Creating a budget and adopting a property tax rate to support that budget are major functions of the governing body. This is accomplished by following legislative guidelines to ensure the public is informed of any increases.
Important Dates in Truth-In-Taxation
The Property Tax Code establishes target dates for many truth-in-taxation activities. Although circumstances may require appraisal districts or taxing units to alter their timetables, this typical calendar should provide a framework for activities.
|April 1 - May 1||The chief appraiser sends notices of appraised value.|
|The appraisal review board approves the appraisal records.|
|July 25||The chief appraiser certifies the approved appraisal roll to each taxing unit.|
|Aug. 7||A taxing unit publishes its notice of effective and rollback tax rates.|
|Aug.-Sept.||A taxing unit adopts its budget according to its fiscal year. After adopting the budget, the unit adopts a tax rate.|
A taxing unit must adopt its tax rate BY this date or
60 days after the taxing unit receives the appraisal roll, whichever date is later.
Taxing Unit Calculations
Truth-in-taxation requires most taxing units to calculate two rates after receiving a certified appraisal roll from the chief appraiser – the effective tax rate and the rollback tax rate. The type of taxing unit determines which truth-in-taxation steps apply. Generally, the governing body must:
- determine and publish the effective tax rate and the rollback tax rate,
- decide how much revenue it needs, and calculate the rate required to raise that amount,
- publish notices and holds hearings if the proposed tax rate will exceed the rollback rate or the effective tax rate, whichever is lower,
- adopt the tax rate, and (possibly)
- administer a rollback election.
Water districts have a different process as discussed next.
A planning calendar for these steps appears in Appendix 1 for most taxing units. The following discussion covers rate calculation and adoption in greater detail. Part 6 of the manual discusses rollback elections.
Special Calculations for Water Districts
Water Code Section 49.107(g) provides that Tax Code Sections 26.04, 26.05 and 26.07 do not apply to a tax levied and collected under Water Code Section 49.107. These Tax Code sections address calculating an effective and rollback tax rate, adopting a tax rate and having a rollback election for a tax increase above the rollback rate. These Tax Code sections also do not apply to a tax levied and collected for payments made under a contract set out in Water Code Section 49.108.
The taxing units to which Tax Code Sections 26.04, 26.05 and 26.07 do not apply are defined in Water Code Section 49.001 and include any district or authority created by either Section 52(b)(1) and (2), Article III or Section 59, Article XVI, Texas Constitution. These Tax Code sections do apply to any navigation district or port authority created under general or special law, or any conservation or reclamation district created by Chapter 62, 52nd Legislature, 1951 (Article 8280-141, Vernon's Texas Civil Statutes) or by Chapter 36, unless a special law states that Water Code Section 49.001 applies.
Water districts, however, must follow Water Code Section 49.236, requiring a public hearing on a proposed tax rate and publishing a special hearing notice. Proceed to Step 8 in this section for a water district's requirements.
Calculate and publish required rates.
All taxing units, other than water districts, that levied property taxes in 2007 and intend to levy them in 2008 must calculate an effective tax rate and a rollback tax rate. All taxing units, other than water districts and small taxing units, that levy a tax in 2008 must publish an effective tax rate and a rollback tax rate.
By August 7, or as soon thereafter as practicable, the designated officer or employee who calculates these two rates submits them to the unit's governing body and publishes them. The rates are published along with a statement of tax increase or decrease and other special schedules about fund balances, debt, sales tax, transferring a function and indigent health care. These schedules may vary if they are applicable to the taxing unit.
Most taxing units publish them in a newspaper in a form set out by the Comptroller's office or may mail these calculations to each property owner. Small taxing units do not have to publish the two rates, but include information on their notice to adopt a tax increase.
Although the actual calculation can become more complicated, a taxing unit's effective tax rate is a calculated rate generally equal to the prior year's taxes divided by the current taxable value of properties that were also on the tax roll in the prior year. The resulting tax rate, used for comparison only, shows the relation between the prior year's revenue and the current year's values.
A unit's rollback tax rate is a calculated rate that divides the overall property taxes into two categories – maintenance and operations (M&O) and debt service, also called interest and sinking or I&S. This manual will refer to it as the debt service. Rollback rate calculations allow units, other than school districts, to raise the same amount of M&O money raised in the prior year, plus an 8 percent increase.
For all taxing units, the debt service portion of the rollback tax rate is the current year's debt payments divided by the current year's property values. The debt service tax rate may rise as high as necessary to cover debt expenses. The overall rollback rate calculation is explained in greater detail in Part 3.
Except for small taxing units and water districts, taxing units must publish notices and hold hearings if a proposed tax rate will exceed the lower of the rollback rate or the effective rate.
Once a taxing unit – other than a small taxing unit or water district – has determined its effective tax rate and its rollback rate, it must publish them in a specific legal form. Part 5 of this manual discusses the publication requirements.
Failure to comply. If a taxing unit fails to calculate or publish the required rates and notices properly, a property owner in the unit may seek an injunction to prohibit the unit from adopting a tax rate. The district court may issue the injunction if it finds that the unit's failure to comply was not in good faith.
New taxing units. A taxing unit that did not levy property taxes in 2007 is not required to comply with truth-in-taxation laws in 2008 unless it levied the additional sales tax to reduce property taxes in 2007. However, the Comptroller's office recommends that a new unit consider publishing similar notices and holding a public hearing to inform taxpayers of its intention to levy a property tax. Part 4 discusses the additional sales tax.
Consolidation of two or more taxing units. A taxing unit that was two or more taxing units in the prior year handles the effective and rollback rate calculations differently. The consolidated unit combines last year's taxes for each unit and divides by the total values for the current year for the new consolidated unit. First, calculate last year's taxes for each unit in lines 1-15 of the Effective Tax Rate Worksheet in Appendix 2. Then, combine last year's taxes on line 15 for each unit to obtain last year's total taxes. For lines 26-28 of the Rollback Tax Rate Worksheet in Appendix 3, calculate the M&O taxes for the preceding year for each unit and combine the M&O taxes for each unit to obtain last year's total M&O taxes on line 28H. The remaining calculation steps are the same for the consolidated unit's current values and current debt.
Small taxing units. Small taxing units may use a simplified tax rate notice process to publish the effective and rollback rates and other notices, as provided in Tax Code Section 26.052. A small taxing unit is one that proposes a tax rate for the current year that is 50 cents or less per $100 of taxable value and would impose taxes of $500,000 or less from the current total value for the unit.
Small taxing units that decide to use Section 26.052 should proceed to Step 7.
Draft a budget and decide how much tax to levy.
The taxing unit must identify its needs and draft a budget to meet those needs. The taxing unit must decide how much property taxes are necessary to fund that budget and, based on current year's values, what M&O rate is necessary for the general operating expenses. The taxing unit must also determine what its payments for debt service will be.
The taxing unit's governing body is now at a critical point in the truth-in-taxation process. It must determine how much surplus funds, if any, it plans to expend from its M&O and debt service funds. It must determine the final amount of property taxes needed for the budget. Certain proposed rates will trigger certain steps in adopting the final tax rate.
Truth-in-taxation laws, except for water districts, explicitly address the debt service rate component of a taxing unit's overall tax rate. For most taxing units, the adopted debt service rate must equal the debt service rate published in the rollback rate calculation. If the unit levies an additional sales tax, the debt service component of its rate cannot exceed the debt service rate that would levy the amount of debt payments published in the unit's calculations, less any sales tax revenue that will be used to pay debt.
A taxing unit's governing body must follow legislative guidelines for proposing and adopting a tax rate. If the tax rate proposed by the governing body exceeds the effective tax rate or rollback rate, whichever is lower, they must publish a new public hearing notice (see Appendix 10), post a new Internet Web site notice and hold two public hearings. If they do not exceed these rates, they may adopt the tax rate by following Step 9. Otherwise, for a tax increase, the taxing unit should proceed to Step 3.
A new law in 2007 (HB 3195) requires cities and counties that are proposing budgets that raise more property tax revenue than the preceding year's budget to include the amount of the increase in large type on the cover page of the budget. That page must also state the amount to be raised from taxes on new properties. The public notice of the budget hearing must contain this information as well. The proposed budget must be posted on the unit's web site. In order to adopt the budget, the governing body must take a vote on the budget separately from its vote on the tax increase and its vote on the tax rate. You may call the Comptroller's Local Government Assistance Division at (800) 531-5441, extension 3-4679 for more information about city and county budget adoption procedures.
Small taxing units proceed to Step 7. Water districts go to Step 8.
Vote by governing body to propose a tax increase.
When a proposed rate exceeds the rollback rate or the effective rate, whichever is lower, the taxing unit's governing body, other than for a small taxing unit or a water district, must vote to place a proposal to adopt the rate on the agenda of a future meeting as an action item. This vote must be recorded. The proposal must specify the desired rate. A unit cannot vote to adopt a proposal to increase taxes by an unspecified amount.
If the motion passes, the governing body must schedule two public hearings on the proposal. These hearings must take place:
- within the boundaries of the unit;
- on a weekday that is not a holiday; and
- in a public building or, if a public building isn't available, in a building normally open to the public.
Note: The second hearing may not be held earlier than the third day after the date of the first hearing.
Publish first quarter-page notice.
After proposing a tax increase and scheduling the two public hearings, the governing body must notify the public of the dates, times and place or places for these hearings and provide information about the proposed tax rate at least seven days before the public hearings. The law establishes specific requirements for this Notice of Public Hearing on Tax Increase. The model form for this notice appears in Appendix 10.
The taxing unit also will post notice of these hearings on its Web site if it has one. A taxing unit is required to post specific language on the Web site that it operates at least seven days before the first public hearing. This notice will stay on the Web site until the second public hearing concludes. If the unit has free access to a television channel, it will publish the notice as a 60-second notice. Part 5 of this manual discusses publication requirements.
Hold two public hearings.
After publishing the first required notice, the taxing unit must hold two public hearings. A quorum of the governing body must be present at both hearings. Taxpayers must have the opportunity to express their views on the increase at each hearing. The governing body may not adopt the tax rate at either of these hearings. At each hearing, the governing body must announce the date, time and place of the meeting at which it will vote on the tax rate.
The governing body must follow a strict timetable once it holds these public hearings. The meeting to vote on the tax rate must take place no less than three days and no more than 14 days after the second public hearing. Like the public hearings, the meeting to vote must take place in a public building inside the unit's boundaries. Unlike the public hearings, the meeting to vote on the tax rate can take place on any day, including a holiday.
Publish second quarter-page notice.
After the public hearings and before the meeting scheduled for the vote, the governing body must publish a second quarter-page notice titled Notice of Tax Revenue Increase. A model form for this notice appears in Appendix 11. This notice is new for 2008.
The taxing unit also will post this notice on its Web site if it has one. A taxing unit must follow the wording and posting requirements regarding Web site postings.
If the unit has free access to a television channel, it will publish this notice as a 60-second notice. Part 5 discusses publication requirements.
Adopt a small taxing unit's tax rate.
Small taxing units have a different process under Tax Code Section 26.052. A small taxing unit is one that proposes a tax rate for the current year that is 50 cents or less per $100 of taxable value and would impose taxes of $500,000 or less from the current total value for the unit.
A small taxing unit must meet both conditions above to be exempt from the notice and publication requirements of Section 26.04(e) and the injunction provision of Section 26.04(g). Section 26.04(e) requires a taxing unit to publish the effective tax rate, rollback tax rate and certain special schedules. Section 26.04(g) provides that a property owner may seek an injunction to prohibit the taxing unit from adopting the tax rate until it has complied with the publication requirements.
Under Section 26.052, a small taxing unit may provide public notice of the proposed tax rate in one of two ways. The unit may mail a notice of the proposed rate to each property owner in the unit or may publish a notice of the proposed rate in the legal section of a newspaper having general circulation in the unit. The unit must do either notice seven days before the date on which the taxing unit will adopt the proposed tax rate.
The notice must contain:
- the proposed tax rate;
- date, time and location of the meeting at which the governing body will consider adopting the proposed tax rate; and
- the following statement if the proposed tax rate exceeds the unit's effective tax rate calculated under Section 26.04: "The proposed tax rate would increase total taxes in (name of taxing unit) by (percentage by which the proposed tax rate exceeds the effective tax rate)."
A small taxing unit that publicizes its tax rate under Section 26.052 is also exempt from Sections 26.05(d) and 26.06. Section 26.05(d) requires publishing two quarter-page ads when a taxing unit proposes a tax rate that exceeds the rollback rate or the effective rate, whichever is lower. Section 26.06 provides that a taxpayer may seek an injunction to keep the taxing unit from collecting taxes until it has complied with Section 26.05(d).
A small taxing unit, however, that uses the Section 26.052 notice requirement may not adopt a tax rate that exceeds the proposed tax rate set out in its notice unless the taxing unit provides an additional public notice of the higher tax rate or complies with Section 26.05(d) and 26.06 in adopting the higher rate.
A sample notice for small taxing units appears in Appendix 12.
Small taxing units then should follow the general rules in Step 9 for the formal action of adopting a tax rate at the publicized public meeting.
Adopt a water district's tax rate.
Water districts have a different notice for the public meeting on their proposed tax rate. While other taxing units are required to follow Tax Code Chapter 26, water districts must follow notice and hearing provisions in the Water Code. Some provisions for a rollback election, however, refer to Tax Code Section 26.07.
The water district board publishes the public hearing notice at least seven days before the hearing date or may mail it to each property owner at least 10 days before the hearing date. The quarter-page Notice of Public Hearing on Tax Rate includes a comparison of property tax rates and a comparison of property taxes on the average residence homestead. The notice also includes a statement about the taxpayers' right to a rollback election.
The rollback tax rate is the highest rate the water district may adopt without qualified voters petitioning for a rollback election. Water Code Section 49.236(d) sets the rollback rate as the current year's debt service and contract tax rates, plus the M&O rate that would impose no more than 1.08 times the amount of M&O tax imposed by the district in the preceding year on the average appraised value of a residence homestead in the district. The average appraised value disregards any homestead exemption available only to people with disabilities or those 65 years of age or older. The rollback election procedures follow those found in Tax Code Section 26.07(b) – (g). A sample worksheet to calculate the rollback tax rate is in Appendix 6.
Part C of Part 5 of this manual explains the notice requirements, including a sample notice.
Water districts then hold the publicized meeting to adopt the tax rate. See Step 9 for procedures to follow in adopting the tax rate.
Adopt the tax rate in a public meeting.
The following general rules apply to the formal tax rate adoption.
If the taxing unit – other than a small taxing unit or a water district – proposed a tax rate that exceeds the rollback rate or the effective rate, whichever is lower, it must follow Steps 3 through 6. Once the taxing unit publishes the second notice announcing the date, time and location of the meeting to vote on the tax rate, it must follow the provisions below to adopt the tax rate at that meeting. The Tax Code requires that the governing body adopt the tax rate no less than three days but no more than 14 days after the second public hearing. If the taxing unit does not adopt during this time period, then it must republish the second notice of the meeting to adopt the tax rate, with the new date, time and location to adopt the rate.
Remember that small taxing units may follow Step 7 and the procedures below. Water districts follow Step 8 and the procedures below.
Open meetings notices. The taxing unit must post notice of the meeting in compliance with the open-meetings law, Government Code Chapter 551. The meeting must be open to the public.
Agenda item. Adoption of the tax rate must be a separate item on the agenda for the meeting. State law requires most counties (Sections 111.007-111.010, Local Government Code), general law cities (Sections 102.006-102.009, Local Government Code) and school districts (Section 44.004, Education Code) to adopt a budget before they adopt the tax rate. These units may adopt a budget and a tax rate at the same meeting as long as the budget is adopted first as a separate item. Other taxing units should refer to their enabling legislation for specific guidance.
For counties with a population of more than 225,000, the Local Government Code does not require specifically that the county adopt the budget before it adopts the tax rate.
Official action. The taxing unit's governing body must adopt a tax rate by official action and set it out in a written resolution, ordinance or order.
The Property Tax Code sets out specific wording for this resolution, ordinance or order. Each type of taxing unit – city, county, or special district – will have to refer to its own enabling legislation to determine the proper form for the official adoption of a tax rate. Taxing units, other than water districts, that adopt a rate above the effective tax rate must use special language in the motion to adopt. In the order, ordinance or resolution the taxing units must use larger type, include an example of the tax increase on a $100,000 home and state that the adopted tax rate will raise more taxes for M&O. Please refer to Property Tax Code Section 26.05(b) for the required language. General law cities should phrase the action as an ordinance. Home rule cities should phrase the action as an ordinance unless the charter provides otherwise. Counties should set out the tax rate in an order.
Governing bodies with questions regarding the correct methods and phrasing of an ordinance, resolution or order to adopt a tax rate should discuss these questions with their legal counsel.
Two-part rate. A taxing unit authorized to pay both M&O and debt service with property taxes must adopt its rate in two separate components – one rate for M&O and one rate for debt service.
For most taxing units, the debt service component of the adopted tax rate must equal the calculated and published debt service rate that appeared in the rollback tax rate calculation and required notices. Units collecting the additional sales tax may not adopt a debt service rate that will levy more than the published debt payments, less any additional sales tax revenue that will be used to pay debt.
A county may have several tax rates, depending on the kinds of taxes it levies. Each of these rates should be broken down into M&O and debt service components.
A taxing unit may adopt a final M&O rate that is lower than the proposed M&O rate. To adopt a higher M&O rate than proposed, the taxing unit would exceed the published increase percent. Taxpayers have the right to notice and the right to be present at a hearing about a proposed increase. A taxing unit wishing to adopt a higher M&O rate than proposed is advised to repeat the notice and hearing process to give taxpayers the opportunity to hear and comment about a higher tax increase.
Deadline to adopt rate. Tax Code Section 26.05 requires a taxing unit, other than a water district, to adopt its tax rate before Sept. 30 or by the 60th day after the taxing unit receives the certified appraisal roll, whichever date is later. Failure to adopt a tax rate by this deadline results in the unit adopting its effective tax rate or last year's rate, whichever is lower, as its tax rate for the current year.
If a taxing unit misses the deadline, then the governing body must ratify either the effective tax rate or last year's rate, whichever is lower, as the adopted rate before the fifth day after establishing that tax rate.
County quorum. At least four members of the commissioners court must be present for a county to adopt a tax rate; at least three must vote for the rate. The county judge is considered a member for this purpose.
Rate limitations for counties. A county rate may be composed of as many as three individual rates for a total rate not to exceed $1.25 per $100 of value. Not all counties levy all three taxes. The Texas Constitution sets the following rate limits:
- 30 cents per $100 for farm-to-market roads or flood control (Article VIII, Section 1-a, Texas Constitution);
- 80 cents per $100 for general fund, permanent improvement fund, road and bridge fund and jury fund (Article VIII, Section 9, Texas Constitution); and
- 15 cents per $100 for the maintenance of public roads, commonly referred to as the special road and bridge fund (Article VIII, Section 9, Texas Constitution).
Municipal school district and its city. A municipal school district follows the city boundaries where the district is located. The municipal school district board and the city council shall jointly hold any hearing required by law for adopting the school's annual budget and property tax rate. Adopting the school budget and the school tax rate requires an affirmative vote of a majority of the school board members present and voting and at least three-quarters of the total of the voting school board members and city council members that are present and voting. If a quorum of the city council is not present at the hearing to adopt the budget and tax rate, then the school board may adopt the budget and tax rate without regard to votes from the city council members.
Emergency services district. The maximum tax rate that an emergency services district may adopt will depend on what voters in the district approved. If the voters approved the district as a rural fire prevention district with a tax rate limit of 3 cents per $100, then the fire district converted to an emergency services district has that maximum rate limit. To increase the maximum rate limit to 10 cents per $100 as provided in Article III, Section 48-e, Texas Constitution, the emergency services district must take that increase to the district voters to approve increasing the maximum rate.
Failure to comply. If the taxing unit's governing body fails to comply with the hearing, notice or rate adopting process in good faith, a property owner in the unit may seek an injunction. The injunction stops the unit from sending tax bills until the unit convinces the district court that it has complied with the law. A property owner must act to enjoin collections before the taxing unit delivers substantially all of its tax bills. This injunction process does not apply to water districts or small taxing units that follow Section 26.052.
Administer a rollback election, if necessary.
If a taxing unit adopts a tax rate that exceeds the rollback rate, voters in the unit may petition for an election on the tax increase. Please see Part 6 for more information about administering a rollback election.