A Guide for Setting Tax Rates - Truth-In Taxation

Introduction
Part 1: Truth-in-Taxation and the Tax Calendar
Part 2: The Effective Tax Rate
Part 3: The Rollback Tax Rate
Part 4: The Additional Sales Tax
Part 5: Required Forms and Notices
Part 6: Rollback Elections
1999 Planning Calendars
Tax Rate Worksheets
Notices and Forms
Tax Rate Rollback Petition and Ballots

Introduction

Chapter 26 of the Property Tax Code requires taxing units to comply with truth-in-taxation laws in adopting their tax rates. The laws have two purposes:

to make taxpayers aware of tax rate proposals.

to allow taxpayers, in certain cases, to roll back or limit a tax increase.

The State Comptroller's office publishes this guide to help local governments set property tax rates. Some aspects of truth-in-taxation, however, do not apply to every type of local government. This guide will identify those parts of the law and discuss their application to the appropriate taxing units.
There are four principles to truth-in-taxation:

Property owners have the right to know of increases in their properties' appraised value and to be notified of the taxes that could result from the new value.

A taxing unit (other than a school district) must calculate and publish its effective and rollback tax rates before adopting an actual tax rate. A school district must calculate and publish its proposed tax rate, rollback tax rate, and other specific information with its budget hearing notice.

A taxing unit (other than a school district) must publish special notices and hold a public hearing before adopting a tax rate that increases the unit's property tax revenue above the preceding year's property tax revenue. A school district is not subject to this requirement but must publish a budget and proposed tax rate hearing notice.

If the unit adopts a rate that exceeds the rollback rate, voters may petition for an election to limit the rate to the rollback rate. For school districts, no petition by taxpayers is required for rollback elections to ratify tax increases above the rollback rate.

1999 Tax Year Changes
Some types of taxing units will see changes to the 1999 truth-in-taxation procedures for adopting a tax increase. School districts will see changes in calculating their rollback tax rates and in publishing their newspaper notice for the budget and proposed tax rate hearing.
Taxing units except small units and school districts
Effective August 30, 1999, Senate Bill (S.B.) 1804 provides for increasing and decreasing the rollback tax rates of taxing units that agree by written contract to transfer part of the responsibility for funding departments, functions, or activities. These provisions will expire January 1, 2000.
The law prior to this change allowed for the transfer of all of the responsibility, not a portion. The law on transferring all of the responsibility will remain in effect after the expiration of the above provision by S.B. 1804.
Taxing units that use this new provision will see that Schedule E, published with the effective and rollback tax rates, has new language for this law change.
Small Taxing Units
Effective May 28, 1999, House Bill (H.B.) 1520 reenacted, with some changes, Tax Code Section 26.052, a simplified tax rate notice for small taxing units. In the previous legislative session, the 75th Legislature had repealed this provision for tax year 1998. H.B. 1520 reenacts this notice and hearing provision for small taxing units with slightly different requirements.
Small taxing units are defined differently from the previous version of Section 26.052. Under H.B. 1520, a small taxing unit is one that: (1) proposes a tax rate for the current year that is $.50 or less per $100 of taxable value and (2) would impose taxes of $500,000 or less from the current total value for the unit.
A small taxing unit must meet both conditions to be exempt from the notice and publication requirements of Section 26.04(e) and the injunction provision of Section 26.04(g). Section 26.04(e) requires a taxing unit to publish the effective tax rate, rollback tax rate, and certain special schedules. Section 26.04(g) provides that a property owner may seek an injunction to prohibit the taxing unit from adopting the tax rate until it has complied with the publication requirements.
Under the new Section 26.052, a small taxing unit may provide public notice of the proposed tax rate in one of two ways. The unit may mail a notice of the proposed rate to each property owner in the unit or may publish a notice of the proposed rate in the legal section of a newspaper having general circulation in the unit. The unit must provide either notice seven (7) days before the date on which the taxing unit will adopt the proposed tax rate. The notice must contain:

the proposed tax rate;
the date, time, and location of the meeting at which the governing body will consider adopting the proposed tax rate; and
the following statement if the proposed tax rate exceeds the unit's effective tax rate calculated under Section 26.04: "The proposed tax rate would increase total taxes in (name of taxing unit) by (percentage by which the proposed tax rate exceeds the effective tax rate)."

A small taxing unit that publicizes its tax rate under Section 26.052 is also exempt from Sections 26.05(d) and 26.06. Section 26.05(d) requires publishing two quarter-page ads when a taxing unit proposes a tax rate that will generate more property tax revenue than in the previous year. Section 26.06 provides that a taxpayer may seek an injunction to keep the taxing unit from collecting taxes until it has complied with Section 26.05(d).
A small taxing unit, however, that uses the Section 26.052 notice requirement may not adopt a tax rate that exceeds the proposed tax rate set out in its notice unless the taxing unit provides an additional public notice of the higher tax rate or complies with Section 26.05(d) and 26.06 before adopting the higher rate.
School Districts
Effective September 1, 1999, S.B. 4 changed a school district's rollback tax rate calculation for 1999. Effective August 30, 1999, H.B. 2075 requires a different meeting notice for the budget and proposed tax rate for school districts, rather than the public notices required in Tax Code Chapter 26.
Rollback rate calculation. As in previous tax years, the Texas Education Agency (TEA) has a worksheet entitled Worksheet to Assist Districts in Calculating Rollback Rate for school districts to use in computing how much state funds they will receive. For the 1999 rollback rate, there will be two TEA worksheets -- one for Education Code Chapter 42 school districts (the majority of districts) and one for Chapter 41 school districts (those districts required to reduce their taxable wealth per student). The two types of school districts have different provisions in S.B. 4 for calculating their rollback tax rates.
If a school board (in either type of school district) adopts a tax rate above its 1999 rollback tax rate, the school board must hold an election to ratify the adopted tax rate.
Chapter 42 school districts. Chapter 42 districts on the TEA worksheet will calculate the amount for the 1999-2000 school year that is comparable to the 1998-99 school year, using the new S.B. 4 funding elements. State funds as used in the rollback rate calculation are based on the funding formulas in Education Code Chapter 42 and must be the amount that would provide the same amount of total funds per student in weighted average daily attendance (WADA) as in the 1998-99 school year, using estimated WADA for 1999-2000. A Chapter 42 school district's rollback rate is the sum of four items:

The property tax rate that, applied to the current total value of a school district, would impose maintenance and operations (M&O) taxes that, when added to state funds, for the 1999-2000 school year would provide the same amount of state and local funds per WADA for the 1999-2000 school year using (1) the maximum tax rate for the 1999-2000 school year under Section 42.253(e) for state funding and (2) the guaranteed level of state and local funds per weighted student per penny of tax effort under Section 42.302 for the 1998-99 school year and the basic allotment under Section 42.101 for the 1999-2000 school year. State funds under S.B. 4 are based on a guaranteed level of state and local funds per weighted student per penny of tax effort under Education Code Section 42.302 of $23.10. The TEA worksheet will provide the steps to determine the local property tax amount needed.

The property tax rate that, applied to the current total value of a school district, would impose taxes in an amount that would provide the same amount of funds as the taxes paid by the district during the 1998-99 school year under 26 U.S.C. Section 3111(a), and its amendments, for employees covered by the Social Security retirement program, if the district is currently required to participate in that program. The TEA worksheet will provide a step for this amount of local taxes.

$.03 per $100 of taxable value. (The law in previous tax years was $.08.)

The current debt rate for a school district.

The TEA worksheet will assist the school district in finding the local property tax amount needed in (1) and (2) above. That property tax amount is divided by the local certified 1999 taxable values (excluding the homestead value of the over-65 homeowners with tax ceilings). The result is a school district's 1999 effective maintenance and operation (M&O) tax rate. To this rate, school districts add $.03 for their highest M&O rate. They then add their 1999 debt rate for the final 1999 rollback tax rate.
Chapter 41 school districts. Chapter 41 school districts (those districts whose taxable wealth exceed $295,000 per WADA) are required to reduce their wealth per student to the equalized wealth level. Chapter 41 districts on the TEA worksheet will calculate the amount for the 1999-2000 school year that is comparable to the 1998-99 school year, using the new S.B. 4 funding elements. State funds as used in the rollback rate calculation are based on the funding formulas in Education Code Chapters 41 and 42 and must be the amount that would have been available to the district if the S.B. 4 funding elements had been in effect per student in weighted average daily attendance (WADA) in the 1998-99 school year, using estimated WADA for 1999-2000. A Chapter 41 school district's rollback rate is the sum of three items:

The property tax rate that, applied to the current total value of a school district, would impose maintenance and operations (M&O) taxes that, when added to state funds, for the 1999-2000 school year would provide the same amount of state and local funds per WADA for the 1999-2000 school year that would have been available to the district in the preceding year if the S.B. 4 funding elements had been in effect in the preceding year. The TEA worksheet will provide the steps to determine the local property tax amount.

$.03 per $100 of taxable value. (The law in previous tax years was $.08.)

The current debt rate for a school district.

The TEA worksheet will assist the school district in finding the local property tax amount needed in (1) above. That property tax amount is divided by the local certified 1999 taxable values (excluding the homestead value of the over-65 homeowners with tax ceilings). The result is a school district's 1999 effective maintenance and operation (M&O) tax rate. To this rate, school districts add $.03 for their highest M&O rate. They then add their 1999 debt rate for the final 1999 rollback tax rate.
Chapter 41 districts that are currently required to participate in the Social Security retirement program do not have the additional step to increase their rollback rates for the local taxes imposed for that program.
Public meeting notice for budget and proposed tax rate. Effective August 30, 1999, all school districts have a different notice for the public meeting on their budget and proposed tax rate. H.B. 2075 removes school districts from the notice and hearing requirements of Tax Code Chapter 26. Education Code Section 44.004 for the budget hearing notice is changed to include the proposed tax rate. On full implementation, the new law results in school districts publishing only one quarter-page ad rather than four different ads, required when school districts had to comply with both Tax Code Chapter 26 and Education Code Section 44.004.
A school district publishes the new notice -- "NOTICE OF PUBLIC MEETING TO DISCUSS BUDGET AND PROPOSED TAX RATE" -- at least 10 days but no longer than 30 days before the date of the public meeting in a local newspaper. The quarter-page ad includes a comparison of property tax rates, comparison of property taxes on an average residence, and unencumbered fund balances. Section C in Part 5 on page 31 of this manual contains details about this amended notice and page 52 includes the tax year 1999 form. This school district form will change for tax year 2000.
Effective August 30, 1999, school districts are not required to publish the effective tax rate, rollback tax rate, and other schedules required by law for other types of taxing units. The new notice will contain the school district's rollback tax rate and its unencumbered fund balance(s).
2000 Tax Year Changes
When setting their 2000 property tax rate, some taxing units will see other changes in the truth-in-taxation process.
All taxing units
Effective January 1, 2000, S.B. 1118 requires all taxing units to adopt their tax rates before the later of September 30 or the 60th day after the chief appraiser certifies the appraisal roll to the taxing unit. Failure to adopt a tax rate on time will result in the unit adopting the effective tax rate or last year's rate, whichever is lower, as its tax rate for the current year.
All taxing units other than small units and school districts
Effective January 1, 2000, H.B. 954 changes the triggering of a public hearing and publishing notices for a proposed tax increase. Beginning with the 2000 tax rate, Section 26.05(d) will return to the law that was in effect before the 1998 tax year. A taxing unit will be required to hold a public hearing and publish newspaper ads before adopting a tax rate that exceeds the lower of the rollback rate or 103 percent of the effective tax rate. Current law requires the hearing and notices if the proposed tax rate will result in any increase in total property tax revenues from the preceding year. Both public notices will change to reflect different wording for the new law provision.
H.B. 954 also requires taxing units to publish with the effective and rollback rates a statement that adopting a tax rate equal to the effective tax rate would result in an increase or decrease in the taxing unit's taxes compared to last year's taxes, and the amount of the increase or decrease.
Taxing units with indigent health care costs
Beginning with a tax rate adopted on or after January 1, 2000, H.B. 1398 allows a taxing unit to increase its effective maintenance and operations (M&O) rate to reflect enhanced indigent health care expenditures. The expenditures are defined as the amount spent by the taxing unit for M&O costs of providing indigent health care at the increased minimum eligibility standards under Health and Safety Code Section 61.006. Those standards are effective on or after January 1, 2000.
School districts
The "NOTICE OF PUBLIC MEETING TO DISCUSS BUDGET AND PROPOSED TAX RATE" will change for tax year 2000. Several items required for adopting the 1999 tax rate will be deleted from the notice.
If state funds are available, school districts may have an additional step in the rollback rate calculation for additional state assistance received by some school districts that offer the optional percentage homestead exemption.
2001 Tax Year Changes
When setting their 2001 property tax rate, some taxing units will see a change in the truth-in-taxation process.
All taxing units other than small units and school districts
Effective January 1, 2001, H.B. 954 requires a supplemental notice for the hearing on a tax rate increase. If the taxing unit owns, operates, or controls an Internet website, the unit shall post on its website this additional notice of the public hearing at least seven days immediately before the hearing on the proposed tax rate increase. The unit also shall post at least seven days immediately before the date of the vote on the proposed tax rate.
If the taxing unit has free access to a television channel, the unit shall request that the station carry a 60-second notice of the public hearing at least five times a day between 7 a.m. and 9 p.m. for at least seven days. This posting is both immediately before the public hearing on the proposed tax rate increase and before the vote on the proposed tax rate.
The additional public hearing notice must contain substantially the same information that is in the quarter-page notice published by the taxing unit.
This new additional notice does not apply to a taxing unit that is unable to comply because of the failure of an electronic or mechanical device (including a computer or server) or due to other circumstances beyond its control.
A property owner is not entitled to an injunction restraining the collection of the taxing unit's taxes if the unit has, in good faith, attempted to comply with the new additional notice requirement.
Important Points to Remember for Tax Year 1999
Effective Tax Rate
The effective tax rate calculation has not changed, although school districts are no longer required to calculate and publish an effective tax rate.

The effective tax rate is generally the prior year's taxes divided by the current year's taxable values of properties that were on the tax roll in both years. The effective tax rate excludes taxes on properties no longer in the taxing unit and also excludes the current taxable value of new properties.

The effective tax rate is the estimated rate for reappraisal notices required by Section 25.19, Property Tax Code, usually mailed by appraisal districts in April and May. In tax year 2000, this notice will use the preceding year's adopted rate.

The effective tax rate is published in the local newspaper along with the rollback rate, unencumbered fund balance, debt schedule, and other required schedules.
Rollback Tax Rate
The rollback tax rate calculation has not changed for most taxing units; school districts will see changes in their calculation, effective September 1, 1999.

The rollback tax rate divides the overall property taxes into two categories - maintenance and operation (M&O) taxes and debt service taxes.

Taxing units other than school districts are allowed an 8-percent increase in operating taxes. School districts are allowed 3 cents. For tax year 1999, Education Code Chapter 42 school districts have a different rollback calculation than Chapter 41 school districts.

For taxing units other than school districts and small taxing units, the rollback tax rate is published in the newspaper, along with the effective rate, unencumbered fund balance, debt schedule, and other required schedules.

Local voters in a taxing unit, other than a school district, must present a petition to rollback an adopted tax rate that exceeds the calculated and published rollback rate.

A school district that adopts a tax rate above its rollback tax rate must hold an election to ratify its adopted tax rate. If local voters say no to the adopted tax rate, then the rollback tax rate becomes the school district's adopted tax rate.

Proposed Tax Revenue Increase

If a taxing unit (other than a school district or small taxing unit) proposes a 1999 tax rate that will raise more property tax revenue (1999 proposed taxes) than the preceding year (1998 property taxes), the taxing unit's governing body must vote to place the proposal to adopt the rate on a future meeting as an action item. The governing body must publish a quarter-page notice notifying the public of a hearing, must hold a public hearing, and must publish a second quarter-page notice before adopting the tax rate.

The percentage of increase on the quarter-page notices is the amount of tax revenue increase divided by last year's revenue, times 100.

A small taxing unit may use a simplified procedure by publishing a special notice in the legal section of a newspaper having general circulation in the unit or mailing the notice to each of the unit's property owners.

A school district must publish a new notice that combines the hearing notice for the budget with the proposed tax rate hearing notice.
Note: Beginning with tax year 2000, the public hearing and notices will be required if a taxing unit (other than a school district or small taxing unit) proposes a tax rate that exceeds the lower of the rollback rate or 103 percent of the effective tax rate.

Texas Constitution Provisions
The Texas Constitution sets out the general requirements for truth-in-taxation. The Texas Legislature amended Chapter 26, Property Tax Code, to set out the specifics.
Article VIII, Section 21. Increase in Total Property Taxes; Notice and Hearing; Calculation.

(a) Subject to any exceptions prescribed by general law, the total amount of property taxes imposed by a political subdivision in any year may not exceed the total amount of property taxes imposed by that subdivision in the preceding year unless the governing body of the subdivision gives notice of its intent to consider an increase in taxes and holds a public hearing on the proposed increase before it increases those total taxes. The Legislature shall prescribe by law the form, content, timing and methods of giving the notice and the rules for the conduct of the hearing.

(b) In calculating the total amount of taxes imposed in the current year for the purposes of Subsection (a) of this section, the taxes on property in territory added to the political subdivision since the preceding year and on new improvements that were not taxable in the preceding year are excluded. In calculating the total amount of taxes imposed in the preceding year for the purposes of Subsection (a) of this section, the taxes imposed on real property that is not taxable by the subdivision in the current year are excluded.

(c) The Legislature by general law shall require that, subject to reasonable exceptions, a property owner be given notice of a revaluation of his property and a reasonable estimate of the amount of taxes that would be imposed on his property if the total amount of property taxes for the subdivision were not increased according to any law enacted pursuant to Subsection (a) of this section. The notice must be given before the procedures required in Subsection (a) are instituted.

(a)	Subject to any exceptions prescribed by general law, the total amount of property taxes imposed by a political subdivision in any year may not exceed the total amount of property taxes imposed by that subdivision in the preceding year unless the governing body of the subdivision gives notice of its intent to consider an increase in taxes and holds a public hearing on the proposed increase before it increases those total taxes. The Legislature shall prescribe by law the form, content, timing and methods of giving the notice and the rules for the conduct of the hearing.
(b)	In calculating the total amount of taxes imposed in the current year for the purposes of Subsection (a) of this section, the taxes on property in territory added to the political subdivision since the preceding year and on new improvements that were not taxable in the preceding year are excluded. In calculating the total amount of taxes imposed in the preceding year for the purposes of Subsection (a) of this section, the taxes imposed on real property that is not taxable by the subdivision in the current year are excluded.
(c)	The Legislature by general law shall require that, subject to reasonable exceptions, a property owner be given notice of a revaluation of his property and a reasonable estimate of the amount of taxes that would be imposed on his property if the total amount of property taxes for the subdivision were not increased according to any law enacted pursuant to Subsection (a) of this section. The notice must be given before the procedures required in Subsection (a) are instituted.