Chapter 1:
Truth-in-Taxation Overview
Creating a budget and adopting a property tax rate to support that budget are major functions of the school board. This is accomplished by following Legislative guidelines to ensure the public is informed of any increases.
Important Dates
The Tex. Tax Code establishes target dates for many truth-in-taxation activities. Although circumstances may require an appraisal district or a taxing unit to alter the timetable, Exhibit 2 sets out the framework for the required activities.
Exhibit 2
2010 Truth-in-Taxation Calendar
| Date | Activity |
|---|---|
| April 1 - May 1 | The chief appraiser sends notices of appraised value. |
| April 30 | The chief appraiser prepares and certifies to the school assessor an estimate of the taxable value of property in that school district. |
|
July 20 (Aug. 31) |
The appraisal review board approves the appraisal records. |
| July 26* | The chief appraiser certifies the approved appraisal roll to the school district. |
| August - September | A school district adopts its budget according to its fiscal year but first must publish a Notice of Public Meeting to Discuss Budget and Proposed Tax Rate 10 to 30 days before the public meeting date. (School districts with a July 1 fiscal year adopt budgets in June and comply with notice and hearing provisions during June). After adopting the budget, the school adopts a tax rate. |
| Sept. 29 | A school district must adopt its tax rate by this date or 60 days after it receives the appraisal roll, whichever date is later. |
| October | The assessor-collector prepares and mails tax bills. |
*Ordinarily this would be July 25, but because in 2010 July 25 falls on a Sunday, the deadline is extended until the following Monday.
Source: Texas Comptroller of Public Accounts, 2010.
A school district that receives an equalized wealth notice from the commissioner of education may not adopt its tax rate until the commissioner certifies that the district has reached its equalized wealth level. [2] At the same time it publishes the tax rate meeting notice, a school district must post a summary of its proposed budget.
Appendix 1 provides a more detailed schedule school districts can consult when planning their truth-in-taxation activities.
School District Calculations
Truth-in-taxation requires school districts to calculate two rates after receiving a certified appraisal roll from the chief appraiser – the effective tax rate and the rollback tax rate. School districts are not required to publish the effective tax rate, but must publish the rollback rate in a public meeting notice. The school board must perform the following:
- calculate the effective tax rate and the rollback tax rate;
- decide how much revenue it needs and calculate the rate required to raise that amount;
- concurrently post a budget summary on its Web site and publish a notice on the budget and proposed tax rate;
- hold a hearing on the budget and proposed tax rate;
- adopt a budget and then adopt the tax rate; and
- administer a rollback election if the adopted rate exceeds the rollback rate.
A planning calendar for these steps appears on Appendix 1. Chapter 5 of the manual discusses rollback elections.
Calculating required rates
All school districts must calculate an effective tax rate and a rollback tax rate. School districts must publish the rollback tax rate.
A school district's effective tax rate is a calculated rate that is generally equal to the prior year's taxes divided by the current taxable value of properties that were also on the tax roll in the prior year. The resulting tax rate, used for comparison only, shows the relation between the prior year's revenue and the current year's values.
To calculate the effective M&O rate, most school districts use Education Service Center Region 13 "State Aid Template for 2010-11" at http://www5.esc13.net/finance/. The debt service portion of the rollback tax rate is the current year's debt payments divided by the current year's property values. The debt service tax rate may rise as high as necessary to cover qualified debt expenses. The overall rollback rate calculation is explained in greater detail in Chapter 3.
Failure to comply
If a school district fails to calculate or publish the required rates and notices properly, a property owner in the district may seek an injunction to prohibit the school district from adopting a tax rate. The district court may issue the injunction if it finds that the school district's failure was not in good faith.
Consolidation of two or more school districts
A school district that was two or more school districts in the prior year handles the effective and rollback rate calculations differently. The consolidated school district combines last year's taxes for each school district and divides by the total values for the current year for the new consolidated school district. First, calculate last year's taxes for each school district in Lines 1-15 of the Effective Tax Rate Worksheet in Appendix 2. Then, combine last year's taxes on Line 15 for each school district to obtain last year's total taxes.
The calculation for a tax-base consolidated school district differs slightly from a whole consolidation. If the consolidation is for M&O purposes only, each school district will calculate its own debt service rate for debt purposes.
Drafting a budget and deciding how much tax to levy
The school district must identify its needs and draft a budget to meet those needs. The school district must decide how much property taxes, along with state funds, are necessary to fund that budget and, based on current year's values, what M&O rate is necessary. The school district must also determine its payments for debt service.
The school district's governing body must also determine the amount of surplus funds, if any, it plans to expend from its M&O and debt service funds. It must determine the final amount of property taxes needed for the budget.
Truth-in-taxation laws explicitly address the debt service rate component of a school district's overall tax rate. The adopted debt service rate must equal the debt rate published in the school's notice of public meeting.
Adopting a school district's tax rate
School districts have a special notice for the public meeting on their budget and proposed tax rate. While other taxing units are required to follow the notice and hearing requirements of the Tex. Tax Code, school districts must follow the notice and hearing requirements of the Tex. Education Code, which sets out the items to include in the budget hearing and proposed tax rate notice (Appendix 5).[3]
Budget and proposed tax rate notice
The notice entitled Notice of Public Meeting to Discuss Budget and Proposed Tax Rate (Appendix 5) is published in a local newspaper 10 to 30 days before the public meeting date. At the same time, a school district must post a summary of the proposed budget on its Web site or at the district's central administrative office.
The quarter-page meeting notice includes a comparison of property tax rates, comparison of the proposed budget and last year's budget, comparison between last year and the current year of property taxes on an average residence and unencumbered fund balances. The notice also includes information about the total appraised and taxable value for all property and all new property for last year and this year and a section listing the school's total outstanding and unpaid bonded indebtedness.
The rollback rate is also stated in the notice. If a school board adopts a tax rate above its 2010 rollback tax rate, the school board must hold an election to ratify the adopted tax rate.
Rate limitation
The law limits a school district's M&O rate.[4] The rate may not exceed the rate equal to the sum of $0.17 and the product of the state compression percentage multiplied by $1.50. A school district that adopted a 2005 M&O rate above $1.50, as permitted by special law, may not exceed the rate equal to the sum of $0.17 and the product of the state compression percentage multiplied by the district's M&O tax rate for 2005. The state compression percentage is currently 66.67 percent, so the M&O rate limit for most school districts is $1.17.
Rate Adoption
The school board may adopt the budget and tax rate after the public meeting or the board may adopt the budget and wait to adopt the tax rate. School districts subject to an equalized wealth notice must wait to adopt a tax rate until the commissioner of education certifies that the wealth is equalized.[5] A school district must adopt the tax rate by Sept. 29 or 60 days after receiving the certified appraisal roll, whichever date is later.
Open meetings notices
The school district must post notice of the meeting in compliance with the open meetings law.[6] The meeting must be open to the public.
Agenda item
Usually a school district adopts its tax rate after it adopts its budget. If the school district elects to adopt a tax rate before receiving the certified appraisal roll for the district as provided, it may adopt its budget after it adopts a tax rate for the tax year in which the fiscal year covered by the budget begins. If a school district elects to adopt a tax rate before adopting a budget, it must publish notice and hold a meeting for the purpose of discussing the proposed tax rate (Appendix 6). Following adoption of the tax rate, the school district must publish notice and hold another public meeting before it may adopt a budget (Appendix 7). The Comptroller prescribes the language and format the school district must use in the notices. The school district may use the certified estimate of taxable value in preparing a notice.[7]
Official action
The school district's governing body must adopt a tax rate by official action and set it out in an ordinance or resolution. School districts should consult with their attorneys regarding the instrument to use for rate adoption.
School districts that adopt a rate above the effective tax rate must use special language in the motion to adopt. The motion to adopt an ordinance, resolution or order setting a tax rate that exceeds the effective tax rate must be made in the following form:
I move that the property tax rate be increased by the adoption of a tax rate of (specify tax rate), which is effectively a (insert percentage by which the proposed tax rate exceeds the effective tax rate) percent increase in the tax rate.[8]
In the order, ordinance or resolution, the school districts must use larger type, include an example of the maintenance tax increase on a $100,000 home and state that the adopted tax rate will raise more taxes for M&O than the prior year's tax rate. If the school district operates a website, it must also include similar language about increasing M&O taxes on its home page (Appendix 9).[9]
What happens when property taxation will be decreased, rather than increased? What kind of motion is acceptable? May school districts provide more information in the ordinance or resolution to explain the tax rate's effects? The law does not prohibit explanatory information. The law, in fact, provides mandatory motion language only when the new tax rate will exceed the effective tax rate. School boards with questions regarding the correct methods and phrasing of an ordinance or resolution to adopt a tax rate should discuss these questions with their legal counsel.
Failure to comply
If a school board fails to comply with the hearing, notice or rate adopting process in good faith, a property owner in the school district may seek an injunction. The injunction stops the school district from sending tax bills until the school district convinces the district court that it has complied with the law. A property owner must act to enjoin collections before the school district delivers substantially all of its tax bills.
Administering a rollback election
A school district is required to hold an automatic rollback election – no petition process is necessary – to ratify a current year's tax rate, if the school board adopts a tax rate above the rollback rate. Chapter 5 provides more about administering a rollback election.
Preparing and mailing tax bills
School districts must prepare and mail a tax bill to each property owner by Oct. 1 or as soon thereafter as practicable.[10] The bill must include the information required by the Tex. Tax Code.[11] School districts must include the following additional information on the tax bills or on a separate statement in separate lines:
- the school district M&O rate;
- the school's outstanding debt rate;
- the M&O rate for the preceding tax year;
- if for the current tax year the school district imposed taxes for debt, the debt rate for the current tax year;
- if for the preceding tax year the school district imposed taxes for debt, the debt rate for that year; and
- the total tax rate of the school district for the preceding tax year.[12]