LEGISLATIVE BUDGET BOARD
Austin, Texas
 
FISCAL NOTE, 84TH LEGISLATIVE REGULAR SESSION
 
May 4, 2015

TO:
Honorable Dennis Bonnen, Chair, House Committee on Ways & Means
 
FROM:
Ursula Parks, Director, Legislative Budget Board
 
IN RE:
HB2041 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 HB2041, As Introduced: a negative impact of ($150,901,000) through the biennium ending August 31, 2017.  The net impact to General Revenue Related Funds would increase to a negative impact of ($2,336,033,000) through the biennium ending August 31, 2019.

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
2016 $0
2017 ($150,901,000)
2018 ($758,996,000)
2019 ($1,577,037,000)
2020 ($2,442,586,000)




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
2016 $0 $0 $0 $0
2017 ($150,901,000) ($768,039,000) ($279,399,000) ($275,739,000)
2018 ($758,996,000) ($1,159,553,000) ($584,722,000) ($575,913,000)
2019 ($1,577,037,000) ($1,405,966,000) ($911,302,000) ($895,787,000)
2020 ($2,442,586,000) ($1,806,149,000) ($1,301,048,000) ($1,276,354,000)

Fiscal Year Probable Revenue Gain/(Loss) from
Other Special Districts
2016 $0
2017 ($194,216,000)
2018 ($406,048,000)
2019 ($632,206,000)
2020 ($901,690,000)

Fiscal Analysis

The bill would amend Chapter 23 of the Tax Code, regarding appraisal methods and procedures, to reduce the limitation on appraised value increases from 10 percent to 5 percent and to change the type of property to which the limitation applies from a residence homestead to real property. For a residential property which the owner acquires and qualifies for a residential homestead exemption in the same year, the limitation would take effect in the tax year following the tax year in which the owner acquires the property. For other real property, the limitation would take effect in the tax year following the first tax year in which the owner owns the property on January 1. The residential homestead limitation would continue during ownership of the property by the owner's spouse or surviving spouse.
 
The bill would make conforming changes to the Tax Code and Government Code.
 
The bill would take effect January 1, 2016, contingent on voter approval of a constitutional amendment.

Methodology

Contingent on the passage of a constitutional amendment, the bill would require appraisal districts to limit the growth in the appraised value of real property to 5 percent per year 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 real properties 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 real 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 real property.
 
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 through the five-year projection period to estimate the tax revenue loss to special districts, cities and counties, and to estimate the school district loss that would be partially transferred to the state.  Under the hold harmless provisions of the Education Code, only a small portion of each year's additional school district loss related to the compressed rate would be transferred to the state while 100 percent of each subsequent year's loss would be transferred to the state.  Because lagged year property values are used in the enrichment formula, school districts lose enrichment funding (a state gain) in the first year of a taxable property value reduction.  In the second and successive years, the enrichment loss and a portion of the school district debt (facilities) loss are transferred to the state through the relevant funding formulas.

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 authorizing the exemption.


Source Agencies:
304 Comptroller of Public Accounts
LBB Staff:
UP, KK, SD, SJS