Honorable Jane Nelson, Chair, Senate Committee on Finance
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
SB2061 by Kolkhorst (Relating to the correction of an ad valorem tax appraisal roll.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for SB2061, As Introduced: a negative impact of ($73,661,000) 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
2018
($485,000)
2019
($73,176,000)
2020
($78,287,000)
2021
($82,931,000)
2022
($87,883,000)
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
2018
($485,000)
($87,188,000)
($25,837,000)
($26,707,000)
2019
($73,176,000)
($21,382,000)
($27,742,000)
($28,377,000)
2020
($78,287,000)
($22,746,000)
($29,510,000)
($29,870,000)
2021
($82,931,000)
($25,023,000)
($31,390,000)
($31,441,000)
2022
($87,883,000)
($27,470,000)
($33,389,000)
($33,095,000)
Fiscal Year
Probable Revenue Gain/(Loss) from Other Special Districts
2018
($19,528,000)
2019
($20,936,000)
2020
($22,237,000)
2021
($23,618,000)
2022
($25,086,000)
Fiscal Analysis
The bill would amend Chapter 25 of the Tax Code, regarding local property tax appraisal, to provide that an appraisal roll correction may not be made on a motion from the property owner or chief appraiser to change the appraisal roll unless the error resulted in an appraised value that exceeds the market value of the property or the median appraised value of a reasonable number of comparable properties appropriately adjusted (rather than exceeds by more than one third the correct appraised value).
The bill would take effect September 1, 2017.
Methodology
Current law generally requires that a property owner with a single-family residence homestead exemption file a protest before May 1, and other property owners before June 1, with certain exceptions. Currently, a property owner may file a motion with an appraisal review board under Section 25.25 of the Tax Code, regarding correction of appraisal roll, at any time prior to the date the taxes become delinquent (generally February 1 of the year following the year the tax is imposed), but an appraisal roll correction is only allowed if an error results in an appraised value that exceeds the correct appraised value by more than one-third. By striking the requirement for a one-third over-appraisal and allowing a motion for correction to be filed based on any perceived error resulting in a value exceeding the market value or the median appraised value of adjusted comparable properties the bill would allow a property owner to bypass the normal protest process and would effectively extend the deadline for a property value or unequal appraisal protest by up to nine months.
This extension would create a cost to local taxing units and the state through the school finance formulas by providing an opportunity for an increased number of appraisal review board determinations resulting in reductions in appraised value that would not occur under current law. Further, this extension would enable all property owners who did not protest through the normal process to use properties for which values were lowered in the normal process as comparables in error correction motions based on equality and uniformity creating an additional cost.
The current protest deadlines were set early enough to allow the bulk of protests to be concluded in time for local taxing units to adopt budgets with a reasonable certainty that budgeted revenues would cover budgeted expenses. This bill, by its effective extension of the protest deadline, would make the budgeting process much less certain.
The cost to local governments related to an uncertain budgeting process is unknown; consequently, the cost of this portion of the bill cannot be estimated. The taxable value losses to additional reductions in appraised value resulting from the increased opportunity to protest property values under the bill and the ability to use previously protested properties as comparables in equality and uniformity error correction motions were estimated based on information from appraisal districts. The estimate was reduced by the 10 percent late correction penalty in current law.
Projected tax rates were applied to the taxable value losses through the five-year projection period to estimate tax revenue losses to school districts, special districts, cities and counties. Under provisions of the Education Code, the school district tax revenue loss is partially transferred to the state. Projected school funding rates were applied to estimate the state loss and the net school district loss.
In the first year of a taxable value loss, state recapture is reduced (a state loss). Because of the use of lagged year property values, in the second and successive years of a taxable value loss, state recapture is further reduced and the previous year's school district loss related to the Tier 1 rate is generally transferred to the state through the Tier 1 funding formulas (a state loss).
In the school district enrichment formula (Tier 2), property values do not reflect the first-year value loss because of the one-year value lag. Because the formula does reflect a tax collections decline in that year, school districts lose Tier 2 funding creating a state gain. In the second and successive years a large portion of the previous year's enrichment loss is transferred to the state (a state loss).
The school district debt (facilities) funding formula does not reflect the first-year taxable value loss because of lagged property values. In the second and successive years a small portion of the previous year's school district facilities loss is transferred to the state (a state loss).
Local Government Impact
The estimated fiscal implication to units of local government is reflected in the table above.