A Guide for Setting School District Tax Rates
The Texas Constitution, Property Tax Code and Education Code embody the concepts of truth-in-taxation to require school districts to comply with certain steps in adopting their tax rates. The truth-in-taxation laws have two purposes:
- to make taxpayers aware of tax rate proposals; and
- to allow taxpayers, in certain cases, to roll back or limit a tax increase.
The Texas Comptroller of Public Accounts is authorized to issue publications concerning the administration of the local property tax in Tax Code Section 5.05. This guide to tax rate setting, also known as “truth-in-taxation,” is prepared as a public service to school districts in the state that will hold public hearings, consider budgets and set rates to impose property taxes. This guide is specifically intended to help school districts set 2009 tax rates.
By publishing this guide and by conducting seminars to instruct tax assessor collectors, budget officers and elected officials, the Comptroller's office is providing technical assistance. It is not offering legal advice. Interpretations of law must be made by lawyers representing governmental entities. Questions about the meaning of the statutes, notice requirements and other matters that are unclear in the law and in this manual should be posed to lawyers and not to the Comptroller's Technical Assistance staff.
There are four principles to truth-in-taxation as it relates to school districts:
- Property owners have the right to know of increases in their properties' appraised value and to be notified of the estimated taxes that could result from the new value.
- A school district must publish its proposed tax rate, rollback tax rate and other specific information about its proposed taxes.
- A school district must publish a budget and proposed tax rate hearing notice and hold a public hearing to provide an opportunity for citizen input concerning these issues.
- A school district must hold an election to ratify a tax rate adopted above its rollback rate.
After the appraisal district certifies appraised values, school districts take the first step toward adopting a tax rate by calculating the effective, effective maintenance and operations (M&O) and rollback tax rates.
Effective tax rate. The effective tax rate is a calculated rate that would provide the school district with about the same amount of revenue it received in the year before, on properties taxed in both years. If property values rise, the effective tax rate will go down and vice versa.
Effective M&O tax rate. The effective maintenance and operations rate is the rate that, when imposed on the current year's taxable value, yields state and local revenue per student equal to the state and local revenue per student for the preceding year, including the new funds distributed for property tax relief and additional funding for teacher pay raises and high schools.
Rollback tax rate. The rollback rate is a calculated maximum rate allowed by law without voter approval. The rollback rate is the LESSER of (1) the sum of the current compression percentage (0.6667 for 2009) times $1.50 (or times the 2005 M&O rate for school districts with 2005 M&O rates above $1.50), plus 4 cents, plus the rate that is equal to the sum of any differences between the adopted tax rate and the rollback tax rate approved by the voters for 2006 and subsequent years, plus the current debt rate OR (2) the sum of the effective M&O tax rate (previously defined) plus the rate equal to the current state compression percentage times 0.06 (this amounts to 4 cents in 2009), plus the current debt rate. In future years, the commissioner of education may determine a different compression percentage.
If a school district adopts a tax rate that is higher than the rollback rate, school board trustees must hold an election to ask voters to approve the rate.
School districts publish their rollback rates in local newspapers, along with other information about budget and tax revenues in a notice titled Notice of Public Meeting to Discuss Budget and Proposed Tax Rate.
If taxpayers believe that the school district has not calculated these rates, published the required notice or otherwise complied with other tax rate adoption laws in good faith, they may ask a district court to stop the school from adopting a tax rate until it complies with the laws.
2009 Law Changes
House Bill (H.B.) 2291, 81st Texas Legislature, Regular Session amends Tax Code Section 26.05(b) by changing the wording of the motion used to adopt a tax rate that exceeds the effective tax rate. The wording for an ordinance, resolution or order now must indicate an increase in the tax rate, not taxes as was previous law, and give the percentage increase the proposed rate is above the effective tax rate. The percentage increase is also included in the written ordinance, resolution or order and on the home page of any Internet web site operated by the unit. Effective June 19, 2009.
Senate Bill (S.B.) 1024, 81st Texas Legislature, Regular Session amends Tax Code Section 26.08 to allow school districts to mail tax statements before an adopted tax rate, that exceeds the rollback rate, has been ratified by the voters. The procedures for processing refunds and postponing the delinquency date will mirror those provisions in Section 26.07 for other taxing units, if a school district’s tax rate is not ratified. Effective Sept. 1, 2009.
S.B. 2274, 81st Texas Legislature, Regular Session amends Tax Code Section 26.08 by adding subsection (p) which directs a school district that adopted a maintenance and operations rate that was less than its effective maintenance and operations rate for the preceding year, to use that previous year’s effective maintenance and operations rate when calculating the rollback rate for this year. Effective June 19, 2009.
H.B. 3646, 81st Texas Legislature, Regular Session amends Tax Code Section 26.01(e) requires the chief appraiser to prepare and certify by April 30, to the assessor for each county, municipality and school district an estimate of the taxable value in that unit. This replaces the June 7 deadline.
H.B. 3646 amends the Education Code Section 44.004 and Tax Code Section 26.05 to allow a school district to adopt its budget after it has adopted the tax rate if that tax rate is adopted before the district received the certified appraisal roll. Usually, a taxing unit must adopt its budget before it can adopt a tax rate. This allows the school district to use the certified estimate of taxable value it receives from the appraisal district(s) to set the tax rate. If the school district takes this action they must publish a notice and hold a meeting for the purpose of discussing the proposed tax rate. After the adoption of the tax rate, the unit must publish another notice and hold another public meeting to discuss the budget. The unit must use the notice prescribed by the Comptroller.
H.B. 3646 amends the Election Code Section 3.005 to allow a school district to order an election to ratify a tax rate not later than the 30th day before the election date. Previous law stated that school district had to order or call an election at least 62 days before the election date.
H.B. 3646 amends the Education Code Section 45.001 to allow a district to retire debt early and to include that early payment in the calculation of the debt rate.
The changes described in H.B. 3646 apply only to ad valorem taxes imposed for a tax year beginning on or after the effective date of September 1, 2009.
H.B. 3676 repeals Tax Code Section 313.029. This section prohibited a school district from adopting a tax rate that was above the rollback rate for two tax years after entering into a value limitation agreement. Effective Sept. 1, 2009.
Texas Constitution
The Texas Constitution sets out the general requirements for truth-in-taxation. The Texas Legislature amended Chapter 26, Tax Code, to set out the specifics.
Article VIII, Section 21. Increase in Total Property Taxes; Notice and Hearing; Calculation.
- Subject to any exceptions prescribed by general law, the total amount of property taxes imposed by a political subdivision in any year may not exceed the total amount of property taxes imposed by that subdivision in the preceding year unless the governing body of the subdivision gives notice of its intent to consider an increase in taxes and holds a public hearing on the proposed increase before it increases those total taxes. The Legislature shall prescribe by law the form, content, timing and methods of giving the notice and the rules for the conduct of the hearing.
- In calculating the total amount of taxes imposed in the current year for the purposes of Subsection (a) of this section, the taxes on property in territory added to the political subdivision since the preceding year and on new improvements that were not taxable in the preceding year are excluded. In calculating the total amount of taxes imposed in the preceding year for the purposes of Subsection (a) of this section, the taxes imposed on real property that is not taxable by the subdivision in the current year are excluded.
- The Legislature by general law shall require that, subject to reasonable exceptions, a property owner be given notice of a revaluation of his property and a reasonable estimate of the amount of taxes that would be imposed on his property if the total amount of property taxes for the subdivision were not increased according to any law enacted pursuant to Subsection (a) of this section. The notice must be given before the procedures required in Subsection (a) are instituted.