A State Property Tax for Schools — Fix Or Nix?

Texas Taxpayers and Research Association Page 8

Your TTARA Team (www.ttara.org):

President Dale Craymer: , Policy Areas: Franchise Tax, State Budget, General Tax Administration July 2012 [email protected]

Bill Allaway, Policy Areas: Economic Development, Transportation Finance, Property Tax, Franchise Tax   [email protected]  A State Property Tax for Schools — Fix or Nix? George Christian: Policy Areas: Property Tax   [email protected] Once again the state’s school finance system is un- In response to the West Orange Cove ruling, the der challenge in the courts. Among the contentions Legislature passed legi legislationslation in 2006 that John Kennedy: Policy Areas: State and Local Sales Tax Issues, Property Tax, General Tax Administration, Budget Challenges Loom is that the localBudget school prpropertyoperty tax hasChallenges become a de “compressed” Loomschoolschool districtdistrict maintenancemaintenance and and oper- op- [email protected] facto state property tax—a tax which is prohibited erationsations tax tax rates rates to totwo-thirds two-thirds of ofthe the rate rate imposed imposed by Texas has now joined the vast majority of states that face some very daunting budget challenges. Sheryl Pace: Policy Areas: School Finance, School Property Tax underTexas Article has now 8, Section joined the1-e vastof the majority Texas ofConstitu- states that facebyeach someeach district districtvery in daunting2005, in 2005, and budget replaced and replaced challenges. the forgone the forgone prop- With the Legislature in session, the numbers have moved from speculation to reality. The [email protected] tion.With Over the the Legislature years some in have session, advocated the numbers address- have propertyerty moved tax fromrevenuetax revenue speculation with statewith toaid.st ate reality. Therefore, aid. Therefore, The all school all Comptroller’s revenue estimate has been released. House and Senate spending bills have been ingComptroller’s this challenge revenueby amending estimate the state has beenConstitutiConstitution released.on Houseschooldistricts and districts that Senate imposed that spending impos an M&O ed bills an tax haveM&O rate been of tax $1.50 rate perof Ryan Ash: Web Site, Membership, TTARA Events introduced. Governor Perry has laid out his priorities. Legislative committees are rolling up their to introduced.impose, rather Governor than prohibit, Perry has a statelaid outproperty his priori tax tax ties. $1.50$100 Legislative valuationper $100 committees sawvaluation that are ratesaw rolling compressedthat uprate their compressed to $1.00. [email protected] sleeves and getting to work. to sleevesfinance andschools. getting But to work. in truth, such a proposal toDistricts $1.00. were Districts given were access given to anaccess additional to an $0.17addi-

Brent Goleman: Membership would be only a partial “fix” for the legal challengeschallenges tionalthat they $0.17 could that they access could for access enrichment for enrichment purposes, The Texas budget is a complex piece of legislation—more than 1,000 pages long and weighing [email protected] to Theour school Texas budgetfinance is system. a complex Inequities piece of in legislation— school purposes,therebymore than giving thereby 1,000 them pagesgiving “meaningful long them and “meaningful weighing discretion” discre- over over 6 pounds. It is divided into separate articles for the major functional areas of Texas fundingover 6that pounds. are a key It part is dividedof the lawsuits into separate would re-r articlee- s tion”their for therates.over major their The rates. functionalfirst four The pennies first areas four ofcan Texaspennies be levied can with be Contact any of us by phone at (512) 472-8838 government and appropriates money to over 200 state agencies and institutions of higher education maingovernment unless lawmakers and appropriates rewrote moneyschool tofunding over 200 for- state agenciesleviedonly school with and boardinstitutionsonly schoolapproval, of board higher but voterapproval, education approval but votermust from a variety of funds and revenue sources. mulas—somethingfrom a variety of thatfunds coulcould andd berevenue done independentlysources. approvalbe obtained must to levybe obtained the remaining to levy 13 the pennies. remaining 13

of a state property tax. AAndnd because some districtsdistricts pennies. But as complex as the document is, two simple factors explain the state’s fiscal challenges: 1) the

offerBut local as complex exemptions as the that document others do is, not, two a simple“revenue“reven uefacto rs Theexplain de factothe state’s state fiscal property challenges: tax question 1) the has risen

2-8838 * Fax 512-472-2636 512-472-2636 Fax * 2-8838 512-47 Phone * 78701 TX Austin, 400, Suite Street,

400 West 15 West 400 loss of one-time money used to finance the current budget has created a structural gap for 2012-13, th neutral”loss of state one-time property money tataxx usedwould to meanfinance higher the current taxes budgetTheagain has de in created factoa new state aseries structural proper of lawsuits, tygap tax for question along2012-13, with has const riseni- and 2) the nation’s worst economy since the Great Depression has hammered state revenues while TTARA forand some, 2) theand nation’s lower taxes worst for economy others—an since especially the Great Depressionagaintutional in has challengesa new hammered series related of state lawsuits, to revenues funding along whileequity with andconsti- ad- increasing spending demands.

Texas Taxpayers and Research Association controversialincreasing spendingresult given demands. voters would have to ap- tutionalequacy (seechallenge Tables 1).related Over to one-half funding of equity the state’s and

th prove the amendment. adequacyschool districts, (see Table educating 1). Over over one-half two-thirds of the ofstate’s the

400 West 15 Street, Suite 400 As lawmakers get ready to tackle the 2012-13 budget, they’ll have to deal with some leftover As lawmakers get ready to tackle the 2012-13 budgetschoolstate’s, they’ll studentsdistricts, have to areeducati deal now withng joined over some intwo-thirds leftover a consolidated of the

Austin, Texas 78701 business from the current budget. While certified as balanced when it passed two years ago, the

Schoolbusiness districts from currentlythe current levy budget. property While taxes certified total- total- as balancedstate’scase before students when Travis it arepassed County now two joinedDistrict years in Courtago, a consolidatedthe Judge John economy has proven to be worse than forecast, taking its toll on sales, franchise and other state tax

ingeconomy $22 billion has — proven $17.6 to billion be worse for maintenancethan forecast, and takin g itscaseDietz. toll before on sales, Travis franchise County and District other Courtstate tax Judge John revenues. This January, Comptroller Combs advised lawmakers that Texas faces a $4.3 billion

operationsrevenues. and This $4.4 January, billion Comptrollerfor debt service. Combs State Stat advisede Dietz. lawmakers that Texas faces a $4.3 billion

deficitdeficit by bythe theend end of theof the2011 2011 fiscal fiscal year. year. That That would would be thebe thelargest largest projected projected deficit deficit in thein thehistor history y law places a “cap” on local tax rates.rates. TwiceTwice thethe Su-Su- The plaintiffs argue that over 200 school districts are

of the state—worse than the $1 billion lawmakers faced in 1987 and the $1.8 billion in 2003. premeof the Court state—worse has ruled than that thebecause $1 billion so many lawmakers school fa cedTheat in the1987 plaintiffs $1.17 and the M&Oargue $1.8 ratethat billion over cap in (see200 2003. school Table 2),districts and thatare

districts were at the rate cap, the local tax was forfor all atthe the revenue $1.17 per M&O weighted rate cap student (see raisedTable by2), over and 80%that Fortunately for lawmakers, Governor

intentsFortunately andand purposespurposes for lawmakers, aa state state property property Governor tax, tax, and andAlso violAlso vio- inat- inthis thisthe ofissue: these revenueissue: districts per weighted is still less student than theraised average by over amount 80% Perry, Lt. Governor Dewhurst and lateded Perry,the the Constitution. Constitution. Lt. Governor The The first Dewhurst first of ofthese these and rulings rulings wa wass in of theserevenue districts available is still to districtsless than not the at average the $1.17 amount cap.

HouseHouse Speaker Speaker Straus Straus have have already already RememberingRemembering 2006: 2006: Property Property Tax Tax Relief. Relief. Intended Intended in1992 1992 when when the theSupreme Supreme Court Court ruled ruled that thatthe taxthe lev-tax ofFaced revenue with availablea reduction to distin statericts notfunding at the imposed $1.17 cap. by

taken corrective action. At their to be a net tax cut, there is substantial confusion leviediedtaken by by the corrective the 188 188 County County action. Education E ducation At Districts, their Districts, to created be cre- a net taxFacedthe cut, Legislature there with is a substantial reduction in 2011, inconfusion these state districtsfunding cannotimposed rai byse

direction, over $800 million in today over the 2006 property tax relief initiative.

atedby direction,the by Legislature the Legislature over in $8001991, in 1991,constituted million constituted in a statetoday a prostate overp- thethetheir 2006 Legislature rates property to recoup taxin 2011,relief the initiative.th lostese districts revenue. cannot Therefore, raise

prospective budget cuts are already This article reviews the intent of the bill and Requested Service Address propertyertyprospective tax. tax.The The second budget second and cuts andmost are most recent already recent ruling rulingThis was wasarticle in reviewstheirthey argue,rates the intent tothey recoup ofdo thenot thebill have lostand “meaningful revenue. discretionTherefore,”

identified—savings which will be in2005 identified—savings2005 in inWest West Orange Orange which Cove Cove ISD ISD will et et be alal vs.vs.measures Neeley measures how howtheyover the the numbersargue,their numbers rates, they stack and dostack up.not the up. have system “meaningful has evolved discretion” into a de

realized in legislation. And even Just What is a Tax Bill? Everyone seems to be Austin, Texas 78701 78701 Texas Austin, whenrealized the Court in legislation. held that school And districts even taxing Just What at is overfactoa Tax theirstate Bill? rates,property Everyone and tax.the seems system to has be evolved into a de

thoughthough lawmakers lawmakers will will find find some some againstagainst a tax a taxincrease, increase, but but some some are aretaking taking substan substantialtial Street, Suite 400 400 Suite Street,

15 West 400 the $1.50 M&O rate cap no longer had “meaningful facto state property tax. th additional cuts, it won’t be enough to liberties with how that is defined.

discretion”additional over cuts, their it won’t tax berates, enough and totherefore liberties the with Overhow that the is years defined. a number of Texas politicians have Texas Taxpayers and Research Association Association Research and Taxpayers Texas close the gap, and there won’t be

schoolclose district the gap, tax had and become there won’ta de facto be unconstitu-unconstitu- Overadvocated the years revamping a number the Texas of Texas Constitution politicians to abol-have TTARA TTARA enough money in the general revenue tionalenough state money property in tax.the general revenue advocated revamping the Texas Constitution(Continued to on abol-page 3) th

400 West 15 Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * Fax 512-472-2636 400 Westth 15th Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * Fax 512-472-2636(Continued on page 3) thth 400 West 15 Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * Fax 512-472-2636

400 West 15 Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * www.ttara.org

Contact any of us by phone at (512) 472-8838 472-8838 (512) at phone by us of any Contact

[email protected]

Brent Goleman: Membership Membership Goleman: Brent

[email protected]

Ryan Ash: Web Site, Membership, TTARA Events Events TTARA Membership, Site, Web Ash: Ryan

[email protected]

roperty Tax Tax roperty P School Finance, School Areas: Policy Pace: Sheryl

[email protected]

, , Administration Tax General Tax, Property Issues, ax T Sales Local and State Areas: Policy Kennedy: John

[email protected]

George Christian: Policy Areas: Property Tax Tax Property Areas: Policy Christian: George

[email protected]

ransportation Finance, Property Tax, Franchise Tax Tax Franchise Tax, Property Finance, ransportation T Development, Economic Areas: Policy Allaway, Bill

[email protected]

l Tax Administration Administration Tax l Genera Budget, State Tax, Franchise Areas: Policy , Craymer: Dale

President

): ): (www.ttara.org Team TTARA Your

Texas Taxpayers and Research Association Page 8 8 Page Association Research and Taxpayers Texas Page 2 Texas Taxpayers and Research Association there is no competition f stration of the system. [Article 7, Section 1] in the bureaucratic admini- there is gross waste [Article 8, Section 1-e] and therefore constitutes “meaningful discretion” in setting their tax rates, M&O rate cap prevents districts from exercising Equal Protection – dent. [Article 8, Section 1(a) amounts of access to different revenue per stu- that levy the samebecause districts tax rate have to support schools are not equal and uniform Tax Uniform and Equal the same tax rate. [Article 1, Section 3] cess to less revenue than high-wealth districts at wealth districts because their districts have ac- provide equal protection to students in low- Efficiency Equity – Adequacy State Property Tax same tax rate. [Article 7, Section 1] at the even rent levels, at diffe funds districts ily sion of knowledge.” [Article 7, Section 1] to provide resources necessary “a general diffu- The system is inefficient and arbitrar- inefficient is system The – – The system is inefficient because Districts don’t have access to the

or school districts and

a state property tax. The $1.17 statutory The The system fails to to fails The system ] –

Taxes levied

Table 1—School Finance Lawsuits Texas Taxpayer Fairness Coali- and Student tion Filed 10/11/11 � � � � �

Texas School Filed 12/9/11 Coalition � �

PLAINTIFS American Legal Filed 12/13/11 Defense and Educational (MALDEF) Mexican � � � Fund

Fort Bend ISD et al 12/23/11 � � � Filed

Texans for Real tion of Business Equity in Edu- Texas Associa- cation (TREE) Efficiency and Filed 2/24/12 Intervenors (TAB) �

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(Continued from page 1) Even so, the option of a state property tax for school ish the local tax for maintenance and operations and finance purposes appears to continue to have a cer- replace it with a uniform state property tax (a modest tain appeal, and it is likely to be considered in the local tax for “enrichment” would be allowed) . Dur- next legislative session, along with a number of pro- ing the last 20 years, many influential people such as posals to eliminate the property tax entirely. But former Governor Ann Richards, Governor Rick what seems to be a simple trade of local property Perry, Lt. Governor Bob Bullock, Senate Education taxes for a state tax is, quite frankly, not that simple. Committee Chair Carl Parker, House Public Educa- Major policy hurdles would have to be overcome. tion Committee Chair Paul Sadler, Senate Finance Committee Chair Steve Ogden, Senate State Affairs “Local Control” Equals Local Enrichment. The Committee Chair Robert Duncan and Dallas attor- ability to adopt tax rates to pay for approved school ney and education advocate Tom Luce have ad- budgets is the essence of “local control.” Therefore, vanced various versions of a proposed state property school officials are very protective of this authority tax (Table 3) in an attempt to bring an end to the and more than reluctant to relinquish it entirely to seemingly never-ending litany of school finance the state. Legislators often address these concerns lawsuits. by giving districts control over an “enrichment tax” to enable them to enhance the basic program fi- But in truth, the litigation is much more complex. nanced through state formulas. This raises the dis- The state property tax is only one contention of sev- tasteful prospect that the local school tax will con- eral in the lawsuits. Unless lawmakers revise how tinue to increase, even though it was “replaced” by a state aid is distributed to districts, the issue of fund- state tax. And if the local enrichment tax is ing equity would remain unaddressed. Lawmakers “capped” to prevent this from happening, it could could “fix” the funding disparities by simply rewrit- become the focus of future lawsuits contending that ing current statutory formulas — something that it, too, had in effect become a state property tax. would not require amending the Constitution. Regardless, to ensure some degree of local control and discretion, a state property tax would most cer-

Table 2 2011 ISD Maintenance and Operations Tax Rates # Granting Optional % of Total M&O Rate # Districts # ADA Homestead Statewide ADA Exemption

$1.25 - $1.29 1 0 823 $1.18 - $1.24 2 2 20,193 0.5% $1.17 249 37 569,217 12.9% $1.05—$1.16 53 15 499,090 11.3% $1.04 634 140 2,838,457 64.1% $1.01—$1.03 30 6 386,603 8.7% $1.00 and below 55 18 110,245 2.5% 1,024 218 4,424,628

400 West 15th Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * www.ttara.org Page 4 Texas Taxpayers and Research Association Table 3 — State Property Tax Proposals 1991-2011

1991 SB 49 and SJR 1 filed by Senate Education Committee Chair Carl Parker. Would have created a state property tax of $1.00 per $100 valuation on all property which would have been levied and collected by school districts on behalf of the state. Revenue collected in excess of a district’s entitlement (determined by the formulas) would have been remitted to the Comptroller for deposit into the Foundation School Fund. School districts would have been authorized to levy an additional $0.25 local enrichment tax. Revenue generated in excess of the guaranteed yield limit would have been remitted to the Comptroller. The state would have assumed all school district debt liability. The bills did not make it out of Senate Committee.

1992 “Good Schools Plan” proposed by Governor Ann Richards. The concept for this plan was initially proposed by Dallas attorney and education advocate Tom Luce. A state property tax on business property would be levied and collected by the state at a rate set by the Legislature. Local school districts would continue to tax residential and agricultural property at a rate set by the local school board subject to limitations in state law. A minimum local tax rate would be determined by the Legislature that would have to be imposed by a school district in order to receive state funds. The state rate on business property and the minimum local rate would be linked so that if the Legislature increased the rate on business property, the rate on residential property would also increase. School districts would continue to tax business property for debt service. The plan was never put into a bill draft.

1992 “Fair Share Plan” proposed by Governor Ann Richards, Lt. Governor Bob Bullock, and Speaker Gib Lewis. Governor Richards’ “Good Schools Plan” was the basis of a new plan endorsed by the state’s leadership. The plan had two options — (1) continue with the County Education Districts by holding an election to allow voters to authorize the tax they levied, or (2) create a state property tax as was proposed by Governor Richards. An unsuccessful election was held to authorize the CED tax.

1997 HB 4 by Rep. Paul Sadler, Chairman of the Select Committee on Revenue and Public Education Funding. Removed business property from the local tax base and taxed it at the state level at a rate of $1.05 per $100 valuation. The tax would have been collected by the county assessor-collectors and remitted to the Comptroller for deposit into the Foundation School Fund. School districts would tax residential property at a rate of $0.75 per $100 valuation. A district could add up to $0.10 for enrichment purposes with voter approval. School districts would continue to tax business property for debt service. The bill passed the House but was not voted out of Senate Committee.

2004 “Educational Excellence & Property Tax Relief Plan” by Governor Rick Perry. Business property was removed from the local school district tax base and taxed by the state at a rate of $1.40 per $100 valuation. The rate could be increased only with a 2/3 vote of both houses of the Legislature and a statewide vote of the people. School districts would continue to tax residential property at an M&O rate $0.25 less than the rate the district currently imposed, and the local $1.50 M&O rate cap would have been reduced to $1.25. The state would reim- burse school districts for the lost property tax revenue due to the rate reductions. School districts were allowed to increase their rates $0.05 per biennium for enrichment up to a maximum of $0.15, and would continue to tax business property for debt service. The plan reduced the 10% cap on annual appraised residential value increases to 3%. The plan was not introduced in bill form.

2005 SJR 38 by Senate Finance Committee Chair Steve Ogden. Authorized a state property tax not to exceed $1.10 per $100 valuation. The Legislature would set the rate which had to be the same for each year of the biennium and could not increase revenue by more than 8% over the previous biennium. School districts could impose a tax rate of up to $0.15 for enrichment with voter approval, and would continue to levy taxes for debt service. The bill was voted out of Senate committee, but was not heard by the full Senate.

2011 SB 1858 and SJR 51 by Senator Robert Duncan. Phased in a state property tax of $1.00 per $100 valuation over five years at 20% per year to replace school district M&O taxes. School districts would be authorized to levy an enrichment tax of up to $0.17 per $100 valuation with voter approval and would continue to impose tax rates for debt service. Increases in the appraised value of a resident homestead could not exceed 105% of the previous year’s value. The bills were not voted out of Senate committee.

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(Continued from page 3) permissible amount that residential values can in- tainly be coupled with optional local enrichment crease from year to year — usually either 3% or 5% taxes. — or an increase in the state homestead exemption. Both of these proposals benefit homeowners by Equity. Some claim that a state property tax would shifting the tax burden to owners of rental homes achieve equity. While taxing all property at a single and business properties. Not surprisingly, owners of state rate achieves “tax rate” equity, it does not guar- these types of property often find these proposals antee that the revenue will actually be distributed to objectionable, since they are almost assured their school districts in an equitable manner. If individual taxes will increase. district revenue targets and “hold harmless” provisions that override the school finance formulas are Tax Rates and Tax Increases. If a state property not repealed, school districts will continue to receive tax is considered, the first order of business for the widely varying amounts of revenue per student. Legislature would be to set the rate of the tax. Ninety-four percent of the school districts in the Varying Local Tax Rates. Currently 49 school dis- state impose an M&O tax rate greater than $1.00 per tricts impose a maintenance and operations tax rate $100 valuation, and approximately 25% of all school of less than $1.00 per $100 valuation. If a state districts are at the statutory cap of $1.17. This calls property tax of $1.00 is approved to replace the local into question whether or not a state rate of $1.00 will property tax, taxpayers in these school districts generate sufficient revenue to support school dis- would be subjected to a large tax increase. At the tricts at current funding levels, even if it is coupled same time, taxpayers in the 975 school districts that with a local enrichment tax. The state tax rate might currently impose an M&O tax rate higher than $1.00 have to be greater than $1.00 — say $1.10 or $1.20 would receive a reduction in the amount of taxes — to ensure that districts don’t immediately levy they pay, resulting in a geographical shifting of the high local enrichment taxes simply to generate the school tax burden. same amount of revenue that they currently receive. The Legislature would also have to decide whether Optional Homestead Exemptions. There are 218 to cap enrichment taxes, and if so, decide what level school districts that grant an optional homestead ex- would ensure that districts maintain “meaningful emption to homeowners in the district, most of discretion” over their tax rates. The Legislature which are for 20% of the market value of the home. would also be tasked with setting the parameters that If the local property tax is replaced with a state prop- govern any possible rate increases. Should the state erty tax, these homeowners theoretically would lose tax rate be stated in the Constitution so that it can this preferential exemption absent legislative action. only be increased by constitutional amendment, or Legislators may propose to extend the 20% exemp- should the Legislature be given the authority, with or tion to all homeowners in order to garner support for without limitations, to raise the rate? Should an the new tax, as they did when the 188 CED’s were overall limit be placed on the amount of revenue the created in 1991. That means the state property tax tax can generate? What, if any, limitations should rate would have to be higher than current rates to be placed on the levy of local enrichment taxes if raise the same amount of money. The net result is allowed? Legislators would also have to determine that some homeowners would enjoy a new exemp- if other safeguards should be put into law to prevent tion, while other homeowners and all business own- them from looking to the state property tax as a fi- ers could see their taxes go up. nancing mechanism for other parts of the state budget in addition to schools. Appraisal Caps and Homestead Exemptions. Because voters find the property tax so objection- Debt Service. School districts currently carry ap- able, legislators almost always couple a proposal for proximately $64 billion of bonded debt, with annual a state property tax with either a limitation on the debt service payments totaling approximately $4.4

400 West 15th Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * www.ttara.org Page 6 Texas Taxpayers and Research Association billion. This debt was approved by the districts’ vot- districts (CADs). In order for a statewide property ers and is guaranteed by the imposition of an interest tax levied on locally determined values to pass the and sinking tax rate to pay for it. To avoid violating Constitution’s “equal and uniform” test, it would be existing bond covenants, most state property tax pro- essential that those values be determined in a stan- posals allow school districts to continue to levy a dard, uniform manner. Currently, that may not be local property tax to pay for debt service, creating a the case as evidenced by the results of the “Methods confusing patchwork system in which voters may and Assistance Program” (MAP) review of all ap- not understand who is taxing them for what. praisal districts performed by the Comptroller’s Property Tax Assistance Division which revealed “Split Roll.” One variant of a state property tax is that a significant number do not even have the nec- to remove only business property from the local tax essary tools or procedures in place to determine mar- base and tax it at the state level. Quite often the pro- ket value in accordance with recognized professional posed state tax rate on business property is higher standards. (See TTARA Newsletter, Equal and Uni- than the rate local school districts are authorized to form...sort-of, May 2012) impose on residential property, which again means that higher taxes for some, pay for lower taxes for Without uniformly determined values, taxpayers in homeowners. These proposals worsen a system that counties where property is correctly appraised would is already weighted against business property. Be- be subsidizing the lower tax burdens of those in cause residential homestead exemptions remove al- counties where property is under appraised — a most 20% of home values from the tax roll and a clearly unequal result. The necessity that property variety of exemptions remove only 5% of business values be determined in the same manner statewide value, businesses currently pay a higher effective to- is only heightened by the prospect that they will be tal school tax rate than homeowners — $1.23 vs. the basis on which the state will collect and redis- $1.08. Virtually all split roll proposals also allow tribute $17.6 billion for the maintenance and opera- school districts to tax both residential and business tion of school districts. property for debt service, resulting in business property owners possibly receiving multiple tax bills — Valuation Appeals. New procedures for resolving one from the state and one or more from local school property owners’ valuation protests would have to districts — in addition to paying a greater share of be put in place. Article 8, Section 18 also requires the overall tax burden. Another problematic result that each central appraisal district have its own to split roll proposals is that they leave school dis- “equalization” board composed of local taxpayers to tricts that are comprised mostly of high dollar resi- decide protests of value. Should the state take an dential value — such as Highland Park and Alamo active role in the appeals process, or should the state Heights — with a much higher local tax base than rely on local Appraisal Review Boards to settle other districts, a result which could spark a new valuation disputes? If so, what regulations might be round of equity challenges. needed to ensure that appeals are settled in a consis- tent manner? Would some positions on the CAD Property Appraisals. Many administrative diffi- board have to be reserved for appointees of the culties would need to be addressed in the implemen- state? tation of a state property tax. Developing a state tax roll is at the top of the list. Article 8, Section 18 of Tax Collections. Local property taxes, including the Texas Constitution requires a single appraisal of school taxes, are now collected by many different all property within a county which is used by all tax- taxing entities. However, over the years there has ing jurisdictions (cities, counties, schools and special been considerable consolidation of this task. For districts). Consequently, most of the plans for a example, the county tax assessor in some counties statewide property tax put forth to date have envi- issues a single bill to each property owner that item- sioned that the state tax would also be levied on val- izes the amounts due to all taxing jurisdictions in the ues determined by the existing 253 central appraisal county. The assessor-collector then distributes the

400 West 15th Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * www.ttara.org Texas Taxpayers and Research Association Page 7 appropriate portion of the amount paid to each juris- Two-thirds Approval of the Legislature Re- diction. In contrast, a great many taxing jurisdic- quired. In addition to substantial policy issues, tions — including school districts — continue to there are strong political barriers to imposing a state collect property taxes individually. So how would a property tax. A proposed amendment to the Texas state tax be billed and collected? Would the Comp- Constitution must first receive the approval of two- troller or some other state agency send out a separate thirds of the House and Senate, a difficult proposi- tax bill to property owners, or would the collection tion on any issue, much less one related to taxes. If job be assigned to some local authority such as the the Legislature is successful in passing the constitu- county tax assessor-collector? The same questions tional amendment, it must then be approved by a would also apply to the collection of delinquent majority of the voters. The citizens of Texas are taxes. In order to simplify tax payments and avoid very leery of any changes to our tax system, and are taxpayer confusion, a requirement for the consolida- very distrustful of those involving the property tax in tion of the collection of all property taxes by a single particular. Convincing them to approve a new prop- local entity should accompany the adoption of a erty tax at the state level, while keeping a portion of state property tax if it comes to pass. the existing local school property tax will be a monumental task. Collection Rates. Another issue to be resolved is how to deal with differing tax collection rates. If All of these issues should be addressed before a state taxpayers residing in one school district pay 99% of property tax proposal is seriously considered. Even total state taxes owed, and taxpayers of another dis- then, a powerful public relations campaign will be trict pay only 96% of taxes owed, should the state’s needed to convince voters that it is acceptable to school funding formulas be amended so that the give the state such broad taxing authority at the ex- lower-collecting district would be penalized by a pense of their local schools. And finally, voters will compensating reduction in its state aid distribution? have to be persuaded that the end result for their schools is fair. If voters give their approval, the Legislature will have to be vigilant in maintaining an equitable system of funding, or the “reform” effort will have been a futile one.

Constitutional Provisions Allegedly Violated by Current School Finance System

Article 8, Section 1-e. “No State ad valorem taxes shall be levied upon any property within this State.”

Article 7, Section 1. “A general diffusion of knowledge being essential to the preservation of the liberties and rights of the people, it shall be the duty of the Legislature of the State to establish and make suitable provision for the support and maintenance of an efficient system of public free schools.”

Article 1, Section 3. “EQUAL RIGHTS. All free men, when they form a social compact, have equal rights, and no man, or set of men, is entitled to exclusive separate public emoluments, or privileges, but in consideration of public services.”

Article 8, Section 1(a). “Taxation shall be equal and uniform.”

400 West 15th Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * www.ttara.org Page 8 Texas Taxpayers and Research Association Texas TaxpayersTexas Taxpayers and Research and Research Association Association Page 8 Page 8

Your TTARAYour TTARA Team Team (www.ttara.org (www.ttara.orgYour TTARA): ):Team

President Dale Craymer:Dale Craymer: President, Policy Areas:, Policy Franchise Areas: Franchise Tax, State Tax, Budget, State Budget,General GeneraTax Administrationl Tax Administration [email protected]@ttara.org Dale Craymer, President, Franchise Tax, Budget Issues; [email protected] Bill Allaway,Bill Allaway, Policy Areas: Policy Economic Areas: Economic Development, Development, Transportation Transportation Finance, Finance, Property Property Tax, Franchise Tax, Franchise Tax Tax     [email protected] Allaway,[email protected] Senior Advisor, Economic Development, State & Local Tax Issues, Local Infrastructure   Finance; [email protected]   George Christian:George Christian: Policy Areas: Policy Property Areas: Property Tax Tax   [email protected] Kennedy,[email protected] Senior Analyst, Property Tax, Sales Tax; [email protected]@ttara.org

John Kennedy: Policy Areas: State and Local Sales Tax Issues, Property Tax, General Tax Administration, Budget Challenges Loom Sheryl Pace,John Kennedy:Senior Analyst, Policy Areas: School State Finance, and Local Public Sales Education; Tax Issues, [email protected]@ttara.org Property Tax, General Tax Administration, BudgetBudgetBudget Challenges Challenges Challenges Loom Loom Loom [email protected]@ttara.org

George Scott Christian, Consultant, Property Tax; [email protected] Texas has now joined the vast majority of states that face some very daunting budget challenges. Sheryl Pace: Policy Areas: School Finance, School Property Tax Texas hasTexas Texasnow has joined has now now thejoined joinedvast the majority thevast vast majority of majority states of th statesofat statesface th someat th faceat facevery some somedaunting very very daunting budget daunting challenges.budget budget challenges. challenges. Sheryl Pace: Policy Areas: School Finance, School Property Tax With the Legislature in session, the numbers have moved from speculation to reality. The [email protected] With theWith LegislatureWith the the Legislature Legislature in session, in insession, the session, numbers the the numbers have numbers m haveoved have m from oved moved speculation from from speculation speculation to reality. to toreality. The reality. The The Ryan Ash,[email protected] Manager of Communications, Membership Communication, Website; [email protected] Comptroller’s revenue estimate has been released. House and Senate spending bills have been Comptroller’sComptroller’sComptroller’s revenue revenue estimate revenue estimate has estimate been has released. has been been released. House released. andHouse House Senate and and Senatespending Senate spending bills spending have bills bills been have have been been Ryan Ash: Web Site, Membership, TTARA Events introduced. Governor Perry has laid out his priorities. Legislative committees are rolling up their Betty Wranischar,Ryan Ash: Web Office Site, Manager; Membership, [email protected] TTARA Events introduced.introduced.introduced. Governor Governor PerryGovernor has Perry laidPerry has out has laid his laid prioriout out histies. hispriori prioriLegislativeties.ties. Legislative Legislative committees committees committees are rolling are areuprolling theirrolling up uptheir their [email protected] sleeves and getting to work. [email protected] sleeves sleevesandsleeves getting and and togetting work.getting to work.to work.

Brent Goleman: Membership Brent Goleman: Membership The Texas budget is a complex piece of legislation—more than 1,000 pages long and weighing [email protected] The TexasTheThe budgetTexas Texas budgetis abudget complex is ais complex apiece complex of piece legislation— piece of legislation—of legislation—more thanmore more1,000 than than pages 1,000 1,000 long pages pages and long weighinglong and and weighing weighing [email protected] over 6 pounds. It is divided into separate articles for the major functional areas of Texas over 6 over pounds.over 6 pounds. 6 It pounds. is divided It is It divided is into divided separate into into separate article separates article for article thes fors major for the the functional major major functional functional areas of areas Texas areas of of Texas Texas Contact any of us by phone at (512) 472-8838 government and appropriates money to over 200 state agencies and institutions of higher education Contact any of us by phone at (512) 472-8838 governmentgovernmentgovernment and appropriates and and appropriates appropriates money tomoney over money to200 overto state over 200 agencies 200 state state agencies and agencies institutions and and institutions institutions of higher of education higherof higher education education from a variety of funds and revenue sources. from a varietyfromfrom a ofvariety a fundsvariety of and fundsof revenuefunds and and revenue sources. revenue sources. sources.

But as complex as the document is, two simple factors explain the state’s fiscal challenges: 1) the

But as complexButBut as complexas as complex the document as theas thedocument is,document two simpleis, twois, two factosimple simplers explainfacto factors explainthers explain state’s the thefiscalstate’s state’s challenges: fiscal fiscal challenges: challenges: 1) the 1) the1) the 2-8838 * Fax 512-472-2636 512-472-2636 Fax * 2-8838 512-47 Phone * 78701 TX Austin, 400, Suite Street,

400 West 15 West 400 loss of one-time money used to finance the current budget has created a structural gap for 2012-13, 2-8838 * Fax 512-472-2636 512-472-2636 Fax * 2-8838 512-47 Phone * 78701 TX Austin, 400, Suite Street, 15 West 400

th loss of one-timeloss of money one-time used money to finance used theto finance current the budget current has budgetcreated has a structural created a gap structural for 2012-13, gap for 2012-13, th loss of one-time money used to finance the current budget has created a structural gap for 2012-13, and 2) the nation’s worst economy since the Great Depression has hammered state revenues while TTARATTARA and 2) theand andnation’s 2) the2) thenation’s worst nation’s economy worst worst economy since economy the since Great since the D theGreatepression Great Depression D hasepression hammered has has hammered hammeredstate revenues state state revenues while revenues while while

Texas Taxpayers and Research Association increasingincreasing increasingspending spending demands. spending demands. demands.

Texas Taxpayers and Research Association increasing spending demands.

400 West 15 Street,th Suite 400

400 West 15 Street, Suite 400 As lawmakers get ready to tackle the 2012-13 budget, they’ll have to deal with some leftover

As lawmakersAs lawmakers get ready toget tackle ready the to tackle 2012-13 the budget 2012-13, they’ll budget have, they’ll to deal have with to somedeal with leftover some leftover As lawmakers get ready to tackle the 2012-13 budget, they’ll have to deal with some leftover

Austin, Texas 78701 business from the current budget. While certified as balanced when it passed two years ago, the

Austin, Texas 78701 business frombusiness the current from the budget. current While budget. certified While as certified balanced as when balanced it passed when two it passed years ago,two yearsthe ago, the

business from the current budget. While certified as balanced when it passed two years ago, the

economy has proven to be worse than forecast, taking its toll on sales, franchise and other state tax

economyeconomy haseconomy proven has has toproven beproven worse to beto than worsebe worse forecast, than than forecast, takin forecast,g its takin toll taking onitsg sales,tollits toll on franchise onsales, sales, franchise and franchise other and state and other othertax state state tax tax

revenues. This January, Comptroller Combs advised lawmakers that Texas faces a $4.3 billion

revenues. revenues. This January, This Comptroller January, Comptroller Combs advised Combs lawmakers advised lawmakers that Texas that faces Texas a $4.3 faces billion a $4.3 billion revenues. This January, Comptroller Combs advised lawmakers that Texas faces a $4.3 billion

deficitdeficit by bythedeficit theend end byof theof theend2011 2011 of fiscal the fiscal 2011 year. year. fiscal That That year. would w ouldThat be the bew ould thelargest largest be theprojected projectedlargest deficit projected deficit in the indeficit thehistor histor iny they history

deficit by the end of the 2011 fiscal year. That would be the largest projected deficit in the history

of the state—worse than the $1 billion lawmakers faced in 1987 and the $1.8 billion in 2003.

of the state—worseof the state—worse than the $1 than billion the lawmakers$1 billion lawmakers faced in 1987 faced and in the 1987 $1.8 and billion the $1.8 in 2003. billion in 2003. of the state—worse than the $1 billion lawmakers faced in 1987 and the $1.8 billion in 2003.

Fortunately for lawmakers, Governor Also in this issue:

FortunatelyFortunatelyFortunately for lawmakers, for forlawmakers, lawmakers, Governor Governor GovernorAlso in Also thisAlso inissue: inthis this issue: issue:

Perry, Lt. Governor Dewhurst and

Perry, Lt. Perry, Governor Lt. Governor Dewhurst Dewhurst and and

Perry, Lt. Governor Dewhurst and

HouseHouse Speaker Speaker Straus Straus have have already already Remembering 2006: Property Tax Relief. Intended

House Speaker Straus have alreadyRemembering 2006: Property Tax Relief. Intended

House Speaker Straus have already RememberingRemembering 2006: 2006: Property Property Tax Tax Relief. Relief. Intended Intended

taken corrective action. At their to be a net tax cut, there is substantial confusion

taken correctivetaken corrective action. At action. their Atto be their a net totax be cut, a net there tax is cut, substantial there is substantialconfusion confusion taken corrective action. At their

direction, over $800 million in to be a net tax cut, there is substantial confusion

direction, over $800 million in today over the 2006 property tax relief initiative.

direction, over $800 milliontoday in over the 2006 property tax relief initiative. today over the 2006 property tax relief initiative.

direction, over $800 million in today over the 2006 property tax relief initiative.

prospective budget cuts are already This article reviews the intent of the bill and Address Service Requested Service Address

prospectiveprospective budget cuts budget are already cuts are alreadyThis article reviews the intent of the bill and Austin, Texas 78701 78701 Texas Austin, This article reviews the intent of the bill and

Address Service Requested Service Address prospective budget cuts are already

identified—savings which will be This article reviews the intent of the bill and

identified—savingsidentified—savings which will which be willmeasures measures be how how the thenumbers numbers stack stack up. up. identified—savings which will be measures how the numbers stack up. 400 West 15 West 400

Street, Suite 400 400 Suite Street, measures how the numbers stack up.

realized in legislation. And even Just What is a Tax Bill? Everyone seems to be

78701 Texas Austin, realized inrealized legislation. in legislation. And even AndJust even What Just is a WhatTax Bill? is a TaxEveryone Bill? seemsEveryone to be seems to be

Austin, Texas 78701 78701 Texas Austin, realized in legislation. And even Just What is a Tax Bill? Everyone seems to be

Association Research and Taxpayers Texas thoughthough lawmakers though lawmakers lawmakers will will find find will some some find against someagainst a tax a taxincrease, increase, but but some some are aretaking taking substan substantialtial

Street, Suite 400 400 Suite Street,

15 West 400 though lawmakers will find some againstagainst a tax a taxincrease, increase, but but some some are aretaking taking substan substantialtial Street, Suite 400 400 Suite Street, 400 West 15 West 400

TTARA TTARA

th additionaladditional cuts, cuts, it won’t it won’t be enoughbe enough to to liberties with how that is defined.

th additional cuts, it won’t be enoughliberties to withliberties how that with is how defined. that is defined.

Association Research and Taxpayers Texas additional cuts, it won’t be enough to liberties with how that is defined. Texas Taxpayers and Research Association Association Research and Taxpayers Texas close the gap, and there won’t be

close theclose close gap, the and the gap, gap,there and and won’t there there be won’t won’t be be

TTARA TTARA enough money in the general revenue TTARA TTARA enough enoughmoneyenough inmoney themoney general in thein the generalrevenue general revenue revenue th

400 West 15 Street, Suiteth 400, Austin, TX 78701 * Phone 512-472-8838 * Fax 512-472-2636 th

400 West 15 Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * Fax 512-472-2636 400 Westth 15 Street, Suiteth 400, Austin, TX 78701 * Phone 512-472-8838 * Fax 512-472-2636

400 West 15400 Street, West Suiteth 15 400,Street, Austin, Suite 400,TX 78701 Austin, * PhoneTX 78701 512-47 * Phone2-8838 512-47 * Fax2-8838 512-472-2636 * Fax 512-472-2636

400 West 15 Street, Suite 400, Austin, TX 78701 * Phone 512-472-8838 * Fax 512-472-2636

Contact any of us by phone at (512) 472-8838 472-8838 (512) at phone by us of any Contact

[email protected]

Brent Goleman: Membership Membership Goleman: Brent

[email protected]

Ryan Ash: Web Site, Membership, TTARA Events Events TTARA Membership, Site, Web Ash: Ryan

[email protected]

roperty Tax Tax roperty P School Finance, School Areas: Policy Pace: Sheryl

[email protected]

, , Administration Tax General Tax, Property Issues, ax T Sales Local and State Areas: Policy Kennedy: John

[email protected]

George Christian: Policy Areas: Property Tax Tax Property Areas: Policy Christian: George

[email protected]

ransportation Finance, Property Tax, Franchise Tax Tax Franchise Tax, Property Finance, ransportation T Development, Economic Areas: Policy Allaway, Bill

[email protected]

l Tax Administration Administration Tax l Genera Budget, State Tax, Franchise Areas: Policy , Craymer: Dale

President

l Tax Administration Administration Tax l Genera Budget, State Tax, Franchise Areas: Policy , Craymer: Dale

President

): ): (www.ttara.org Team TTARA Your

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