Chapter 1
Focus on Local Taxes Statewide
Texas is one of 13 states in the United States with no state property tax; however, it relies heavily on its locally administered property tax to fund its local units of government. The state ranks third in the country in its reliance on the property tax to fund government services.[1]
In addition to the property tax, the Texas Constitution and Legislature empower local governments to impose, levy and collect other taxes and fees so they may effectively carry out their responsibilities to provide schools, roads, hospitals, fire departments, police protection and other services. Nearly 4,000 separate taxing jurisdictions impose a property tax; these include counties, school districts, cities and special-purpose districts such as junior colleges, hospitals, utilities, flood control and emergency service districts. These jurisdictions supplement their operations from a number of other revenue sources, including sales taxes, franchise and user fees and court costs and fines.
The local property tax is the largest tax assessed in Texas. Statewide, property taxes levied by local governmental entities exceeded $38.9 billion in 2008, the most recent year for which the Comptroller of Public Accounts has reported data (Exhibit 1).
Exhibit 1
Tax Revenue in Texas by Source, 2008
| Type of Tax |
Tax Amount |
Percent of Total Tax |
|---|---|---|
| Property Tax[2] | $38,979,969,545 | 45.2% |
| State Sales Tax[3] | $21,604,090,350 | 25.0% |
| Local Sales Taxes | $5,915,939,204 | 6.9% |
| Other State Taxes | $19,753,838,603 | 22.9% |
| Total Taxes | $86,253,837,702 | 100% |
Source: Texas Comptroller of Public Accounts.
While local property taxes account for almost half of all tax revenue in the state, the state does not set property tax rates or collect property taxes.
The next-largest tax revenue source in Texas is the sales tax, which is imposed by both the state and local governments (except for school districts, which do not have authority to assess a sales tax). In 2008, combined sales tax collections totaled $27.5 billion, or 31.9 percent of all taxes collected in Texas. The bulk of that amount, $21.6 billion, went to the state, with local governments receiving $5.9 billion. Other state taxes, such as those imposed on motor fuels, cigarettes and utilities totaled $19.8 billion (22.9 percent). Local governments collect 52.1 percent of all taxes in the state, while state government takes in 47.9 percent.
Local Property Tax
The Texas Constitution authorizes local governments to adopt a property tax in order to provide public services. The constitution sets out five basic rules for property taxes.
The first requirement is that property taxes must be equal and uniform.[4] No single property or type of property should be taxed at more than its fair share. Local officials must base property taxes on value. If, for instance, an individual's property is worth half as much as the property owned by his or her neighbor, then – everything else being equal – that individual's tax bill should be one-half of his or her neighbor's.
Second, a local government must generally tax all property on its current market value – the price it would sell for when both buyer and seller seek the best price and neither is under pressure to buy or sell.[5] The Texas Constitution provides certain exceptions to this rule, such as the use of productivity values for agricultural and timber land. This means that governments assess taxes based on the value of what the land produces, such as crops and livestock, rather than its sale value, which is usually higher. The Tax Code requires that taxable value be the lower of productivity or market value.
Third, each property in a county must have a single appraised value.[6] This means that the various local governments that collect property taxes cannot assign different values to the same property; all must use the same value. The Legislature created county appraisal districts (CADs) in each county to try and guarantee that this occurs.
Fourth, all property is taxable unless federal or state law exempts it from the tax. These exemptions may exclude all or part of a property's value from taxation.[7] Finally, property owners have a right to reasonable notice of increases in the appraised value of their property.[8]
Local governments can assess and collect property taxes for two primary uses. First, they can collect a maintenance and operations (M&O) tax that is used primarily to pay for the day-to-day functions of the government. An interest and sinking (I&S) tax is collected to pay bonds, including interest, sold by the local entity to finance capital projects such as buildings, facilities or other infrastructure. The local government can only use these funds to pay interest on bonds; to cancel and surrender bonds; and to pay the expenses of assessing and collecting these taxes. While I&S property taxes are not the only way for local governments to pay for infrastructure, it is one of the primary tools available for this purpose.
Local Property Tax Levies and Values
In tax year 2008, Texas' local taxing units levied nearly $39 billion in property taxes, 11 percent more than in 2007 (Exhibit 2).
Exhibit 2
Property Taxes Reported by Unit Type, 2007 vs. 2008
| Unit Type |
2007 Number of Units |
2007 Tax Levy |
2007 Percent of Levy |
2008 Number of Units |
2008 Tax Levy |
2008 Percent of Levy |
Percent Levy Change from 2007to 2008 |
|---|---|---|---|---|---|---|---|
| School Districts | 1,026 | $18,874,239,532 | 53.8% | 1,025 | $21,233,517,226 | 54.5% | 12.5% |
| Cities | 1,047 | $5,890,306,731 | 16.8% | 1,054 | $6,451,012,447 | 16.5% | 9.5% |
| Counties | 254 | $5,836,989,949 | 16.6% | 254 | $6,342,704,903 | 16.3% | 8.7% |
| Special Districts | 1,467 | $4,513,060,409 | 12.8% | 1,609 | $4,952,734,969 | 12.7% | 9.7% |
| Total | 3,794 | $35,114,596,621 | 100% | 3,942 | $38,979,969,545 | 100% | 11.0% |
Source: Texas Comptroller of Public Accounts.
Unlike other local governments, which can also collect sales taxes and fees, school districts' only source of tax revenue is the property tax. In 2008, the state's 1,025 school districts levied $21.2 billion in property taxes, or 54.5 percent of all property taxes levied in the state (Exhibit 3).
Exhibit 3
Local Governments' Share of Property Tax
Source: Texas Comptroller of Public Accounts.
Cities collected the second-largest share of the property tax in 2008 – $6.5 billion, an increase of 9.5 percent more than the 2007 levy. Counties followed closely behind with a property tax levy of $6.3 billion, 8.7 percent more than in 2007. The levy of special-purpose districts rose by 9.7 percent from 2007 to 2008, to almost $5 billion.
In the last 20 years, property taxes have grown at an annual compounded rate of 6.4 percent, or by 245.8 percent from 1989 to 2008 (Exhibit 4).
Exhibit 4
Growth of the Property Tax by Unit Type, 1989-2008
| Tax Year | Special Purpose District Levy | County Levy | City Levy | School Levy | Total Levy |
|---|---|---|---|---|---|
| 1989 | $1,284,165,144 | $1,715,691,860 | $2,200,415,156 | $6,072,227,279 | $11,272,499,439 |
| 1990 | $1,354,607,273 | $1,743,176,612 | $2,218,971,749 | $6,605,433,619 | $11,922,189,253 |
| 1991 | $1,459,643,501 | $1,894,013,461 | $2,303,609,801 | $7,566,042,099 | $13,223,308,862 |
| 1992 | $1,492,043,534 | $1,996,116,460 | $2,311,630,199 | $8,181,309,478 | $13,981,099,671 |
| 1993 | $1,535,769,813 | $2,176,974,573 | $2,362,404,482 | $8,681,859,148 | $14,757,008,016 |
| 1994 | $1,620,504,796 | $2,311,389,149 | $2,493,554,910 | $9,024,885,601 | $15,450,334,456 |
| 1995 | $1,628,217,607 | $2,391,961,283 | $2,596,742,540 | $9,340,994,056 | $15,957,915,486 |
| 1996 | $1,698,557,436 | $2,537,183,937 | $2,701,214,386 | $9,910,195,171 | $16,847,150,930 |
| 1997 | $1,759,622,591 | $2,658,308,076 | $2,847,081,480 | $10,394,500,372 | $17,659,512,519 |
| 1998 | $1,889,138,306 | $2,828,286,927 | $3,005,996,060 | $11,334,614,289 | $19,058,035,582 |
| 1999 | $2,041,041,011 | $2,979,279,400 | $3,247,964,177 | $12,009,923,498 | $20,278,208,086 |
| 2000 | $2,389,110,312 | $3,200,919,731 | $3,530,863,516 | $13,392,336,012 | $22,513,229,571 |
| 2001 | $2,703,512,059 | $3,566,857,130 | $3,884,829,249 | $15,155,217,587 | $25,310,416,025 |
| 2002 | $2,864,454,984 | $3,849,728,346 | $4,186,795,363 | $16,418,788,831 | $27,319,767,524 |
| 2003 | $3,092,285,295 | $4,121,758,950 | $4,415,212,819 | $17,264,153,972 | $28,893,411,036 |
| 2004 | $3,369,068,834 | $4,462,844,074 | $4,607,757,531 | $18,533,964,802 | $30,973,635,241 |
| 2005 | $3,609,629,697 | $4,772,652,208 | $4,901,791,597 | $20,194,915,813 | $33,478,989,315 |
| 2006 | $3,972,185,910 | $5,339,613,542 | $5,322,985,519 | $20,918,122,059 | $35,552,907,030 |
| 2007 | $4,513,060,409 | $5,836,989,949 | $5,890,306,731 | $18,874,239,532 | $35,114,596,621 |
| 2008 | $4,952,734,969 | $6,342,704,903 | $6,451,012,447 | $21,233,517,226 | $38,979,969,545 |
| Average Annual Increase | 7.0% | 6.8% | 5.5% | 6.5% | 6.4% |
Source: Texas Comptroller of Public Accounts.
During the same 20-year period, special purpose districts saw the highest rate of increase in property tax collections, with an average annual increase of 7 percent. Counties followed closely behind with an increase of 6.8 percent, school districts experienced annual compounded rates of 6.5 percent and cities had the lowest annual growth rate at 5.5 percent.
Keeping Check on Local Property Tax Increases
The Legislature has provided Texas taxpayers with a mechanism to limit the rate of taxation a local government may adopt. If local taxing units adopt rates above a calculated rollback rate, taxpayers can petition for a rollback election.
A school district exceeding the rollback rate must hold an election automatically, without any need for a petition process. This allows its voters to decide whether to approve the proposed tax rate or to roll back the tax.
According to the Web site http://www.texasisd.com/, in 2008, 116 school districts exceeded the rollback rate, compared with 121 in 2007. Voters in 46 school districts rejected the tax rate proposed by the school board and in 70 elections voters ratified the board's proposed rate (Exhibit 5).
Exhibit 5
2008 School District Rollback Election Results
| School District[9] |
Election Results[10] |
Board Approved M&O Tax Rate | For | Against |
|---|---|---|---|---|
| Agua Dulce | Passed | $1.17 | 51 | 25 |
| Alief | Passed | $1.12 | 1,390 | 1,204 |
| Alpine | Passed | $1.17 | 382 | 216 |
| Alvord | Passed | $1.17 | 724 | 411 |
| Amarillo | Passed | $1.08 | 1,970 | 1,665 |
| Andrews | Passed | $1.06 | 476 | 59 |
| Anson | Failed | $1.17 | 485 | 702 |
| Austin | Passed | $1.07 | 123,972 | 86,178 |
| Avalon | Passed | $1.17 | 49 | 11 |
| Avery | Failed | $1.17 | 224 | 275 |
| Barber's Hill | Passed | $1.06 | 232 | 14 |
| Beeville | Failed | $1.10 | 1,136 | 1,544 |
| Bellville | Failed | $1.17 | 1,711 | 2,129 |
| Belton | Passed | $1.17 | 869 | 421 |
| Booker | Passed | $1.12 | 59 | 32 |
| Broaddus | Failed | $1.17 | 399 | 512 |
| Brownfield | Passed | $1.17 | 356 | 133 |
| Brownsboro | Failed | $1.17 | 233 | 457 |
| Bynum | Passed | $1.13 | 49 | 33 |
| Cedar Hill | Failed | $1.17 | 385 | 1,094 |
| Celeste | Failed | $1.17 | 428 | 616 |
| Chapel Hill | Passed | $1.17 | 135 | 14 |
| Christoval | Passed | $1.17 | 326 | 196 |
| City View | Failed | $1.17 | 743 | 854 |
| Collinsville | Passed | $1.17 | 131 | 71 |
| Como-Pickton | Failed | $1.17 | 401 | 430 |
| Corpus Christi | Passed | $1.06 | 18,752 | 16,464 |
| Crawford | Failed | $1.17 | 535 | 550 |
| Crowley | Failed | $1.17 | 790 | 1,021 |
| Cumby | Failed | $1.17 | 245 | 328 |
| Damon | Passed | $1.17 | 147 | 146 |
| Denison | Passed | $1.17 | 1,003 | 557 |
| Duncanville | Failed | $1.17 | 1,638 | 2,316 |
| East Bernard | Passed | $1.17 | 920 | 753 |
| Edcouch-Elsa | Failed | $1.17 | 653 | 4,200 |
| Etoile | Passed | $1.17 | 84 | 10 |
| Frost | Passed | $1.17 | 163 | 129 |
| Gladewater | Failed | $1.17 | 513 | 796 |
| Greenville | Failed | $1.10 | 335 | 883 |
| Greenwood | Passed | $1.17 | 236 | 166 |
| Gregory-Portland | Passed | $1.17 | 877 | 450 |
| Harlandale | Passed | $1.17 | 8,867 | 4,873 |
| Hico | Passed | $1.17 | 93 | 24 |
| Hidalgo | Failed | $1.12 | 625 | 1,077 |
| Holliday | Failed | $1.17 | 138 | 297 |
| Howe | Failed | $1.17 | 154 | 198 |
| Huckabay | Failed | $1.17 | 8 | 24 |
| Hull Daisetta | Passed | $1.17 | 392 | 348 |
| Humble | Passed | $1.17 | 5,123 | 2,745 |
| Huntington | Passed | $1.17 | 925 | 432 |
| Huntsville | Failed | $1.17 | 605 | 1,536 |
| Iowa Park | Failed | $1.17 | 1,694 | 2,319 |
| Italy | Passed | $1.17 | 259 | 62 |
| Joshua | Passed | $1.17 | 459 | 125 |
| Kennedale | Passed | $1.17 | 376 | 367 |
| Lake Dallas | Passed | $1.17 | 418 | 80 |
| Lake Worth | Passed | $1.17 | 163 | 105 |
| Lamesa | Passed | $1.17 | 268 | 194 |
| LaVega | Failed | $1.17 | 502 | 707 |
| Liberty-Eylau | Passed | $1.17 | 407 | 171 |
| Lindale | Passed | $1.06 | 549 | 288 |
| Lipan | Passed | $1.17 | 125 | 71 |
| Luling | Passed | $1.04 | 130 | 97 |
| Lyford | Failed | $1.17 | 4 | 11 |
| Lytle | Failed | $1.17 | 289 | 299 |
| Marathon | Passed | $1.17 | 46 | 30 |
| Marion | Passed | $1.08 | 1,827 | 938 |
| Mason | Passed | $1.14 | 173 | 22 |
| Meadow | Passed | $1.17 | 124 | 78 |
| Miles | Passed | $1.17 | 304 | 218 |
| Miller Grove | Passed | $1.17 | 213 | 186 |
| Mission CISD | Failed | $1.17 | 1,227 | 2,299 |
| New Boston | Passed | $1.17 | 332 | 91 |
| North Forest | Failed | $1.17 | 200 | 800 |
| Olfen | Passed | $1.17 | 29 | 5 |
| Palmer | Passed | $1.17 | 284 | 170 |
| Panther Creek | Failed | $1.17 | 249 | 253 |
| Petrolia | Failed | $1.17 | 161 | 276 |
| Pettus | Failed | $1.12 | 185 | 235 |
| Pilot Point | Passed | $1.17 | 314 | 309 |
| Pine Tree | Passed | $1.17 | 4,644 | 2,635 |
| Pleasant Grove | Passed | $1.09 | 381 | 172 |
| Prairieland | Failed | $1.17 | 130 | 194 |
| Premont | Failed | $1.17 | 489 | 704 |
| Red Oak | Passed | $1.17 | 713 | 96 |
| Riesel | Failed | $1.17 | 354 | 468 |
| Rising Star | Passed | $1.17 | 56 | 7 |
| Roma | Passed | $1.17 | 567 | 357 |
| Roosevelt | Passed | $1.06 | 706 | 606 |
| S&S Consolidated | Failed | $1.17 | 223 | 257 |
| San Augustine | Failed | $1.17 | 601 | 811 |
| Santa Maria | Failed | $1.17 | 22 | 23 |
| Santa Rosa | Failed | $1.17 | 52 | 79 |
| Schulenburg | Failed | $1.17 | 740 | 1,296 |
| Sherman | Failed | $1.17 | 867 | 1,419 |
| Simms | Failed | $1.17 | 442 | 837 |
| Skidmore-Tynan | Passed | $1.10 | 218 | 120 |
| Slaton | Passed | $1.17 | 946 | 850 |
| Taft | Passed | $1.17 | 235 | 86 |
| Tahoka | Failed | $1.17 | 452 | 544 |
| Tarkington | Failed | $1.12 | 149 | 299 |
| Texarkana | Passed | $1.17 | 515 | 202 |
| Timpson | Passed | $1.17 | 498 | 487 |
| Trent | Passed | $1.17 | 136 | 95 |
| Uvalde | Failed | $1.17 | 211 | 567 |
| Van | Passed | $1.17 | 442 | 364 |
| Van Alstyne | Passed | $1.12 | 566 | 396 |
| Water Valley | Failed | $1.17 | 255 | 282 |
| Wellman-Union | Passed | $1.12 | 105 | 43 |
| Westwood | Failed | $1.17 | 135 | 210 |
| White Oak | Passed | $1.17 | 159 | 131 |
| Whitharral | Passed | $1.17 | 98 | 36 |
| Wilson | Passed | $1.17 | 150 | 62 |
| Windthorst | Passed | $1.17 | 448 | 236 |
| Winnsboro | Passed | $1.17 | 557 | 178 |
| Wylie (Collin Co) | Passed | $1.17 | 8,799 | 8,174 |
Source: TexasISD.com, December 2008
A school district that adopts a tax rate above the rollback rate must hold a rollback election between 30 and 90 days after its board of trustees adopts the rate. The school district's election differs from that of other taxing units in that the school district must ask voters to ratify the school district's adopted tax rate. If a simple majority of votes cast in the election favors the adopted tax rate, it stands. If the voters disapprove the adopted rate, the school district's rollback rate becomes the adopted tax rate.
After reaching an all time high in 2007, the number of school rollback elections dropped only slightly in 2008. School districts continue to trigger four times as many elections as in 2001, which saw 30 elections. The 46 school district tax rates rejected by voters represent the highest number in the last 20 years (Exhibit 6).
Exhibit 6
History of School District Rollback Elections, 1989-2008
Source: Texas Comptroller of Public Accounts.
Appraisal districts reported no counties held rollback elections, and only one city had an election. Residents in the city of Castroville (Medina County) rejected the city council's bid to raise taxes above the rollback rate.