A Look at the Tax Rate Setting Process Martie Simpson

Executive Director

Government Finance Officers Association of Texas

Key Players

• Submits a Budget with a Recommended Tax Rate

City Manager/City Staff

• Adopts Local Tax Rate

City Council

• Sets Property Values

Appraisal District

• Adopts and Governs the Tax Rate Adoption Process

State

• Collects Tax Revenues

Tax Assessor’s Office

Property Tax Process

Tax Rate Must be Adopted After Annual Budget is Adopted – by September 30th or 60 Days After

Receiving the Certified Roles

Law Dictates:

Calculations, Terminology

Adoption Processes & Timelines

Public Notice Wording & Requirements

Ad Valorem Tax Rate Process Governed by State Law

“Truth in Taxation”

Property Tax Terms

• Assessed Valuation • Establish Value of Property that is Subject to

Taxation • Set January 1 • Determined by “Market Value” • Subject to Protest by Property Owners and

Review by Appraisal Review Board

• Central or County Appraisal District (CAD) • Responsible for Establishing Property Values • Independent of All Taxing Entities • Does not Set the Tax Rate • Establish a Process for Review of Protests

/Appeals

Tax Terminology

• Estimates of Value Provided by the CAD

• Subject to Change Based on Protests and Appeals

Preliminary Tax Roll

• Tax Roll Used in Calculations Required Under Truth in Taxation

• CAD Certifies Tax Roll When 95% of Value in the County is Final

• CAD Provides an Estimate of Value for Effective Tax Rate Calculations for ARB Review Properties

Certified Tax Roll

Exemptions & Abatements

Taxing Entities can Offer Exemptions and Abatements to Reduce Individual Tax Bills

• Typically Used to Incent Commercial Development

• For a Specific Period of Time

• Granted by Taxing Entity on a Case by Case Basis

• Performance Requirements

Abatements:

• Typically for Residential Property

• Do not Expire as Long as Property Qualifies

• Apply at Appraisal District

Exemptions

Types of Residential Exemptions

All Residential Exemptions are Optional and MUST be Approved by the City Council

Homestead

• A Percentage of Appraised Value is Deducted

• Maximum HS = 20%

• Minimum Exemption of $5,000

• Changes to the HS Exemption MUST be Approved by the End of June to be Applicable that Year

Over 65

Disabled Person

100% Disabled Veteran

• Spousal Exemption

Elements of Property Tax

Rate

• Operations and Maintenance (O&M)

• Funds On-Going General Fund Operations

• Interest and Sinking (I&S)

• Funds Payments on Debt for General Government Improvements

• Tax Rate = O&M rate + I&S Rate

• Calculation:

• Tax Rate x Taxable Value/$100 = Your City Tax Levy ($ Paid to City)

Debt Supported by I&S Rate

• Voter Approved

General Obligation

Debt

• Do not Require Voter Approval Unless 5% of Qualified Voters Petition for an Election

Certificates of Obligation

Debt

• Shorter Terms Limited Tax

Note

Property Tax Definitions

Effective Tax Rate

Rollback Tax Rate

Property Tax definitions

• Tax Rate that Generates the Same Revenues as Last Year’s for Properties Taxed in Both Years

• Accounts for Prior Year Refunds

• Excludes New Value

• Excludes Value in a Reinvestment Zone

Effective Tax Rate (ETR)

• Debt Rate Included in this Notice MUST be the Debt Rate Adopted

• Required for ANY Proposed Tax Rate

Effective Tax Rate Calculation- Publication

Property Tax Definitions

• Rollback Tax Rate

• Provides an 8% Increase in Revenue Over the ETR in M&O Tax Revenue from Last Year

• Includes Revenue from Sales Tax for Property Tax Reduction, if Elected

• If the Tax Rate Exceeds, Voters Can Petition for a Rollback Election

• If Election Passes, Tax Rate “Rolls Back” to the Lower of the Effective Tax Rate or Rollback Rate

Truth In Taxation

Requirements

• If the Proposed Tax Rate Generates More Revenue than the Effective Tax Rate, the City MUST do the Following:

• Take a Record Vote on Tax Rate

• Must do Even though this Notice is not Published if you Follow LCG 140.010

• Publish Notice of Proposed Tax Rate

• Hold Two Public Hearings

• Vote to Ratify Increase in Tax Revenue

• Separate from Budget & Tax Adoption

POSTING REQUIREMENTS FOLLOWING THE TEXAS TAX

CODE section 26.06

Effective Tax Rate Notice

Last Year’s Tax Rate is the Actual Tax Rate the Taxing Unit Used to Determine Property Taxes Last Year

This Year’s Effective Tax Rate would Impose the Same Total Taxes as Last Year if You Compare Properties Taxed in Both Years

This Year’s Rollback Tax Rate is the Highest Tax Rate the Taxing Unit can Set Before Taxpayers Start Rollback Procedures

In Each Case these Rates are Found by Dividing the Total Amount of Taxes by the Tax Base (the Total Value of Taxable Property) with Adjustments as Required by State Law

Effective Tax Rate Notice

Effective Tax Rate Notice

• Statement of Increase/Decrease

• Schedule A - Unencumbered Fund Balance

Effective Tax Rate Notice

Schedule B- Debt Service

• Schedule of each bond paid from property taxes • Principal & interest due in the next year

• Schedule C- Additional Sales Tax

POSTING REQUIREMENTS FOLLOWING THE TEXAS LOCAL GOVERNMENT CODE SECTION

140.010 (d) and (e)

Notice of Proposed Property Tax Rate • Beginning with 2014 Tax Year, Local Government Code Chapter 140.010 Provides a Simplified

Public Notice and Hearing Process.

NOTICE OF 2018 TAX YEAR

PROPOSED PROPERTY TAX RATE

FOR CITY OF WEBSTER, TEXAS

A tax rate of $0.34794 per $100 valuation has been proposed for adoption by the governing body of City of

Webster, Texas. This rate exceeds the lower of the effective or rollback tax rate, and state law requires that

two public hearings be held by the governing body before adopting the proposed tax rate.

The governing body of City of Webster, Texas proposes to use revenue attributable to the tax rate increase

for the purpose of making annual payments on additional debt that was issued during 2018.

PROPOSED TAX RATE $0.34794 per $100

PRECEDING YEAR'S TAX RATE $0.31725 per $100

EFFECTIVE TAX RATE $0.32488 per $100

ROLLBACK TAX RATE $0.39106 per $100

Notice of Proposed Property Tax Rate

The effective tax rate is the total tax rate needed to raise the same amount of property tax revenue for City of Webster, Texas from the same properties in both the 2017 tax year and the 2018 tax year. The rollback tax rate is the highest tax rate that City of Webster, Texas may adopt before voters are entitled to petition for an election to limit the rate that may be approved to the rollback rate. YOUR TAXES OWED UNDER ANY OF THE ABOVE RATES CAN BE CALCULATED AS FOLLOWS: property tax amount= (rate) x (taxable value of your property)/100

Notice of Proposed Property Tax Rate

• Includes Contact Information and Public Hearing Dates & Times

For assistance or detailed information about tax calculations, please contact:

Ann Harris Bennett

Harris County Tax Assessor-Collector

1001 Preston, Houston, TX 77002

713-274-8000

tax.office@tax.hctx.net

www.hctax.net

You are urged to attend and express your views at the following public hearings on the proposed tax rate:

First Hearing: September 18, 2018 at 06:00 PM at Council Chambers, Webster City Hall, 101 Pennsylvania,

Webster, Texas.

Second Hearing: September 25, 2018 at 06:00 PM at Council Chambers, Webster City Hall, 101

Pennsylvania, Webster, Texas.

ADOPTING THE TAX RATE

Must be a Separate Item on the Agenda

Adopt Budget Before Tax Rate

Adopt by Official Action in a Written

Resolution Ordinance or Order

ADOPTING THE TAX RATE

• If the Proposed Tax Exceeds the Effective Tax Rate, the City MUST Do the Following:

• At Least 60% of the Governing Body MUST Vote in Favor of the Resolution or Ordinance

• Record Vote

• Taxing Units with Both M&O and Debt Service MUST Adopt the Rate as Two Separate Components

Taxes and the Average Home

2018-19 Adopted Tax Rates

Home Value $250,000 Tax Rate $ Amount %

City of New Braunfels 0.48822 1,221$ 22.07%

NBISD 1.3658 3,415$ 61.75%

Comal County 0.295191 738$ 13.35%

Lateral Road 0.06273 157$ 2.84%

Total 2.211941 5,530$ 100%

Current Law

• Rate Needed to Produce Same Revenue as Prior Year on Property Taxed in Both Years • Excludes New Properties • Excludes Values in Reinvestment Zone • Adjusted for Prior Year Refunds

Prior Year’s Taxes

÷

Current Value of Property Taxed in the

Prior Year

X

$100

=

Effective Tax Rate

• Highest Rate a Taxing Unit can Adopt Without Possible Petition for Election

• Successful Election Sets the Tax Rate at Rollback Rate

Effective Tax Rate

-

Debt Rate

X

1.08%

+

Debt Rate

=

RollbackTax

Rate

Senate Bill 2

• “Effective Rate” replaced with “No-New-Revenue”

• “Rollback Rate” replaced with “Voter-Approval Rate”

• Mandatory November Election if Rate Set Above “Voter-Approval Rate”

• Lowers the Voter-Approval Rate (Rollback Rate) from 8% to 3.5%

• Added Unused Increment to the Formula

• “De Minimis Rate” for Small Cities

• Effective January 1, 2020

Prior Year’s

Taxes

÷

Current Value of Property Taxed in the Prior Year

X

$100

=

No-New-

Revenue Tax Rate

NO-NEW-

REVENUE TAX

RATE

-

DEBT RATE

=

NO-NEW-REVENUE

MAINTENANCE &

OPERATIONS RATE

NO-NEW-

REVENUE

MAINTENANCE

& OPERATIONS

RATE

X 1.035

+ CURRENT

DEBT RATE

+ UNUSED

INCREMENT

=

VOTER-

APPROVAL-

TAX RATE

Unused Increment Rate

• 3-Year Rolling Sum of Adopted Amount Less than 3.5% Voter-Approval Rate

• Beginning in 2020 Tax Year • 2020 – 3.0%

• 2021 – 2.5%

• 2022 – 3.0%

• In 2023, the City Could Add up to 2% to Voter-Approval Tax Rate

Small Cities – Less Than 30,000 in

Population

• De Minimis Rate

• Rate That Will Generate $500,000 in Tax Revenue

• 3% of Registered Voter’s Can Petition an Election If:

• De Minimis Rate Exceeds Voter-Approval Rate

• Adopted Rate is Equal to or Lower than Voter-Approval Rate

• Greater than 8%

De Minimis Rate – Cities Less than 30,000 in Population

No-New-Revenue Maintenance and Operations Rate

+

The Rate Applied to

Current Value That Will Impose a Rate Equal to

$500,000

+

Current Debt Service

Senate Bill 2 - Summary

• Mandatory Election for Cities with Population of 30,000 or more if Adopted Tax Rate Exceeds Voter-Approval Rate

• De Minimis Rate for Cities Less than 30,000 in Population

• Numerous Calendar Changes to Property Tax Appraisal, Collection and the Tax Rate Setting Process

• Prohibits Decreasing Total Compensation for First Responders

QUESTIONS