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Property Tax Rates: A Primer and SB 2


Local taxing authorities (cities, counties, hospital districts, school districts) must publish certain information and schedule public hearings before approving a tax rate.  Senate Bill 2 currently (Spring 2017) being debated in the Legislature will affect how that unfolds.  Here’s a primer:

Proposed Tax Rate:

This is the rate taxing authorities estimate they need to cover their budgeted expenses for the following year.  If taxable values increase year to year, a lower rate can generate the same revenues but if the rate is not reduced the unchanged rate can generate increased revenues from higher taxable values.  Taxing authorities can then claim they didn’t increase taxes.  (They didn’t; the appraisal districts increased values.)

Effective Tax Rate:

This is the rate that would generate the same revenue as last year.  If appraisal districts have increased taxable values year to year then a lower Effective Tax Rate will generate the same revenues as in the prior year.

Rollback Tax Rate:

A taxing authority may not exceed the Rollback Tax Rate – currently 8% but the Legislature is currently (March 2017) considering a reduction to 4% — which is the amount by which total tax revenues – not rates — can exceed the prior year’s revenues without allowing its voters to petition for a lower rate.  All taxing districts are affected except school districts which must hold an automatic rollback tax rate election in November if the rollback rate is exceeded.  For the others – city, county, hospital district, etc. – a rollback petition is required and the rollback election takes place in a month other than November, when most voters turn out to vote.

For more about rollback elections, see:

Senate Bill 2

This bill would reduce the Rollback Tax Rate to 4% and would automatically trigger a rollback election in November.  The effect on local taxing authorities would be immediate and would encourage them to keep total tax collection increases below 4%.  In a market of increasing values this means a lower tax rate applied to an increased tax base.

But would limiting total tax collection increases to 4% benefit taxpayers?  In a growing market like DFW, where population growth continues to put demands on local authorities, a 4% cap on tax collections could result in less services just when more services are required.  As Texas continues to attract people moving from other states municipal and county services may be unable to keep pace.  That’s why local governments are almost unanimously opposed to the 4% cap in SB 2.

The opposing argument is that if demand for services requires total tax revenues to increase more than 4% then taxing authorities should be required to justify the increase to their voters.

According to the Texas Comptroller’s Biennial Property Tax Report school taxes generate 54 percent of local property taxes statewide.  So SB 2 addresses less than half the property taxes paid by Texas owners.
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