cities and counties, and to estimate the initial school district loss. Because of the operation of the hold harmless provisions of the Education Code, about 60 percent of the school district cost related to the compressed rate is transferred to the state in the first year the bill takes effect and 100 percent in year two and later years. Because lagged year property values are used in the enrichment formula, school districts lose enrichment funding (a state saving) in the first year of a taxable property value reduction. In the second and successive years the enrichment cost and a portion of the school district debt (facilities) cost are transferred to the state through the relevant funding formulas. All costs were estimated over the five year projection period.
Local Government Impact
The fiscal implication to units of local government is reflected in the table above and is contingent upon passage of a constitutional amendment.