The school finance reform package contains several new taxpayer protections that will help keep school property tax rates low and reduce the impact of rising appraisals on tax bills. Reforms include:
Historic School Property Tax Rate Cut:
School property taxes will be cut by $15.7 billion over the next three years and $30.5 billion over the next five years. In 2006, the maximum $1.50 school tax rate for maintenance and operations (M&O) is cut 17¢ to $1.33. In 2007, the maximum rate is cut an additional 33¢ to $1.00. Because the cut is based on a percentage of the 2005 adopted rate, the number of pennies reduced will vary by school district depending on the district’s 2005 rate.
School Taxes Capped at Lower Rate:
The $1.50 cap for school district operations (passed into law in 1945) is replaced with a lower $1.17 cap once rates are reduced to $1 per $100 of assessed value next year. This alone means rates will not go up to $1.50 again.
Increased Revenues from Reformed Business Tax, Tobacco Tax and Used Car Tax Compliance Measures Dedicated to Property Tax Relief:
Revenue increases attributable to the reformed franchise tax, cigarette and tobacco taxes, and the motor vehicle sales tax are dedicated to property tax relief. Until the average school district maintenance and operations (M&O) tax rate reaches $1.00, every additional dollar will go to property tax relief. Once the average school rate drops below $1, two-thirds of the revenue will be used for property tax relief, and one-third for education.
Applying the Brake on Property Tax Increases Without Voter Approval:
Unlike current law, which allows school districts to raise rates as much as six cents a year every year without a vote of the people, the new law allows school districts access to only four additional cents one time, requiring voter approval to raise any additional revenue. In addition, school districts can only raise a total of 17 cents more than the new rate (which would be no more than $1.17 by next year.)
HB1 also includes the most protection against appraisal creep in modern Texas history. Starting in 2007, rollback elections will automatically be required whenever appraisal creep effectively produces a tax increase of more than four cents per $100. The following is an example of how this would work:
o In 2005, Texas ISD levies a Maintenance and Operations tax rate at the $1.50 cap.
o In 2006, Texas ISD’s rate is reduced to $1.33. The school board can access up to $0.04 without a rollback election, for a rate of $1.37.
o In 2007, Texas ISD’s rate is compressed from $1.37 to $1.04 (the one-third reduction to $1 plus the four cent increase.) If the school board wants to raise taxes to $1.05, an election will be required. But, if appraisal creep and other factors means that Texas ISD could have the same amount of money that it had in 2006 at a tax rate of $0.99, the district cannot levy a rate higher than $1.03 without voter approval (because $0.99 plus $0.04 is $1.03).
Governor's Initiatives »