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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

 Local Governments' Share of Property Taxes

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

 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.

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