The Rollback Tax Rate
Tax revenue falls into two general categories - M&O and debt service. M&O includes such things as salaries, utilities and day-to-day operations. Debt service covers the interest and principal on bonds and other debt secured by property tax revenues, also called "interest and sinking," or "I&S." Tax Code Section 26.012, subsections (7) and (8), states the full legal definition of debt. Line 27 of the Rollback Tax Rate Worksheet outlines the four-part test based on that legal definition.
Calculating an effective tax rate does not require the school district to distinguish between M&O and debt service. The rollback tax rate, however, is the sum of the maximum M&O rate and debt service rate.
Calculating the Rollback Tax Rate
The M&O portion of the rollback tax rate allows school districts to add four cents ($0.04) to the lesser of the 2009 compressed operating tax rate or the effective M&O rate to generate operating funds. School districts will get to add to the compressed operating rate any additional cents approved by voters at a 2006 or subsequent rollback election.
The debt service rate portion is the tax rate necessary to pay the school's debt payments in the coming year. This part of the calculation does not depend on the prior year's debt taxes at all; it simply considers what the school district will actually need for the current year. The portion of the overall rate used to retire debt may rise as high as necessary without triggering the threat of a rollback.
School districts add four cents ($0.04) to the lesser of the compressed operating tax rate or the effective M&O rate for their highest M&O rate, as illustrated in Exhibit 4. School districts then add their 2009 debt service rate for the final 2009 rollback tax rate.
Additional rollback protection for pollution control. Any school district may increase its rollback rate by the rate that generates the amount of funds the school district will spend for pollution control property, divided by the school's current total value. Lines 36 - 39 of the Rollback Tax Rate Worksheet in Appendix 4 provide for calculating the additional rate to add to the rollback rate.
Tax Code Section 26.045 permits the additional protection to allow the school district to raise its rate for maintenance and operation funds used to pay for a facility, device or method for the control of air, water or land pollution. The school district's expenses are necessary to meet the requirements of a permit issued by the Texas Commission on Environmental Quality (TCEQ).
A "facility, device or method of control" means any land, structure, building, installation, excavation, machinery, equipment or device that is used, constructed, acquired or installed wholly or partly to meet or exceed pollution control requirements. The TCEQ may also approve an extensive list of advanced clean energy facilities, devices, or methods used for pollution control. The definition includes any attachment or addition to or reconstruction, replacement or improvement of property. The requirements include preventing, monitoring, controlling or reducing air, water or land pollution.
The school district must present information to the TCEQ's executive director in a permit application or in a request for permit exemption. The information details:
- anticipated environmental benefits from the installation of the facility, device or method;
- the estimated cost of the facility, device or method; and
- the installation's purpose and the proportion of the installation that is pollution control property.
The TCEQ shall determine if the facility, device or method is used wholly or partly for pollution control. Then the TCEQ executive director shall issue a determination letter stating the portion of the cost of the installation for pollution control. The TCEQ may charge a fee for processing the information, making a determination and issuing the letter. School districts should check with the TCEQ for rules regarding this process by calling TCEQ's Small Business and Environmental Assistance Division at (512) 239-6348.
The school district shall provide its tax assessor with a copy of the TCEQ's letter. The assessor shall accept the copy as conclusive evidence and shall adjust the rollback tax rate. The additional lines on the calculation provide for entering the amount of pollution control expenditures and the 2009 total taxable value. The additional rate is added to the school district's rollback rate.
In addition, school districts also are able to exclude the taxable value of property exempted for the current tax year for the first time as pollution control property. Because the taxable value of exempt property is zero, this provision read literally has no effect. School districts that wish to exclude the market value of the exempted pollution control property should consult with their attorneys. A school district subtracts the exempted properties' appraised values from the current total value in the calculation.
The debt service portion of the rollback rate differs entirely from the M&O portion. The debt service rate portion is the tax rate necessary to pay the school district's debt payments in the coming year. This part of the calculation does not depend on the prior year's debt taxes at all; it simply considers what the school district will actually need for the current year. The portion of the overall rate used to retire debt may rise as high as necessary without triggering the threat of a rollback.
The debt service component also does not use the adjusted 2009 taxable value (the current value of properties taxed in the prior year). Instead, it uses the total 2009 taxable value (the current value of all properties) in the lower part of the formula less the 2009 taxable values of homesteads with tax ceilings, less any tax increment financing (TIF) captured appraised value where the school district agreed to deposit taxes into the TIF fund.
Debt payments. The top half of the formula is the actual debt payments required for the 2009-10 fiscal year, not the prior fiscal year's debt. Remember that these are debt payments that 2009 property taxes will pay.
Districts are required to consider the amount of facilities state aid (Existing Debt Allotment (EDA) and or Instructional Facilities Allosment (IFA)) they will receive in setting their local Interest and Sinking (I & S) rates. Doing so reduces the amount of debt that districts will pay from local funds and produces a lower I & S tax rate. Districts that do not take the state funding into account will both violate state law and levy rates that are too high.
The only adjustment to the 2009 debt service is for anticipated collection losses. The school district subtracts the amount of 2008 excess debt tax collections from the current year's debt payments, then divides the resulting figure by the anticipated 2009 collection rate. The school district's tax assessor-collector will certify these excess debt tax collections and the anticipated collection rate. The following section on anticipated and excess collections tells the tax collector how to calculate these figures.
Anticipated and excess debt collections. A school district that levies a debt service tax must consider anticipated collections in calculating the debt service component of its rollback tax rate. The assessor-collector for such a school district must certify two items to the school board:
- estimated debt collection rate for 2009 and
- excess debt tax collections for 2008.
Estimated debt collection rate for 2009. To find the estimated collection rate, the assessor-collector must first estimate the school district's total debt collections from July 1, 2009, through June 30, 2010. This estimate equals the total tax dollars that will be collected for current debt taxes, delinquent taxes, special appraisal rollback taxes, penalties, interest and the additional penalty for attorney fees under Tax Code Sections 33.07 and 33.08. Obviously, the assessor-collector will not know the precise amount until this collection period is completed. Truth-in-taxation laws, however, require the assessor-collector's estimate. The assessor-collector will compare this amount to what the school district plans to levy for paying debt service in the 2009-10 fiscal year.
Dividing the estimated collections by the required debt payments gives the estimated collection rate. Suppose, for example, the collector projects the school district will take in $950,000 in debt revenues during the period. The school district's budget calls for it to levy $1 million in debt service taxes for 2009. The anticipated collection rate is $950,000 divided by $1 million or 95 percent.
If the assessor-collector's anticipated collection rate exceeds 100 percent, the assessor-collector would use 100 percent in the calculation. Delinquent taxes from prior years may generate more than a 100 percent rate.
Excess debt tax collections for 2008. The law also requires the assessor-collector to compare the amount of taxes actually collected in current taxes, delinquent taxes, special appraisal rollback taxes, penalties, interest and the additional penalty under Tax Code Sections 33.07 and 33.08 for debt in 2008 from July 1, 2008 through June 30, 2009. The assessor-collector compares this collected amount with the amount that the assessor-collector estimated to collect according to the 2008 anticipated collection rate. If the school district took in more debt tax dollars than should have been collected, the assessor-collector certifies the amount of excess debt tax collections to the school board.
For example, last year the assessor-collector projected a 2008 collection rate of 95 percent and the school board levied $500,000 in 2008 debt service taxes. The anticipated debt tax collections for 2008 were $475,000 (.95 x $500,000). The assessor-collector determines whether the total amount of debt service taxes collected from July 1, 2008, through June 30, 2009, exceeds $475,000 and determines the amount of any excess. If the school district collected $485,000 in 2008 debt service taxes, the collector certifies excess debt tax collections of $10,000. The school district will subtract this $10,000 from the 2009 debt payments to lower the 2009 debt service rate.
If the assessor-collector projected a 2008 collection rate of 100 percent and collected more than 100 percent, the assessor-collector certifies excess debt collections of "0."
Dividing the adjusted debt payments by the total 2009 taxable values, times $100, gives the debt service portion of the rollback rate. Exhibit 5 illustrates the debt service calculation.
Total Rollback Tax Rate
Totaling the maximum M&O rate and the debt service rate and multiplying by 100 (to convert to a rate per $100 of value) gives the rollback tax rate.