Honorable Harvey Hilderbran, Chair, House Committee on Ways & Means
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
HB3570 by Hilderbran (Relating to limiting the frequency of reappraisals of real property for ad valorem tax purposes.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB3570, As Introduced: a negative impact of ($114,925,000) 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
($114,925,000)
2016
($332,221,000)
2017
($452,042,000)
2018
($496,007,000)
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
($114,925,000)
($182,578,000)
($90,703,000)
($100,500,000)
2016
($332,221,000)
($168,711,000)
($152,181,000)
($168,907,000)
2017
($452,042,000)
($116,001,000)
($171,959,000)
($191,184,000)
2018
($496,007,000)
($109,361,000)
($182,616,000)
($203,376,000)
Fiscal Year
Probable Revenue Gain/(Loss) from Other Special Districts
2014
$0
2015
($66,299,000)
2016
($111,145,000)
2017
($125,488,000)
2018
($133,158,000)
Fiscal Analysis
This bill would amend Section 25.18, of the Tax Code, regarding periodic reappraisals, to restrict the reappraisal of real property by an appraisal district to not more than once in any three-year period except in the year following the sale of a real property.
This bill would take effect immediately upon enactment, assuming that it received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, it would take effect September 1, 2013.
Notes: 1) Limiting the reappraisal of real property to once every third year could conflict with the constitutional requirement of equal and uniform taxation. HJR 144, if adopted, would provide constitutional authorization, but this bill is not contingent on such adoption.
2) The Comptroller is required by law to perform a property value study in each school district at least once every other year to determine if the district's taxable property values are valid for use in the school funding formula. The bill's restriction on an appraisal district appraising property more than once in any three year period could create a timing conflict with the biennial property value study. A situation could arise in which the Comptroller finds that a school district's taxable values are invalid through no fault of the appraisal district or the school district.
Methodology
The growth in real property value was projected based on historical information from appraisal districts. Under the bill, appraisal districts would only be able to capture the value growth every third year. The lost growth in non-reappraisal years would translate into taxing unit revenue losses and increased state funding to school districts. For the purpose of this estimate it was assumed that beginning in tax year 2014 (fiscal 2015), only one-third of the state's real property would be reappraised each year. The state's tax base would lose the real property value growth on non-reappraised real property each year from fiscal 2015 forward.
Under current law, an appraisal district is permitted to increase the appraised value of a residence homestead up to 10 percent in a non-reappraisal year if the homestead's appraised value is below the market value because of the previous operation of the annual 10 percent limit on residence homestead appraised value increases (Section 23.23, Tax Code). The bill would not amend that section of the Tax Code, so these appraised value increases in non-reappraisal years would reduce the cost of the bill. The bill's provision that newly constructed real property would be appraised and added to the appraisal roll each year would also reduce the cost.
The applicable 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 would be transferred to the state in the first year of a taxable property value loss and 100 percent in later years. Because lagged year property values are used in the enrichment formula, school districts lose enrichment funding (state savings) 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 included in the tables above.