Honorable Jane Nelson, Chair, Senate Committee on Finance
Ursula Parks, Director, Legislative Budget Board
SB1 by Nelson (relating to certain restrictions on the imposition of ad valorem taxes and to the duty of the state to reimburse certain political subdivisions for certain revenue losses.), Committee Report 1st House, Substituted
Estimated Two-year Net Impact to General Revenue Related Funds for SB1, Committee Report 1st House, Substituted: a negative impact of ($2,154,016,000) through the biennium ending August 31, 2017.
The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
Probable Savings/(Cost) from Foundation School Fund 193
The bill would amend Chapter 11 of the Tax Code, regarding property taxation and exemptions, to increase the mandatory homestead exemption for school districts from $15,000 to an amount equal to 25 percent of the median market value of all residence homesteads in the state, and to require that the tax limitation for taxpayers who are 65 years of age or older or disabled (tax ceiling) be reduced to reflect the additional exemption. The Legislative Budget Board (LBB) would be required to determine the median market value in each tax year based on appraisal district homestead values in the preceding tax year, and publish that value in the Texas Register not later than February 1. For the 2015 tax year, LBB would be required to determine and publish the median market value not later than August 1. School districts would be prohibited from repealing or reducing existing optional homestead exemptions until 2025.
The bill would amend Chapter 25 of the Tax Code, regarding local appraisal, to require that certain 2015 appraisal records submitted to the appraisal review board reflect the median published by the LBB.
The bill would amend Chapter 26 of the Tax Code, regarding assessment, to require school district assessors to determine two 2015 taxable values; the first based on a homestead exemption of $15,000, and the second based on the exempt amount published by the LBB under the bill. Two sets of school district effective and rollback tax rates would be calculated based on these taxable values. The governing body of a taxing unit would be required to adopt a tax rate for the 2015 tax year before the later of October 31 or the 60th day after the date the certified appraisal roll is received by the taxing unit (one month later than current law). This requirement would expire December 31, 2016.
The bill would amend Chapter 31 of the Tax Code, regarding property tax collections, to require for residence homesteads qualified for the tax ceiling, that a school district tax assessor mail the 2015 tax bill by December 1, 2015, or as soon thereafter as practicable (two months later than required under current law). This provision would expire December 31, 2016.
The bill would amend Chapters 41, 42 and 46 of the Education Code, regarding equalized wealth level, the Foundation School Program, and assistance with instructional facilities and payment of existing debt, to require that the state hold school districts harmless for tax revenue losses resulting from the additional homestead exemption amount, including maintenance and operations revenue losses, and interest and sinking fund revenue losses related to existing debt. School districts would be entitled to additional state aid to the extent current formulas do not fully reimburse them for the tax revenue losses. The Comptroller would be required to provide 2014 school district taxable values calculated as if the proposed new residence homestead exemption and reduction in tax ceilings had been in effect in tax year 2014.
The bill would amend Subchapter M, Chapter 403, of the Government Code, regarding the Comptroller's study of school district property values to require the Comptroller to calculate final taxable values for school districts based on the proposed new residence homestead exemption and reduction in tax ceilings.
The provisions of the bill requiring constitutional authorization would take effect on the date the corresponding constitutional amendment (SJR 1) takes effect. The provisions not requiring constitutional authorization would take effect immediately upon enactment, assuming that the bill receives the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, these provisions would take effect on the 91st day after the last day of the legislative session. The bill would apply to each tax year that begins on or after January 1, 2015.
The bill's proposed increase in the residence homestead exemption would create a fiscal impact to the state.
The bill's provision requiring the Comptroller to calculate the school district property values to be used in school funding formulas as if the additional homestead exemption amount were implemented one year before the bill's effective date would minimize the adverse effect on school districts of using lagged year property values in the funding formulas. Further, the bill's hold harmless provision would require the state to offset any school property tax revenue losses resulting from the additional homestead exemption amount.
The bill's provision setting the residence homestead exemption amount at 25 percent of the median market value of all Texas homesteads would result in an exemption of $31,373 in fiscal year 2016. The taxable value (market value after exemptions) of many homesteads is less than that amount. Less than the full exemption amount would be required to reduce the taxable value of these properties to zero. To reflect this, the gross amount of the additional homestead exemption was multiplied by a homestead exemption absorption factor to estimate the net value loss to the additional exemption. The loss from the proposed tax ceiling reductions was included. Projected tax rates were applied through the five-year projection period to estimate the school district loss that would be transferred to the state. Because the bill would hold school districts harmless for all property tax revenue losses, including revenues from both maintenance and operations and interest and sinking fund taxes, the table above shows the combined state costs for increased formula funding and hold harmless for both maintenance and operations and interest and sinking portions of the Foundation School Program. There would be no losses to local taxing units.
Although the constitutional amendment in corresponding SJR 1 is self-enabling regarding the increased residence homestead exemption and would by itself create a cost to school districts and the state, it is not self-enabling regarding the method for calculating the median homestead value on which the exemption is based or regarding the provisions requiring the state to fully compensate school districts for the ad valorem tax revenue lost to the proposed increase in the homestead exemption. As a result, the combined effects of SJR 1 and this bill are shown in the above table and not in the fiscal note for SJR 1.
Local Government Impact
No fiscal implication to units of local government is anticipated.
701 Central Education Agency, 304 Comptroller of Public Accounts