Honorable Morgan Meyer, Chair, House Committee on Ways & Means
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB203 by Goodwin (Relating to a limitation on increases in the appraised value for ad valorem tax purposes of certain leased residential real property.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB203, As Introduced: a negative impact of ($11,261,000) through the biennium ending August 31, 2027.
General Revenue-Related Funds, Five- Year Impact:
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2026
$0
2027
($11,261,000)
2028
($40,643,000)
2029
($57,154,000)
2030
($68,151,000)
All Funds, Five-Year Impact:
Fiscal Year
Probable Savings/(Cost) from Foundation School Fund 193
Probable Revenue Gain/(Loss) from Recapture Payments Atten Crdts 8905
Probable Revenue Gain/(Loss) from School Districts Levy Loss
2026
$0
$0
$0
2027
($11,261,000)
($2,939,000)
($13,585,000)
2028
($40,643,000)
($13,919,000)
($57,998,000)
2029
($57,154,000)
($15,318,000)
($62,791,000)
2030
($68,151,000)
($11,319,000)
($61,235,000)
Fiscal Analysis
This bill would establish a 10 percent limit on appraised value increases for leased single family residential real property that is the primary residence of the lessee and leased for a rent at or below the fair market rent as determined by United States Department of Housing and Urban Development (HUD) for the area. The bill would provide definitions, criteria and requirements related to the limitation and the determination of the appraised value. The bill would require a person to apply for the limitation annually with the chief appraiser of each applicable appraisal district by May 1 of that year.
Methodology
Contingent upon passage of HJR 30, the bill would provide a 10 percent limit on appraised value increases for certain leased single family residential real property, creating a fiscal impact to the state through the operation of the school finance formulas.
Currently there is a 10 percent cap on the appraised value growth of residence homesteads, i.e. homes that are occupied by the owners as their primary residence. The bill would create a similar tax limitation to leased single-family housing if it is the primary residence of the renter and is leased at or below HUD fair market rents. The estimate below is based on observed growth rates and market values for a sample of Category A: Single-Family Residential properties and assumes that such leased residential properties value growth is the same as that for owner-occupied properties, adjusted for properties assumed ineligible because they are rented at rates above the HUD fair market rents in their respective locality and adjusted to include leased residential single-family properties in categories other than Category A.
Under provisions of the Education Code, the school district tax revenue loss is partially transferred to the state. The estimated cost to the Foundation School Program (FSP) is $11.3 million in fiscal year 2027, $40.6 million in fiscal year 2028, increasing to $68.2 million in fiscal year 2030. The cost to the FSP includes estimated decreases in Recapture Payments - Attendance Credits of $2.9 million in fiscal year 2027, $13.9 million in fiscal year 2027, decreasing to $11.3 million in fiscal year 2030 as a result of school district tax revenue loss. The decrease in recapture is reflected as a revenue loss in the table above because recapture is appropriated as a method of finance for the FSP in the General Appropriations Act.
Local Government Impact
Contingent upon passage of a constitutional amendment authorizing the appraised value limitation, the bill would provide a 10 percent limit on appraised value increases for certain leased single family residential real property, which would reduce taxable property value. However, the no-new-revenue and voter-approval tax rates as provided by Section 26.04, Tax Code would be higher as a consequence of the reduced taxable property value proposed by the bill. If cities, counties, and special districts did not adopt higher rates, local levies would be reduced by $18.0 million in fiscal year 2027, increasing to $75.0 million by fiscal year 2030. If those jurisdictions adopted higher tax rates, the initial revenue loss from the exemption would be offset by increased tax levies from owners of non-exempt property and slightly reduced tax savings from owners of exempt property.
The fiscal impact to school districts is shown in the table above.