BILL ANALYSIS

S.B. 2541

By: Bettencourt

Ways & Means

Committee Report (Unamended)

BACKGROUND AND PURPOSE

The 86th Texas Legislature passed S.B. 2, the Texas Property Tax Reform and Transparency Act of 2019, which made sweeping overhauls to the state's property tax system. This legislation created the unused increment rate, which allows taxing units to bank additional increment "pennies" that can be levied for three years. The bill sponsor has informed the committee that the unused increment rate was created to incentivize governing bodies of taxing units to exercise fiscal restraint when setting a tax rate by providing a mechanism for taxing units to bank additional levy authority in exchange for setting lower tax rates, but the unused increment rate has created some confusion amongst taxing unit officials and taxpayers, both in its calculation and its levy, and can create shocks for some taxpayers when a "penny" of taxation that was banked in prior years is levied on sometimes-increased property values. S.B. 2541 revises the formula used to calculate the unused increment rate.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

S.B. 2541 amends the Tax Code to revise the formula used to calculate a taxing unit's unused increment rate for property tax purposes, which is currently the sum of the foregone revenue amount for each of the three tax years preceding the current tax year divided by the current total value, by removing the Year 3 foregone revenue amount from that sum. Accordingly, the bill revises definitions related to that formula as follows:

· changes the definition of "Year 1" from the third tax year preceding the current tax year to the second tax year preceding the current tax year;

· changes the definition of "Year 2" from the second tax year preceding the current tax year to the tax year preceding the current tax year; and

· repeals the provision defining "Year 3" as the tax year preceding the current tax year.

S.B. 2541 applies only to the calculation of the unused increment rate for a tax year that begins on or after January 1, 2027. The calculation of the unused increment rate for a tax year that begins before January 1, 2027, is governed by the law in effect immediately before the bill's effective date, and the former law is continued in effect for that purpose.

S.B. 2541 repeals Section 26.013(a)(5), Tax Code.

EFFECTIVE DATE

January 1, 2026.