Budget and Taxation
The economy is stronger than any other time in Texas history because conservatives overcame a $10 billion budget shortfall without raising taxes, enacted record property tax rate relief, and returned surplus revenues to taxpayers.
House Bill 1 (78R)General Appropriations Act
The 78th Legislature was faced with a $7.4 billion budget deficit and therefore had to ensure that every dollar of state funding for programs and agencies was spent in the most effective way possible. House Bill 1 was instrumental in this process, authorizing total spending of $117.4 billion (including federal funds) for the 2004-05 biennium, just 1.4 percent more than the 2002-03 budget. Significantly, within this all funds total, appropriations from General Revenue decreased by $2.2 billion (3.4 percent) compared to the 2003-03 level. Central to these fiscal successes was the adoption of the zero-based budgeting approach, which afforded legislators the opportunity to set new spending priorities and scrutinize how every dollar was spent. The budget was underpinned by the notion that government cannot and should not do everything. A government that expands to meet every need and fulfill every political promise not only loses sight of its priorities but guarantees that it will not do the basics very well. House Bill 1 moved Texas away from a path of perennially increasing spending while ensuring that the state was able to fulfill its core duties and responsibilities to citizens.
Key point: Despite being faced with a deficit, the 78th Legislature balanced the budget without passing new taxes or increasing existing taxes; budget growth was successfully limited to a conservative 1.4 percent.
House Bill 651 (78R) Savings Incentive Program for State Agencies
House Bill 651 required agencies that spend less than the amount appropriated to them from non-federal sources to send the Comptroller notice of the savings before the end of the fiscal year for which the savings are realized. The bill allowed the agency to retain half of the amount of savings, not to exceed two percent of the undedicated general revenue from non-federal sources appropriated to the agency. HB 651 permitted the agency to spend the savings on anything that does not create or expand services or require continued funding.
HB 651 was an important reform that encourages state agencies to limit their spending. Agencies are more likely to make better financial decisions and cut down on waste when they have an incentive not to spend all the money appropriated to them for that year. Most often, agencies engage in a ―use it or lose it‖ policy that leads to unnecessary purchases in order to simply use all of the funds, so as not to leave any dollars on the table that would be returned to the state, or indicate that the agency could withstand a reduction in their appropriation for the following biennium.
The incentive system established by HB 651 provided an opportunity for agencies to use a portion of the savings from prudent and responsible fiscal management for items such as merit bonuses for employees that have demonstrated exceptional performance. Allowing the agency to retain some claim to these funds provides a greater incentive for agencies to prudently manage their biennial appropriation, and discourages unnecessary and wasteful spending at the end of the fiscal year.
Key point: House Bill 651 established an incentive for state agencies to realize savings by allowing an agency to retain a portion of any savings made.
House Bill 1 (79S3)Property Tax Rate Relief
The bill appropriated $3.8 billion in order to fund a buy-down of the maximum school district M&O property tax rates from $1.50 to $1.33 in fiscal year 2007. The bill also required subsequent appropriations that will allow school district M&O tax rates to be reduced to a maximum rate of $1.00 in fiscal year 2008.
The bill provided immediate and necessary property tax rate relief for property owners as mandated by the State Supreme Court. HB 1 also set the state on a course of property tax reduction that can be continued by subsequent Legislatures.
HB 1 also directed the State Board of Education to adopt rules so that high school students are required to complete four years of English, math, science, and social studies before being permitted to graduate. Establishing this minimum standard was an important reform that will help ensure that high school graduates have the knowledge and skills necessary to be successful inboth higher education fields and the employment market.
Key point: House Bill 1 provided for a one-third decrease in local school district maintenance and operations (M&O) property tax rates.
House Bill 2 (79S3)Property Tax Relief Fund
In establishing the Property Tax Relief Fund, House Bill 2 guaranteed a reduction of the property tax burden sought by House Bill 1 by establishing a mechanism through which appropriations made for the purpose of property tax relief could be directed to school districts in order to lower M&O tax rates. Specifically, HB 2 directed a portion of the revenues generated by the revised Franchise Tax, the motor vehicle sales and use tax, the cigarette tax, and the other tobacco products tax to the Property Tax Relief Fund.
Key point: House Bill 2 established the Property Tax Relief Fund to dedicate funding to school district maintenance and operations (M&O) property tax relief.
House Bill 1 (80R) General Appropriations Act
The Legislative Budget Board’s analysis of House Bill 1 noted that the Conference Committee's recommendations would result in total state spending (All Funds) in the 2008-09 biennium of $152.5 billion; this excluded $14.2 billion appropriated to fund property tax relief. The LBB analysis noted that ―the recommendations provide for a $10.0 billion, or 7.0 percent increase from the 2006-07 biennial level.
The budget therefore represented a fiscally conservative approach to state appropriations and spending. Growth in state spending was kept to a low level and appropriations were within the Comptroller’s biennial revenue estimates, allowing for tax cuts and further property tax relief in subsequent biennia.
Key point: Legislators resisted the temptation to spend surplus revenue on new programs and limited the growth of the budget to less than the growth of population and inflation.
House Bill 2 (80R) Property Tax Relief
HB2 continued the rate reduction provisions that were initiated by the 3rd Called Session of the 79th Legislature. HB 2 represented a vital part of the Legislature's continued commitment to provide ongoing tax relief to local property tax payers. The fundamental reform of education funding during the 3rd Called Session requires continued reductions of school district property tax rates. Ultimately, HB2 returned revenue to taxpayers, which is a necessary and appropriate response in times of surplus. If surplus revenue was not returned to taxpayers with the aim of reducing school district property tax rates, it would inevitably have been put toward increased spending.
Key point: House Bill 2 appropriated a total of $14.2 billion from the Property Tax Relief Fund and the Foundation School Fund to the Texas Education Agency in order to fund local school district property tax rate cuts.
House Bill 3430 (80R) Online State Spending Database
House Bill 3430 established an online state spending database that must include all state contracts exceeding $50,000, and must allow users to search funding by any element of the information (payor, payee, or state agency). The database allows a user to determine the total amount of state funding awarded to any one person or organization by a state agency, and allows users to download information that is gathered from a search.
Each state agency that maintains a website is also required to include a link on their website to the state contract database. The bill promoted open and transparent government by utilizing conventional technology to enable citizens to access spending data.
Key point: House Bill 3430 required the establishment of an online state contract and spending database that in order to increase the transparency of state government.
House Bill 735 (80R) Elimination of the Telecommunications Infrastructure Fund
The Telecommunications Infrastructure Fund fee was a 1.25 percent assessment imposed on firms that sell telecommunications services to an end user. TIF was introduced in 1995 to provide technology grants to public schools, hospitals, and libraries in rural areas. However, it was determined in 2003 that the Fund’s goals had been met, and the state ceased issuing TIF grants.
HB 735 ended the TIF fee and reaffirmed that revenue generated through taxes and fees should be appropriated exclusively toward the purpose for which they are collected. Once their purpose is served, taxes and fees should be eliminated.
Key point: House Bill 735 repealed the Telecommunications Infrastructure Fund (TIF) fee, a pro-consumer victory.
House Bill 3928 (80R) Franchise Tax Exemption
Although House Bill 3928 was primarily a technical revision of aspects of the Franchise Tax, it also included an important reform that will exempt many small businesses from the having to pay the Franchise Tax. This is important because small businesses comprise more than 98 percent of all businesses in Texas. Most of these have annual revenues below $500,000. Small businesses also typically have low profit margins. Raising the exemption will ensure that these small businesses are not penalized by the Revised Franchise Tax and will help keep Texas' business climate vibrant.
Key point: House Bill 3928 increases the revenue exemption from the Franchise Tax, which will ensure that the state’s small businesses are protected from the tax.
House Bill 4765 (81R) Franchise Tax Relief
House Bill 4765 amends the Tax Code by increasing the franchise revenue exemption permanently from $300,000 to $600,000. The legislation also includes a temporary increase in the exemption to $1 million for tax years 2010 and 2011. After 2011, the revenue exemption reverts to $600,000.
Under current law, every business with total annual revenue of less than $300,000 is exempted from the franchise tax; businesses with total annual between $300,000 and $1 million are given a franchise tax reduction on a sliding scale.
Key point: HB 4765 establishes a $1 million franchise tax revenue exemption in 2010 and 2011, and establishes a $600,000 revenue exemption thereafter.
House Joint Resolution 36 (81R) House Bill 3611 (81R) & House Bill 3613 (81R) Reforming the Property Tax Appraisal System
With voter approval, H.J.R. 36 amends Article VIII of the state constitution to authorize the Legislature to provide for the appraisal of residence homesteads solely as a residence homestead (instead of by the "highest and best use" standard that can cause appraisals to increase excessively). This amendment would also authorize the Legislature to allow for a single board of equalization for two or more adjoining appraisal entities that elect to provide for consolidated equalizations.
Appraising a property based on its "highest and best use" is a generally accepted appraisal standard, but it can have a devastating impact on the taxes of a residence homestead. The final report of the House Select Committee on Property Tax Relief and Appraisal Reform notes the negative impact this standard can have on the taxes of residential property owners: "the Committee heard testimony on homesteads which had their appraisal values increase by 200-400 percent in one year as a result of the highest and best use standard."
The Select Committee also found that the "quality and qualifications of the members of appraisal review boards varied throughout the state." The Select Committee argued that consolidated appraisal review boards, as achieved by H.B. 3611, "would expand the pool of qualified people to serve on the boards.
The Select Committee report suggests that such a change could allow taxpayers "to believe they receive fair treatment and due consideration of their arguments," which could reduce the cost of litigation for both appraisal districts and taxpayers.
Key point: This legislation enacts critical reforms to the administration of the property tax to allow taxpayers to better-protect their interests against a system that consistently generates more revenue from taxpayers.
House Bill 2291 (81R) Property Tax Rate Reform
H.B. 2291 amends the calculation of the property tax rates of taxing units other than school districts so that the effective rate is adopted as the unit's tax rate for the current fiscal year unless the unit specifically votes to adopt a tax rate that is higher or lower than its effective tax rate.
The bill sets a standard under which all taxing entities except school districts will set their tax rates each year (based on their effective rate) and makes provisions for voters to approve any rate increase above the previous year’s effective rate. The bill brings accountability and transparency into the administration of the property tax.
H.B. 2291 is a property tax reform that will require taxing entities other than school districts to adjust their rates to account for appraisal growth, which is a major contributor to the growth in property tax bills.
Key point: H.B. 2291 requires that appraisal increases and tax rates be considered together, which is an imperative property tax reform since a property tax bill can go up due to an increase in appraisal, an increase in tax rates, or both.
House Bill 1038 (81R) Property Tax Appraisal Reform
House Bill 1038 amends the Tax Code to provide that appraisers must not overlook foreclosed and distressed properties in determining the fair market value of a residential homestead for property tax purposes.
Specifically, the bill provides that appraisers cannot exclude properties that would otherwise be considered in appraising a residence homestead because they were either:
- Sold at a foreclosure sale at any time in the previous three years, or
- Have a market value that has declined as a result of a declining economy.
HB 1038 should be supported because it improves the appraisal process so that it better-reflects current property values.
Appraisals are intended to reflect the market value of a property (i.e. the price at which the property would be likely to sell in a free market transaction between a willing buyer and a willing seller).
Key point: HB 1038 ensures that property appraisals are required to meet this standard even when market values are falling. HB 1038 is an important protection for property owners.
