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TexansforGregAbbott2018PropertyTaxReformRollout

SummaryofRecommendations

1. RestrainingtheGrowthofPropertyTaxes

• Establishapropertytaxrevenuegrowthcapof2.5percentperyear.

“Weneedseriouspropertytaxreformwitharealrevenuecap.”– GovernorGregAbbott,StateoftheStateAddress,January31,2017

Since1997,totalpropertytaxcollectionsinTexashaveincreasedby195percent.Underthecurrentsystemofpropertytaxation,thetaxburdenisaffectedbypropertyappraisals(whichcanincreaseuptotenpercentperyear),thetaxrate,rollbackelections,anddebt.Likemanyotherstates,imposingrevenuecapsonlocaltaxingentitieswouldsimplifythesystemandprovideastraightforwardmethodbywhichtaxpayersareprotectedfromexcessiveincreasesintheirpropertytaxburden.Therevenuecapoutlinedinthisplancomplementsandbuildsupontherollbackrateproposal(SB1,85S1)thatwasdebatedandpassedbyboththeHouseandSenateduringthemostrecentspecialsession.Arevenuecapandlowerrollbackratecouldworkinconcerttostrenuouslyprotectagainstpropertytaxincreases.

• ProhibittheLegislaturefromimposingunfundedmandatesonitspoliticalsubdivisions.

Hand-in-handwithrestrainingthegrowthofthelocalpropertytaxburden,thelegislatureshouldnotimposeunfundedmandatesonpoliticalsubdivisions.Undercurrentstatelaw,theLegislatureispermittedtoenactrequirementsormandatesonlocalgovernmentsthatimposeadditionalfiscalburdensonthosegovernments.

TheLegislatureshouldbestatutorilyprohibitedfromimposinganymandatesonlocalpoliticalsubdivisionsthatimposeadditionalcostswithout,atthesametime,providingtheappropriatefunding--effectivelyprohibitingfutureunfundedmandatesonpoliticalsubdivisions.Suchaproposalmustgohandinhandwithapropertytaxrevenuecapbecausethestateshouldnotlimittheabilityofpoliticalsubdivisionstoraiserevenuewhileatthesametimeimposingadditionalfiscalburdensonthosesamesubdivisions.

• Requireappraisaldistrictdirectorstobelocally-electedofficials,suchasincumbentcountycommissionersorcitycouncilorschoolboardmembers,andprohibitemployeesoftaxingentitiesfromservinginanycapacitywithanappraisaldistrictorappraisalreviewboardbecausethisisanobviousconflictofinterest.

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Undercurrentlaw,appraisaldistrictdirectorsareappointedbytaxingunitswithinthecounty.SB2wouldhavemandatedthatallmembersofeachappraisaldistrictmustbeelectedofficialsintheirrespectivecounties,suchasanincumbentcountycommissionerorcitycouncilmember.Thiswillbringgreateraccountabilitytotheappraisalprocess.Atthesametime,inordertoavoidconflictsofinterest,non-electedemployeesoftaxingentitiesshouldbeprohibitedfromservingasappraisaldistrictdirectors.

• Improvetherightsofpropertyownersinthepropertytaxappraisalprocessandthepropertytaxappraisalprotestprocess.Inthe85thLegislature,theTexasHouseandSenatebothpassedSenateBill669(Nelson),whichproposedcomprehensivechangestothepropertytaxappraisalreviewprocess.Theauthor’sbillanalysisexplainedthatthebill’sintentwasto“increasefairnesstotaxpayers,expandtaxpayerrightsandparticipationintheprocess,andrequiremoretrainingforappraisalreviewboardmembersandarbitrators.”Mostnotably,thebillwouldhaveprohibitedtheappraisedvalueofapropertyfrombeingincreasedasaresultofthepropertyownercontestingtheappraisedvalue.

• ImprovepropertytaxtransparencybyrequiringtheOfficeoftheComptrollertodevelopandmaintainacomprehensivedatabaseofpropertytaxratesandleviesapplicabletoeverypropertyinthestate.Inthe85thLegislature,HouseBill15(Bonnen,D.)wouldhaverequiredtheComptrollerofPublicAccountstocreateandmaintainapubliclyaccessibleandsearchabledatabasedetailingthepropertytaxburdenforeachpropertyinthestate.Thedatabasewouldhavebeenconfiguredinsuchawayastoprovidetaxpayerswithclearinformationabouttheimpactofproposedrateincreases,aswellasthedateandlocationofthepublichearingatwhichtheratewouldbeadopted.

2.LocalDebt

• Improvethetransparencyoflocaldebt,prohibitdebtfrombeingusedfornon-specifiedpurposes,andrestricttheuseofcertificatesofobligation.

Texashasextremelyhighlevelsoflocaldebt,someofwhichisnotapprovedbylocalvoters.AccordingtotheTexasBondReviewBoard(BRB),localgovernmentshave$218.46billioninoutstandingbonddebt.Thistranslatesto$8,350inlocaldebtpercapita-thesecondhighestpercapitalocaldebtburdeninthenationamongthetenlargeststates.Localbondelectionballotsshouldberequiredtoincludethefollowinginformation:

● theamountofdebtcurrentlyoutstanding,● currentdebtservicepayments,● currentpercapitadebtobligations,

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● theamountofnewdebtbeingproposed,● estimateddebtserviceforthenewdebt,and● estimatedpercapitaburdenbeingproposed

• Requireatwo-thirdssupermajorityvotetoapproveissuanceofnewlocaldebt

Theelectionscalledtoapprovetheissuanceofnewlocaldebtshouldrequireatwo-thirdssupermajorityvoteinorderforthenewdebttobeapproved.Suchsupermajorityrequirementsarenotuncommoninotherstates.Indeed,amongstatesthatdohavesucharequirement,itvariesfrom55percentto67percentofvoterturnout.

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TableofContents

OverviewofthePropertyTaxSystem..................................................................................................5TheFrustratedHistoryofPropertyTaxReform...............................................................................5

1.RestrainingtheGrowthofPropertyTaxes......................................................................................15Recommendation:Establishapropertytaxrevenuegrowthcapof2.5percentperyear...........15Recommendation:ProhibittheLegislaturefromimposingunfundedmandatesoncitiesandcounties...........................................................................................................................................22Recommendation:Requireappraisaldistrictdirectorstobelocally-electedofficials,suchasincumbentcountycommissionersorcitycouncilorschoolboardmembers,andprohibitemployeesoftaxingentitiesfromservinginanycapacitywithanappraisaldistrictorappraisalreviewboardbecauseoftheobviousconflictofinterest.............................................................24Recommendation:Improvetherightsofpropertyownersinthepropertytaxappraisalprocessandthepropertytaxappraisalprotestprocess.............................................................................25Recommendation:ImprovepropertytaxtransparencybyrequiringtheOfficeoftheComptrollertodevelopandmaintainacomprehensivedatabaseofpropertytaxratesandleviesapplicabletoeverypropertyinthestate........................................................................................................26

2.LocalDebt......................................................................................................................................28Recommendation:Improvethetransparencyoflocaldebt,prohibitdebtfrombeingusedfornon-specifiedpurposes,andrestricttheuseofcertificatesofobligation....................................30Recommendation:Requireatwo-thirdssupermajorityvotetoapproveissuanceofnewlocaldebt.................................................................................................................................................32

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OverviewofthePropertyTaxSystemTherearetwomajorcomponentstothetaxationofpropertyinTexas:thetaxrateandthepropertyappraisal.Therateofpropertytaxationisestablishedseparatelybyeachtaxingentitywithinlimitssetbythestate(theschooldistrictrateiscappedat$1per$100ofpropertyvalue,forexample).ThevalueoftaxablepropertyissetbyCentralAppraisalDistricts(CADs)ineachcountyonanannualbasis.Underthestateconstitution,theappraisedvalueofresidentialpropertymaynotincreasebymorethantenpercentfromoneyeartothenext.Thereisnosuchlimitforcommercialproperty.1Eachpropertyownerisrequiredtoremitpropertytaxesbasedonthetotalpropertytaxratesleviedbyeachtaxingentitywithinwhichtheirpropertyissituated,multipliedbytheappraisedvalueofthatproperty.Thefollowinghypotheticalexampleillustratesthiscalculation:

ExamplePropertyTaxCalculationSchooldistricttaxrate: 1.00Citytaxrate: 0.60Countytaxrate: 0.40Hospitaldistrictrate: 0.15Communitycollege: 0.15TOTALrate: 2.30

Appraisedpropertytaxablevalue:$300,000

Calculation:Appraisedvalue($300,000)xTaxRate(2.30)=Taxesowed:$6,900

TheFrustratedHistoryofPropertyTaxReformAlthoughthestateofTexasisconstitutionallyprohibitedfromlevyingpropertytaxes,itspoliticalsubdivisions(cities,counties,schooldistricts,specialdistricts,etc.)maytaxproperty.Local-leveltaxationofpropertyhasplacedTexasthesixthhighestinthenationforoverallpropertytaxburden,accordingtotheTaxFoundation.2TherearedeepphilosophicalproblemswithpropertytaxationgenerallythatmeanthatTexas’relianceonthisformoftaxationmustbeminimized:

● Propertytaxesareassessedinperpetuityregardlessofthepropertyowner’sabilitytopaythetaxandwithoutregardtoanyultimatelimitationontheamountthatcanbeassessedagainstapieceofproperty.

● Propertytaxesacauseforthesocialproblemof“gentrification,”whereinmiddleandlowerincome

homeownersareforcedtoabandontheirhomesbecauserisingpropertytaxesareunaffordable.Thisisaparticularlyperniciousproblemforinnercity,minorityhomeowners.

1TexasConstitution,ArticleVIII,Section1(i).2https://taxfoundation.org/how-high-are-property-taxes-your-state

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● Acostlyandintrusivebureaucracyexiststoappraisethetaxablevalueofpropertiesandoverseethe

collectionoftaxesfromeachpropertyowner,renderingpropertytaxationahighlyinefficientformoftaxation.

● Becausethepropertytaxisprolificatspinningoffrevenuetoschools,countiesandspecialpurpose

districts,itisasingularcauseforthegrowthoflocalgovernmentinTexasandthemassiveincreaseinthenumberofpublicsectorworkers.

● TheMaintenanceandOperationspropertytaxusedtofundpublicschoolshasledtothecreationof

theunnecessarilycomplex“robinhood”schoolfinancesystem,whichentails“recapturing”vastamountsofpropertytaxrevenuesandtransferringthemfromoneschooldistricttoanother.Alargestatebureaucracyisnecessarytoadministerthissystem,andmuchofthe“localcontrol”overschoolfundingisillusoryasaresult.

● PropertytaxraterelieffinancedbytheLegislatureisunderminedbyappraisalincreasesorschool

districttaxrateelections,aswellasincreasesinlocaldebt.Thatratereliefhascrowdedoutappropriationsforotheressentialservices,suchastransportation.

● Propertytaxesaretheremnantsofanantiquatedsystemoftaxationthatwasnecessitatedbecause

wealthwastieddirectlytotheland:farming&ranching,primarily.AsTexashasurbanizedandtheeconomyhasshiftedlargelytomanufacturing,researchanddevelopment,retail,andprofessionalservices,thesystemoftaxationisoutdated.Indeed,wagesandeconomicactivityproducedbyagriculturearedwarfedbyotherindustries.3

Inadditiontotheseconcerns,thepassageoffederaltaxreformcreatesanewurgencytoprovidepropertytaxrelief,sincethefederalbillcapsthetaxdeductionforstateandlocaltaxation(includingpropertytaxes)at$10,000,eliminatingtheremainderofthededuction.4TheTexasLegislaturehasworkedfordecadestomakeschooldistrictpropertytaxeslessburdensome,withlimitedsuccess.Forinstance,despitemorethan$23.6billioninlegislativelyappropriatedpropertytaxratecutsinitiatedin2007,increasesinlocalrates,appraisals,andbonddebtcontinuetopushpropertytaxbillsever-higher.Thelegislaturealsohastriedtoreformtheappraisalprocess,lowertheappraisalcap,lowerthemaximumallowabletaxrate,improvetheaccountabilityandtransparencyofschooldistricts,andincreasepublicparticipationinschooldistrictdecisions.Whilesomeoftheseeffortshavebeensuccessfularoundtheedges,thesystemisstructuredinawaythatwillalwaysworkagainstpropertyowners,asevidencedbythe44percentgrowthinschooldistrictmaintenanceandoperations(M&O)propertytaxcollectionsoverthepastdecadealone:

3TexasWorkforceCommission,QuarterlyCensusofEmploymentandWages,2ndquarter2010.4https://taxfoundation.org/2017-tax-cuts-jobs-act-analysis/

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Source:TexasAssociationofCounties

Asthechartshows,despiterepeatedattemptstoreduceschooldistrictpropertytaxes,theburdentheyplaceonpropertytaxpayers–residentialandbusinessownersalike–hascontinuedtogrow.Indeed,revenuesfromallschooldistrictpropertytaxeshaveincreasedby230percentoverthepasttwodecades5,placinganunsustainableburdenonpropertyowners.Schooldistrictspendingcontinuestoincreaserapidly,driving,inlargepart,theincreaseinTexas’propertytaxburden:

5LegislativeBudgetBoard,2012-13FiscalSize-Up.

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Source:TexasEducationAgency

AstheabovechartsfromTEAshows,overthepastdecadeper-studentexpenditureshaveincreasedfrom$8,300to$10,800(or30percent).Onaninflation-adjustedbasis,thisstillequatestoanincreasefrom$8,300to$9,200(or11percent).Inabsoluteterms,totalschooldistrictspendinghasincreasedfrom$38billionto$57billion(or50percent)overthesameperiod.6ThesecondchartshowshowtotalFoundationSchoolProgramrevenueshavegrownataratethatfarexceedsthegrowthofthestudentpopulation(61percentversus18percent,through2016).Inaddition,datafromTEAshowsthatschooldistrictshavemorethan$6,000perstudent($30billiontotal)infundbalances,$2,000ofwhichperstudent(or$10billionintotal)is“unassigned”7,whichisdefinedbyTEAtomean“availableforanylegalexpenditure.”8Similarly,thecitiesofAustin,Dallas,FortWorth,Houston,andSanAntoniohavecombinedfundbalancesinexcessof$494million9,whileBexar,Dallas,Harris,Tarrant,andTravisCountieshavecombinedfundbalancesinexcessof$429million.10

6TexasEducationAgency,ReportonPublicEducationStateFundingTransparency,GeneralAppropriationsAct,2018–2019Biennium,ArticleIII,PageIII-23(Rider73) 7 https://rptsvr1.tea.texas.gov/cgi/sas/broker?_service=marykay&_program=sfadhoc.stacked_bar_charts_16.sas&_service=appserv&_debug=0&who_box1=&who_list1=_STATE&who_box2= 8 https://tea.texas.gov/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=2147491750&libID=2147491747 9 Dallas-$103,617,000http://dallascityhall.com/departments/budget/financialtransparency/AuditedFinancials/cafr_fy2016.pdfpg18;Houston-$133,234,000http://www.houstontx.gov/controller/cafr/cafr2017.pdfpg20;SanAntonio-$110,593,000http://www.sanantonio.gov/Portals/0/Files/Finance/CAFR2016.pdfpg14;Austin-$108,518,000https://assets.austintexas.gov/financeonline/downloads/cafr/cafr2016.pdfpg18;FortWorth-$37,979,000http://fortworthtexas.gov/finance/pdf/fy2016-cafr.pdfpg19. 10Dallas-$62,802,000https://www.dallascounty.org/Assets/uploads/docs/auditor/annual-finacial-report/CAFRFY2016Final.pdfpg28;Travis-$152,433,283https://www.traviscountytx.gov/images/county_auditor/Doc/fy2016-cafr.pdfpgBFS-10(54);Bexar-$65,173,018https://www.bexar.org/ArchiveCenter/ViewFile/Item/3375pg34;Harris-$90,017,017https://auditor.harriscountytx.gov/CAFR/HC%20CAFR%20Final%20FY%202017.pdfpg31;Tarrant-$59,460,000;https://www.tarrantcounty.com/content/dam/main/auditor/FinancialAccountingReports/Annual%20Financial%20Reports/CAFR/Tarrant_County_Comprehensive_Annual_Financial_Report_FY16.pdfpg20.

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OnefactorthathelpsexplainthecontinuedgrowthofthepropertytaxburdenisthesizeofTexas’publicsectoratthelocallevel.Texas’publicschoolsystem,forexample,wouldbethesecondlargestprivateemployerinthenationifitwereaprivatecorporation:

FIVELARGESTEMPLOYERSINAMERICA(ANDTHETEXASPUBLICSCHOOLSYSTEM)

RANK COMPANY EMPLOYEES1 Walmart 2,300,0002 TexasPublicSchoolSystem 688,0003 Kroger 443,0004 HomeDepot 406,0005 IBM 380,3006 McDonald’s 375,000

Source:TexasEducationAgency(TEA),PocketEdition2015-16,andhttp://time.com/money/4754123/biggest-us-companies/

ItwouldbeonethingifthevastmajorityofTexaspublicschoolemployeeswereclassroomteachers,yetTEAdatashowthatonlyhalfareteachers,andthatcampusadministrators,centraladministrators,andprofessionalsupportstaffarepaidmuchhigherthanteachers:

Source:TEAPocketEdition,2015-16

Lookingbeyondthepubliceducationsystem,localgovernmentemploymentinTexastotals1.4million11,orslightlymorethantenpercentofallemployedpeopleinthelaborforce.12DatafromtheFederalReserveBankofSt.LouisalsorevealthatlocalgovernmentemploymentinTexashasgrownbytenpercentinthepastfiveyearsalone:

11https://fred.stlouisfed.org/series/SMS4800000909300000112 https://www.bls.gov/eag/eag.tx.htm

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LOCALGOVERNMENTEMPLOYMENTINTEXAS:2012-2017

Thesefactorshelpexplainhowandwhypropertytaxescontinuetogrowinexorably.Localgovernmentsarecontinuallygrowingandswellingtheirpayrolls,allofwhichdemandsthatpropertytaxcollectionskeeppace.AsManhattanInstituteSeniorFellowStevenMalanganoted:

Texasjustifiablyhasareputationasalowtaxstate…[but]toomuchofthetaxburden,however,hasbeenshiftedtohomeowners.Texas'propertytaxburdenisnowthefourthhighestinthecountrywhenmeasuredasapercentageofmedianhomevalue,accordingtotheTaxFoundation.ThatputsTexasinthecompanyofstateslikeNewJersey,Illinois,ifyoucanbelieveit.Thestate'snewspapersaresuddenlyreportingonfearsthathomeownershaveofbeingunabletohangontotheirhomesinretirementthankstohighpropertytaxes.13

OnJanuary28,1997,formerGovernorGeorgeW.BushmadepropertytaxreformandreductionacentralfeatureofhissecondlegislativesessionasGovernor:

Thecitizens'committeehechairedhadhearingsin14citiesthroughoutourstate.Manytestifiedandthemessagethecommitteeheardwasclearanduniversal:propertytaxesarethreateningtheTexasdream.Toomanyretiredseniorcitizenspaymoreinpropertytaxesthantheydidontheirinitialmortgages.ToomanyyoungTexanscan'tbuytheirfirsthomesbecausepropertytaxespricethemoutofthemarket.Andtoomanyworkingfamiliesarenotabletosavefortheirownretirementsortheirchildren'scollegeeducationbecauseofrisingpropertytaxes.14

13Malanga,S.,“WillTexasSquanderItsProsperity?”RealClearMarkets,September26,2012.14AddressbyGovernorGeorgeW.BushtoaJointSessionofthe75thTexasLegislature,TexasHouseJournal,Volume1,Page154,January28,1997;onlineat:http://www.lrl.state.tx.us/scanned/govdocs/George%20W%20Bush/1997/SOS_Bush_1997.pdf

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SinceGovernorBushutteredthosewords,totalpropertytaxcollectionsinTexashaveincreasedby195percent.15Adecadelater,GovernorRickPerry’sTaxReformCommissionissuedasimilarwarningin2006,callingthehighlevelofpropertytaxation“thelargestjobkiller”inTexas.16Texas’propertytaxburdenhasgrownbymorethanthirtypercentsinceGov.Perryissuedthatwarning.Morerecently,theSenateSelectCommitteeonPropertyTaxReformandReliefreleaseditsinterimreportin2016,echoingthefindingsfromBushandPerrydecadesearlier.CommitteeChairSen.PaulBettencourt(R-Houston)said:

Texastaxpayershavebeenfacingpropertytaxbillsthatareincreasing2.5to3timesfasterthanmedianhouseholdincome.ThroughoutTexas,inhearingafterhearing,theSelectCommitteeheardthesamemessageloudandclear:Texansareaskingforanddeservepropertytaxrelief.Whetheritwashomeownerstestifyingthattheyareunabletokeepupwiththeirpropertytaxbills,smallbusinessownersseeingtheirhard-earnedprofitsgooutthewindow,orevenbigbusinessestestifyingthattheyarelocatingnewplantsandtakingjobsoutofTexasduetohighpropertytaxes,theyareallsayingthatpropertytaxesarerisingtoofastinTexas.17

DespiteconsistentfocusbyRepublicangovernorsandlegislatorsoveratwo-decadeperiod,substantivepropertytaxreliefhasprovenelusive,evenwhiletherehavebeeneffortstoprovidetaxpayerprotectionssuchastheTaxpayerBillofRights(see,forexample:HJR53,Paxton,80R).Somereformshavetakenplace,buttheyhavelargelybeenfleeting.Themostsignificantpropertytaxreliefefforttookplacein2006,whenGovernorRickPerry’sPropertyTaxReformCommissionrecommended,andthelegislatureenacted,aplantocutschooldistrictpropertytaxratesbyone-third.However,thisreductioncameatahighprice,withthestatehavingmade$23.6billioninhold“harmlesspayments”toschooldistrictssincethattime.18The2006ratecompressionisjustoneofalitanyofeffortstoeasetheburdenofschooldistrictpropertytaxes.In1997,thehomesteadexemptionwasincreasedto$15,000(HB4,Craddick,75R),whichhadanestimatedbiennialcosttothestateof$1billion.19Thesamelegislaturepassed,andthevotersapprovedSJR43(Cain,75R),whichcreatedthecurrenttenpercentappraisalcap.Justtwoyearslater,SB4(Bivins,76R)compressedschooldistrictM&Otaxesto$1.50,atabiennialcosttothestateof$3.8billion.20Thisnew

15LegislativeBudgetBoard,FiscalSize-Upfor2002-03StateFiscalBiennium,andTexasComptrollerofPublicAccounts,AnnualPropertyTaxReportforTaxYears2014and2015;onlineat:http://www.lbb.state.tx.us/Documents/Publications/Fiscal_SizeUp/Fiscal_SizeUp_2002-03.pdfandwww.comptroller.texas.gov/taxes/property-tax/docs/96-1728.pdf,respectively.16TexasTaxReformCommission,FinalReport,2006;onlineat:http://govinfo.library.unt.edu/ttrc/files/TTRC_report.pdf17http://www.senate.texas.gov/members/d07/press/en/p20161129a.pdf18TheFactsAboutAdditionalStateAidforTaxReduction(ASATR),TheTexasSchoolCoalition;onlineat:http://www.txsc.org/wp-content/uploads/2016/03/The-Facts-about-ASATR_2016.pdf19LegislativeBudgetBoard,FiscalNoteforHB4,75R(1997).20LegislativeBudgetBoard,FiscalNoteforSB4,75R(1999).

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schoolfinancesystemcreatedunderSB4wasdeclaredunconstitutionalintheWestOrange-Covedecision,21whichultimatelyresultedintheactionstakenbythe79thLegislaturein2006tofurthercompressM&OtaxesanddevoterevenuefromthenewfranchisetothePropertyTaxReliefFund.Despitetheseeffortstoreducetheburden,schooldistrictpropertytaxeshavecontinuedtoincrease,withrevenuesrisingby35percent(or$7billion)since2006alone.22Morerecently,thelegislaturehasresortedtothesametacticsitpursuedinthe1990s,withthepassageofanincreasedhomesteadexemptionin2015(SB1/SJR1,Nelson,84R).Thisraisedtheexemptionfrom$15,000to$25,000atabiennialcostof$1.3billiontothestate,mirroringtheeffectsofthe75thLegislature’sHB4(1997).23GentrificationAnimportantfactortoconsideristherelationshipbetweenpropertytaxationandgentrification.Asarecentcommentaryputit:

IncitiesallacrossAmerica,neighborhoodsaregentrifyingandrisinghomepricesandrentsmakeitdifficultforlow-andmoderate-incomeresidentstofindplacestoliveorremainintheirhomes…Governmentsandnon-profitorganizationshavedevelopedavarietyofstrategiestopreservehousingaffordabilityforthosemostaffectedbygentrificationandrevivedistressedcommunities.24

Risinghomepriceswilloftencorrelatewithrisingpropertytaxes,whichcanhavetheeffectofdrivinglow-andmoderate-incomehomeownersawayfromneighborhoodsthataregentrifying.ThisphenomenonisparticularlyacuteinsomeTexascities,withtheCityofAustinrankedthetenth-fastestgentrifyingmunicipalityinthenationbyRealtor.com.25ThehistoryofAustin’sgentrificationcanbeexplainedasfollows:

ThewaveofdevelopmentthatsweptthroughAustinintheearly2000seventuallyledtopeoplefrom“outsidethecommunity”followingcheaprentsandsalepricesacrossthefreewayfromdowntown.Theywereinevitablyfollowedbynewdevelopmentitself,and,inclassicfashion,pricesandotherchangesdisplacedandalienatedthetraditionalresidentswhile“rebuildingafancier,morecongestedversionofitself.”In2006…alocalnonprofithadabout250peopleonawaitinglistforaffordablehousing,butthatnumberhadrisento700by2015.26

ThesituationissimilarintheCityofHouston… 21Neeleyv.WestOrange-Cove,176S.W.3d746(Tex.2005)22LegislativeBudgetBoard,FiscalSize-Up2016-17.23LegislativeBudgetBoard,FiscalNoteforSB1(84R,2015).24“HowCitiesandStatesAreFightingGentrification’sDisplacementFactor,”SandySmith,November18,2014;onlineat:https://nextcity.org/daily/entry/gentrification-affordable-housing-cities25“AustinistheTenth-FastestGentrifyingCityintheNation,SaysNewReport,”CindyWidner,January31,2017;onlineat:https://austin.curbed.com/2017/1/31/14460906/east-austin-gentrification26Ibid.

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…lookatplaceslikeFourthWard—nowmorecommonlydescribedasMidtown—anotherhistoricallyAfrican-Americanneighborhood.There,manyofthestreetsarenowdominatedbyluxurytownhomes.InThirdWard,theyworrythatthesametypesoftownhomescouldfillblockswherevacantlandandneglectedpropertiesnowstand,renderingtheareaunaffordableforcurrentresidents.27

Indeed,asarecentpresentationbySenatorPaulBettencourtmakesclear,propertytaxesinTexasaregrowingmorequicklythanhouseholdincome,whichiscentraltothedynamicsofasystemthatisdrivingTexansoutoftheirhomes:

Source:SenatorPaulBettencourtpresentationtoTexasTaxpayersandResearchAssociation,December1,2017.

However,insteadofdevelopinggovernmentprogramsthataddressaffordablehousingissuesthroughsubsidies,Texasshouldbelookingathowtomakehousingmoreaffordablebyprovidingsubstantialpropertytaxrelief.Theconnectionbetweenpropertytaxationandhousingaffordabilityisclear,asaTaxFoundationanalysisexplains:

Parks,libraries,schoolimprovements,andlightrailallprobablydoimprovequalityoflife.Butbetterqualityoflifemeansmorepeoplewanttoliveinagivenarea.Thisdemandwillcreateinwardmigration,whichwilldrivelandpricesupnomatterwhat.Housingprices(for,say,afixedamountofsquarefootage)willgoupornotdependingoniflandownersrespondbybuildingmoremulti-unithousingornot.Inotherwords,betterpublicservices(especially“free”publicserviceslikeparksor

27“TheThirdWard’sFighttoManageGentrification,”HoustonChronicle,May25,2016;onlineat:http://www.houstonchronicle.com/local/gray-matters/article/The-Third-Ward-s-fight-to-manage-gentrification-7945134.php

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schools)driveuppropertyvalues.Thismeansthat,inacityfundedbypropertytaxes,desirablepublicexpendituresthatarefullyfundedevenwithoutataxincreasecanstilldrivetaxeshigher,unlesssomekindofeffectivepropertytaxcapexists(easiersaidthandone).Thisistheclassicstoryofgentrification.Neighborhoodservicesandqualityoflifestarttoimprove,somorepeoplewanttomovein,andtheoldresidents(oftenlower-incomethannewmigrants)havetoselltheirpropertiesandmove.28

Thisisthekeypoint:restrictingthegrowthofpropertytaxesthroughamechanismlikerevenuecapsiskeytoaddressinghousingaffordability.Thus,propertytaxreliefisahousingaffordabilityimperative.

28“AustinTaxpayersComplainAboutPropertyTaxRise,”TheTaxFoundation,June6,2014;onlineat:https://taxfoundation.org/austin-taxpayers-complain-about-property-tax-rise/[Underlineemphasisadded]

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RecommendationsforReform1.RestrainingtheGrowthofPropertyTaxes

Recommendation:Establishapropertytaxrevenuegrowthcapof2.5percentperyear.

“Weneedseriouspropertytaxreformwitharealrevenuecap.”–GovernorGregAbbott,StateoftheStateAddress,January31,2017

Therevenuegrowthcapwouldfunctionasfollows:

• Allowsapoliticalsubdivision’staxlevytogrowbyupto2.5percentperyearwithoutvoterapproval.

• Newgrowth(developmentsorimprovementstoexistingproperty,exemptpropertyreturningtotherolls,andnewconstruction)wouldbeexemptfromthecapintheyearthattheyareaddedtothetaxrolls.

• Proposedrevenueincreasesinexcessofthecapmustbeforlimitedpurposes:compensationforemergencyservicespersonnel(includinglawenforcement),compensationforclassroomteachersorotherinstructionalpersonnelinpublicschools,orcriticalinfrastructuresuchasroads,bridges,andschoolclassrooms.However,increasesabovethecapmaynot,intotal,exceedthestatewideincreaseinpopulationgrowthplusinflation,ascalculatedbytheComptrollerofPublicAccounts.

• Anysuchincreasesabovethecapmustbeapprovedbyasuper-majorityvote(2/3rds)ofthepeopleandtheelectedofficialsofthecity,county,orspecialdistrict.Electedofficialswouldvotetoplacetheincreaseontheballot,andthenthevoterswouldvoteontheincrease.Bothvoteswouldrequirea2/3rdsvoteinfavor.

• Byrequiringlocalvoterstoapproveexceedingthecap,theintentistovoter&taxpayerinvolvementinthepropertytaxprocess.Anylocalelectiononexceedingthecapwillfosteradebateaboutpropertytaxationandspending.

• Thecapwouldalsoincludea“carryforward”provisionsothattaxingentitiescanoffsettheeffectsofdeclinesinpropertyappraisalvaluesduringeconomicdownturns.Thecapalsoexcludesrevenuefromothersources,includingsalestaxesandlocalfees.

• TherevenuecapwouldhaveaneffectivedateofJanuary1,2021.• Amajorbenefitofarevenuecapwouldbetheestimatedincreaseinjobs,investmentandother

revenuesources.Acaponrevenuethatwouldrestricttheamountofmoneythatalocalgovernmentcanraisewouldbegintostemuncontrolledpropertytaxgrowth.Underthecurrentsystemofpropertytaxation,thetaxburdenisaffectedbypropertyappraisals(whichcanincreaseuptotenpercentperyear),thetaxrate,rollbackelections,andbondissuesanddebt.Limitinglocalpropertytaxrevenuegrowthto2.5percentperyearwouldprovideonesimplemethodbywhichtaxpayersareprotectedfromexcessiveincreasesintheirpropertytaxburden.

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OnewaytoachievethisgoalandbringgreatertaxpayerinvolvementtothepropertytaxprocessistopursueanapproachadoptedbyMassachusettsmorethanthirtyyearsago.In1980,votersinMassachusettsoverwhelminglyapproved“Proposition2.5”byamarginoftwentypoints.Thepropositionhastwocomponents:(1)“acommunitycannotlevymorethan2.5percentofthetotalfullandfaircashvalueofalltaxablerealandpersonalpropertyinthecommunity”(thelevyceiling),and(2)acommunity’staxlevyisconstrainedandcangrowbynomorethan2.5percentperyear(thelevylimit).29Thelawalsocontainsprovisionsexemptingnewgrowth(definedasdevelopmentsorimprovementstoexistingproperty,exemptrealpropertyreturningtothetaxrolls,andnewsubdivisionparcels,butnotincludingtheresultsofreappraisalofexistingproperties)30,andallowsvoterstooverrideeitherthelevyceilingorthelevylimitonamajorityvoteofbothitselectedofficialsandtheentireelectorate.31Inshort,withoutavoteroverride,totalpropertytaxcollectionsinacommunitymaynotexceed2.5percentofthetotalassessedpropertyvalueinthecommunity,andtotalpropertytaxcollectionsmaynotincreasebymorethan2.5percentfromoneyeartothenext.TheresultsofProposition2.5havebeenpositiveforpropertyownersinMassachusetts:

OverthetwoandahalfdecadesProposition2½hasbeenineffect,Massachusetts’levelofpropertytaxationhasdeclined.Between1980and1985,propertytaxesasapercentageofincomefellfrom76percentabovethenationalaverageto13percentabovethenationalaverage,whereitstandstoday.32

InadditiontomirroringtheapproachadoptedbyMassachusetts,arevenuegrowthcapwouldalsoemulateactionstakeninNewJerseyin2010underGovernorChrisChristie.InJuly2010,GovernorChristiesignedlegislationthatcappedincreasesinNewJerseypropertytaxleviesattwopercent.33AsJosephHenchmanoftheTaxFoundationnotedatthetime:

Onecomical/sadaspectofthiswholethingisthatmodernNewJerseytaxhistoryhasbeenoneoftryingtoalleviatetheaffect[sic]ofpropertytaxes…NewJerseyadopteditsincometaxin1976withthepromisethatthemoneywouldreducepropertytaxburdens.WhileDemocraticgovernorshavepreferredraisingincometaxestoincreaselocalaidforpropertytax“relief,”Republicanshavetendedtoprefergivingoutpropertytaxrebates.These,too,havefailedtoconstraintaxesorspendingoverall.Andwhenbudgetsgetstrained,therebatestendtogoaway

29LevyLimits:APrimeronProposition2.5,MassachusettsDepartmentofRevenue;onlineat:http://www.mass.gov/dor/docs/dls/publ/misc/levylimits.pdf30Ibid.31Ibid.32“HiddenConsequences:LessonsfromMassachusettsforStatesConsideringaPropertyTaxCap,”CenteronBudgetandPolicyPriorities,May21,2008.33“ChristieSigns2%CaponNewJerseyPropertyTaxes,”TheWashingtonPost,July13,2010;onlineat:http://www.washingtonpost.com/wp-dyn/content/article/2010/07/13/AR2010071304268.html

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—andtaxpayersareleftwithhighlocalpropertytaxesandhighstatewidetaxes.34ArecentPhiladelphiaInquirerpiecehighlightstheeffectivenessofthecaponNewJerseypropertytaxes,explainingthat:

…afteradjustingforinflation,thechangeswerenegligible,withannualpropertytaxesincreasingonly$200between2010,whenChristietookoffice,and2016.Andyear-to-yearduringtheChristieadministration,theaveragebillincreasedataslowerratethanitdidduringthetenureofJonCorzine,hisDemocraticpredecessor.35

GovernorChristiehimselfalsoextolledthevirtuesofthecap:

Weintroducedconservativetaxpoliciestothehighest-taxedstateinAmerica,accordingtotheTaxFoundation.Wepassed2%annualcapsonpropertytaxes(withthreeexceptions)andarbi-trationawardsforpoliceandfiresalaries,savinghomeowners$2.9billioninpropertytaxesoversevenyears,cutting30,000employeesatthelocallevelandparingbacksalaryincreasesbymore$500million.Propertytaxesthatwererising7%peryearwhenItookoffice,haverisenonly2.1%peryearsince2011.36

InadditiontoMassachusettsandNewJersey,Arizona(2percent),Idaho(3percent),Kentucky(4percent),andWestVirginia(3percent)alsohavefixedpropertytaxrevenuecaps,whileCalifornia,Colorado,Illinois,Michigan,Missouri,Montana,NewMexico,SouthDakota,andWashingtoneachhaveapropertytaxrevenuecapbasedonpopulationandinflation,oracombinationofafixedpercentageandpopulationandinflation.37Incontrast,Texasnowhasthesixth-highestpropertytaxburdeninthenation,accordingtotheTaxFoundation.38TheBeaconHillInstitute(BHI)modeledtheeffectsofa2.5percentrevenuegrowthcapappliedtoallpropertytaxesinTexas.BHInotesthatpropertytaxrevenuegrowthinTexashasaveraged3.7percentoverthepastdecade,soa2.5percentcapwouldequatetoaone-thirdreductioninpropertytaxrevenuegrowth.Comptrollerdatashowanevenhigherrateofpropertytaxrevenuegrowth,averaging5.8percentperyearbetween1994and2013.39Theeconomicandfiscaleffectsofenactingsuchacap,modeledbyBHI,follow: 34“NewJerseyApprovesPropertyTaxCap,”TaxFoundation,July16,2010;onlineat:https://taxfoundation.org/new-jersey-approves-property-tax-cap/35“ChrisChristie’sImpactonN.J.PropertyTaxes,”PhiladelphiaInquirer,October25,2017;onlineat:http://www.philly.com/philly/news/politics/nj/what-impact-did-chris-christie-have-on-nj-property-taxes-20171025.html36https://www.wsj.com/article_email/my-administration-made-new-jersey-betterand-it-wasnt-easy-1510789425-lMyQjAxMTE3MjEzMDUxMzA0Wj/37https://www.cbpp.org/sites/default/files/atoms/files/6-21-07sfp.pdf38“HowHighArePropertyTaxesinYourState?”TaxFoundation,August2015;onlineat:http://taxfoundation.org/blog/how-high-are-property-taxes-your-state39TexasComptrollerofPublicAccountsBiennialPropertyTaxReport,2012-2013.

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FiscalEffectsofLimitingtheGrowthofPropertyTaxes:StateTaxes($millions) Year1 Year5*

FranchiseTax 20 140SalesTax 42 347OtherRevenue 95 388Subtotal 157 876

LocalTaxes($millions)

SalesTax 15 127ResidentialPropertyTax -647 -4,900BusinessPropertyTax -498 -3,821OtherRevenue 32 255

*FifthyeardataextrapolatedbyTGAstaff

Itshouldbenotedthatthetaxrevenue“losses”indicatedinthetableabovearerelativetowhatwouldhavebeencollectedintheabsenceofarevenueorappraisalcap.Propertytaxcollectionswillstillincreaseovertime,butataslowerratethanundercurrentlaw.

EconomicEffectsofLimitingtheGrowthofPropertyTaxes:Year Private

EmploymentInvestment RealDisposable

Income (Jobs) ($million) ($billion)

1 14,000 819 2

5* 102,267 5,402 18*FifthyeardataextrapolatedbyTGAstaff

Thescaleoftheseresults(andparticularlythejobcreationfigures)underscorestheeconomicinefficienciesofthepropertytax.Indeed,BHI’sownanalysishintsatthisinefficiency:

Theimpositionofacommercialpropertytaxleadstoareductionintheafter-taxreturnderivedfromcapitalinvestments.ThisprovidesapowerfuldisincentiveforbusinessownersinsideTexastoinvestintheirbusinessesbecausethereturnontheinvestmentmusttakepropertytaxesintoaccount when computing the expected return on an investment. Investment projects thatwould have been profitable enough to justify the risk without the presence of a commercialpropertytax,nowbecome lessprofitable (orunprofitable)onanafter-taxbasis. Thus,capitalinvestmentinstructures,aswellasthecorrespondingemploymentandoutput,islowerinthepresenceofacommercialpropertytaxorunderhigherratesthanthealternative.40

Thestateischartingadangerouseconomiccourse,whichmustbechanged.Therefore,Texasshould

40BeaconHillInstitute,“ChangestoTexasPropertyTaxes:TheFiscalandEconomicImpacts,”November2012.

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adoptanacross-the-board2.5percentrevenuecapforallproperty-taxingentities.ImpactonRecaptureItisalsoimportanttonotetheimpactofarevenuecaponschoolfinance.Forthe2016-17schoolyear,$1.7billionwas“recaptured”bythestateunderschoolfinanceformulas.41Thesefundsweretransferredfrompropertywealthyschooldistrictstopropertypoordistricts.

Apropertytaxrevenuecapwouldlikelyhavetheeffectofreducingrecapturepaymentsbecauseitwouldreducethegrowthofschooldistrictpropertytaxesacrosstheboard.OneprominentdistrictthatmakesrecapturepaymentsisHoustonISD.However,a2.5percentrevenuecapmayeliminatethesepaymentsbecauseoftheextenttowhichitwouldrestrainpropertytaxrevenuegrowth.Thepicturewouldlikelybesimilar,thoughperhapsnotasextreme,fordistrictscurrentlymakinglargerecapturepayments,suchasAustin,HighlandPark,Eanes,Plano,andCotullaISDs.Itisimportanttomakeclear,then,thattotheextentthatrecaptureisreducedasaresultofarevenuecap,thestateshouldmakeuptheshortfalltoensurethatpropertypoordistrictsthatcurrentlyreceiverecapturepaymentsdonotloseout.Itisdifficulttoestimatetheexactamountoffundingthatthestatewouldhaveallocateforthispurpose,thoughitisworthnotingthatarevenuecapwouldnotlikelyeliminatetheentire$1.7billioninannualrecapturepayments.Thestatehas,fortoolong,reliedontherapidgrowthofschooldistrictpropertytaxcollectionstofundincreasesinpubliceducationspending.Thefollowingchartillustratesthistrend:

PRE-KTHROUGH12PUBLICEDUCATIONFUNDING,LOCALVERSUSSTATESHARE(2008-2017)

Source:LegislativeBudgetBoard

Amajoreffectofcappingthegrowthoflocalpropertytaxcollectionswillbetoreducetheextenttowhichlocalrevenueforpublicschoolsisabletogrow.Thestatemustthereforebepreparedtoincreaseitssharetotheextentnecessarytoensurethatpublicschoolshaveaccesstothefundingtheyneed.

41https://tea4avfawcett.tea.state.tx.us/Fsp/Reports/ReportSelection.aspx

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AddressingCriticismsofRevenueCapsTheprimarycriticismofrevenuecapsisthattheydonotallowlocalgovernmentrevenuestogrowfastenoughtomeetlocalneeds.AstheCenteronBudgetandPolicyPriorities(CBPP)putsit:

Severecapsonpropertytaxesdonotchangetherapidlyrisingcostsfacinglocalities.Inmanycircumstances,theydonotallowlocalgovernmentstocontinuetheircurrentlevelofpublicservices,muchlessmakeanyimprovementsdemandedbyresidents.42

TheTexasMunicipalLeaguealsocontendsthatrevenuecapscould“hitcityserviceshard.”43Theevidence,however,doesnotnecessarilysupporttheseclaims.Forinstance,despiteholdingitspropertytaxcollectionstoagrowthratelowerthan2.5percent(seeabove),TarrantCountyrecentlywonthree“bestpractice”awardsfromtheTexasAssociationofCounties:oneforitsHonoraryJurorsProgram,oneforitsCashBalancingStandardizationProject,andoneforitsArmedForcesFirstInitiative.44TheCashBalancingStandardizationProjectisofparticularnote,becauseitimprovedtheefficiencyandeffectivenessofcashmanagementbytheCounty:

TheTarrantCountyTaxAssessor-Collector’sofficedevelopednewtoolsandproceduresforuseacrossitseightlocationstoimprovemanagementofcountyfunds.Thetoolsmaketheoffice’scashbalancingprocessmoremanageableandthereconciliationoffundsintheaccountingdepartmentmucheasier.Trainedstafffollowstandardized“instructionquickcards”thatmakeiteasiertoidentifyandlocateaccountingerrors.Sincethetools’implementation,theofficechallengedthecounty’sbankfivetimesonshortagesthathadbeenadjustedoutofthecounty’saccount.Afterprovidingdetailedsupportingdocumentationavailablethroughthenewtools,thebankreturnedfundstothecounty.45

ThesearethetypesofinitiativesthatlocalgovernmentsacrossTexasshouldbeundertakinginordertoensurethattaxpayerfundsareusedasefficientlyaspossible.Indeed,numerousotherlocaljurisdictionsinTexasarecurrentlyoperatingsuccessfullywhilecuttingpropertytaxrates:

• FortBendCountyrecentlyadopteda1.05percentpropertytaxratecut,resultinginincreasedpropertytaxcollectionsofonly1.26percent.46

• CollinCountyhasreduceditspropertytaxrateinsevenofthepasttenyears,markingaquarterofacenturywithoutapropertytaxincrease.47

42https://www.cbpp.org/sites/default/files/atoms/files/6-21-07sfp.pdf43https://www.tml.org/p/RevenueCaps.pdf44https://www.county.org/magazine/features/Pages/May%202017/2016-Best-PracticesTarrant-County.aspx45Ibid.46https://communityimpact.com/houston/sugar-land-missouri-city/city-county/2017/08/22/267387/47http://www.collincountytx.gov/public_information/features/Pages/tax-rate-cut.aspx

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• EllisCountyreduceditspropertytaxratein2017,withCountyJudgeJudyBushstatingthat“Iamexcitedthatweareabletodothis.Thecountyisinaverygoodpositionrightnow.Ithinkthatitismanyyearsofconservativepractices.”48

• TheCityofHoustonreduceditspropertytaxratein2015tothelowestithadbeensince1987.49• TheCityofStafford,Texas,completelyeliminateditsmunicipalpropertytaxin1995.Asthe

HoustonChroniclereportedin2009:“Relyingonsalestaxrevenuealone,Staffordhasmanagedtopayforcityservices,loweritsdebt,accumulateareserveofabout$10million,constructanewconventioncenterandbuildapoliceandfirecomplexinthepastsixyears.Atthesametime,newresidentsandbusinesseshavebeenluredinbythecity’spropertytaxpolicy.”50

Morebroadly,despitetheexistenceofpropertytaxrevenuecapsinstateslikeNewJerseyandMassachusetts,thosetwostateshavethesecondandthirdbestpre-K-12educationsystemsinthecountry,accordingtoUSNewsandWorldReportrankings.51Itmustalsobeunderstoodthatexemptingnewgrowthfromapropertytaxrevenuecapforoneyearallowslocalgovernmentrevenuetogrowascitiesandcountiesexpand.The2.5percentcapaccountsforpopulationgrowthbecausethetaxationofnewconstructionisnotsubjecttothecapforoneyear.Therevenuecapproposalexcludesnewconstructionfromitsprovisionsforoneyear,taxingentitieswillbeabletocollectadditionaltaxrevenueoverandabovethe2.5percentcapiftheirpopulationisincreasingasreflectedinnewresidentialandcommercialdevelopments.Ifa2.5percentcapistoolowincertaincircumstances,thenlocalvotersandtheirelectedofficialsmayvotetoexceedthecap.Politicalsubdivisionswouldbeauthorizedtoexceedthecapforlimitedpurposes:compensationforemergencyservicespersonnel(includinglawenforcement),compensationforclassroomteachersorotherinstructionalpersonnelinpublicschools,orcriticalinfrastructuresuchasroadsandbridges.Exceedingthecapforthesepurposeswouldrequireasuper-majority(2/3rds)voteofthegoverningbodyofthepoliticalsubdivision,aswellasofthevotersofthesubdivision.Byrequiringlocalvoterstoapproveexceedingthecap,theintentistostrengthenlocalcontrolandvoter&taxpayerinvolvementinthepropertytaxprocess.Anylocalelectiononexceedingthecapwillfosteradebateaboutpropertytaxationandlocalspending.

48http://www.waxahachietx.com/news/20170825/residents-to-see-2-cent-county-property-tax-cut-oct-149http://www.houstonchronicle.com/news/houston-texas/houston/article/City-passes-biggest-tax-cut-in-decades-6582919.php50http://www.chron.com/news/houston-texas/article/No-property-taxes-Even-some-in-Stafford-don-t-1720817.php51https://www.usnews.com/news/best-states/rankings/educationItisalsoworthpointingoutthatNewJerseyhasnotincreaseditsstateincometaxsinceimposingitsrevenuecapin2010(see:http://www.state.nj.us/treasury/taxation/taxtables.shtml),whileMassachusetts’incometaxstandsat5.1percenttoday,comparedto5percentin1989(see:https://taxfoundation.org/massachusetts-implements-reduction-personal-income-tax-rates)

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Recommendation:ProhibittheLegislaturefromimposingunfundedmandatesoncitiesandcounties. Hand-in-handwithrestrainingthegrowthofthelocalpropertytaxburden,thelegislatureshouldnotimposeunfundedmandatesoncitiesandcounties.Undercurrentstatelaw,theLegislatureispermittedtoenactrequirementsormandatesonlocalgovernmentsthatimposeadditionalfiscalburdensonthosegovernments.Section320.001oftheGovernmentCodedefinesa“unfundedmandate”as:

Arequirementmadebyastatuteenactedbythelegislature…thatrequiresapoliticalsubdivisiontoestablish,expand,ormodifyanactivityinawaythatrequirestheexpenditureofrevenuebythepoliticalsubdivisionthatwouldnothavebeenrequiredintheabsenceofthestatutoryprovision.

Thissectionofcodeissimplyadefinition.Statelawdoesnotlimittheabilityofthestatetoimposesuchmandatesonlocalsubdivisions.Atthesametime,whilerequiringlocalgovernmentstodomore,theLegislature,attimes,doesnotprovideenoughlocalfundingtomeetthoserequirements.Thiscansometimesforcetheaffectedlocalgovernmenttoraisetaxes,reduceservices,issuenewdebt,or,moretypically,thelocalgovernmentisforcedtoabsorbthecostofthenewstatemandateusingexistingresources.Forexample,theFairDefenseAct,whichsetsforthspecificstandardsrelatingtotheentitlementandappointmentofcounselforindigentdefendantsincertaincriminaladversarialjudicialproceedings,costcountiesabout$165millioninfiscalyear2010.52AccordingtotheTexasAssociationofCounties:

SincepassageoftheFairDefenseAct,indigentdefensecostshaveincreased127percentfrom$91.4millionin2001to$207.5millionin2012.However,stategrantsdistributedbytheTexasIndigentDefenseCommission,andderivedfromdedicatedfunds,havecoveredonlyasmallproportionofthosecosts.InFY2012,thestatefundedonlyabout$28.3millionofthetotalstatewideindigentdefensecosts,whilecountiescontributedapproximately$179million(about86percentofthetotalcosts).53

Theissueofunfundedmandatesisonethathasbristledcitiesandcountiesconsistentlyoverrecentyears.FormerGov.RickPerryrespondedbycreatingataskforceonunfundedmandatesin2011.54Interestingly,theTaskForcedidnotrecommendablanketprohibitiononstatemandates,insteadoutliningspecificstatutorychangesthatwouldbenefitcountiesandcities.Thenine-membertaskforce

52“SignificantUnfundedandUnderfundedMandatesonTexasCountyGovernments,”TexasAssociationofCounties,Feb.25,2011.Availableonlineat:http://www.county.org/member-services/legislative-updates/hot-topics/Documents/UnfundedMandates.pdf(lastcheckedOctober25,2013).53“LegislativeBriefing:IndigentDefense,”TexasAssociationofCounties,February11,2013.Availableonlineat:http://www.county.org/member-services/legislative-updates/Documents/Briefs/2013%20Legis%20Brief%20-%20Indigent%20Defense.pdf(lastcheckedOctober25,2013).54https://www.texastribune.org/2011/04/06/state-local-government-to-curb-unfunded-mandates/

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consistedoftwosittingmayors,oneformermayor,asittingcitycouncilmember,andothercountyandschooldistrictofficials.55Inthe85thRegularSession(2017),theTexasHouseofRepresentativespassedaconstitutionalamendment–HJR73byRep.Burns–whichwouldhavebeenablanketprohibitiononunfundedmandates.Itisworthquotinginfull:

AlawenactedbythelegislatureonorafterJanuary1,2018,thatrequiresamunicipalityorcountytoestablish,expand,ormodifyadutyoractivitythatrequirestheexpenditureofrevenuebythemunicipalityorcountyisnoteffectiveunlessthelegislatureappropriatesorotherwiseprovidesfromasourceotherthantherevenueofthemunicipalityorcounty,forthepaymentorreimbursementofthecostsincurredforthebienniumbythemunicipalityorcountyincomplyingwiththerequirement.

Thekeywordsare“establish,expandormodify.”AnysearchthroughtheexpansiveLocalGovernmentCodeortheTransportationCode,astwoexamples,providesasenseofthebreadthoftheproposal.WouldtheLegislaturehavetoadjustappropriationsforeveryfutureproposalthattouchescountyjailsorcountyhospitaldistricts?Wouldbillsthatrequirereportingofsomesortbeanunfundedmandateevenifthatreportingwerenecessarytoadjustpoliciesandappropriations?Whataboutchangestotrafficlawsthatmustbeenforcedbycityorcountylawenforcementofficers?Thesequestionsrevealthatprohibitingunfundedmandatesismorecomplexthanitinitiallyappears.Cleareristhestate’sauthoritytosetpolicyforlocalgovernments.Article1,Section2oftheTexasConstitutionprovides,inpart,thefollowing:“Allpoliticalpowerisinherentinthepeople,andallfreegovernmentsarefoundedontheirauthority,andinstitutedfortheirbenefit.”AsSection2states,theState’sauthorityisderivedfromthepeople,forthepeople’sbenefit.ThroughtheTexasConstitution,thepeoplehavegrantedcounties(Article9)andmunicipalities(Article11)therighttoexist.Theyarecreaturesofstategovernment,andstategovernmentreservestherighttodefinetheirlegitimatefunctions.TheStateofMissouri’s1980“HancockAmendment”isinstructive.ThisamendmenttotheMissouriConstitutionlimitedbothstateandlocalexpendituresandprohibitedthestatelegislaturefromenactingamandateonlocalgovernmentsunlessaspecificappropriationismadetofundthemeasure.Asa2013MissouriLawReviewarticleexplains:

Missouriisonsounderfiscalfooting,inpartbecauseofHancock.Ithasrequiredlegislatorstothinkcarefullyaboutwhichnewprogramstofund.Inrequiringthatnewmandatesbefundedwithadedicatedstateappropriationforthatpurpose,legislatorsareforcedtoprioritizewhatprogramsareworthyofimplementationinaneraoflimitedresources,andaredeterredfrom

55https://www.tml.org/legis_updates/legis_update051311d_unfunded_mandates

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succumbingtothetemptationtowinvotesbyprovidingservicesandbenefitstotheirconstituentswithoutfirstensuringawaytopayforthem.56

AlawshouldbepassedprohibitingtheLegislaturefromimposinganymandatesoncitiesandcountiesthatimposeadditionalcostswithout,atthesametime,providingtheappropriatefunding--effectivelyprohibitingfutureunfundedmandatesoncitiesandcounties.Suchaproposalmustgohandinhandwithapropertytaxrevenuecapinordertoensurethatthestatedoesnotlimittheabilityofpoliticalsubdivisionstoraiserevenuewhileatthesametimeimposingadditionalfiscalburdensonthosesamesubdivisions.Recommendation:Requireappraisaldistrictdirectorstobelocally-electedofficials,suchasincumbentcountycommissionersorcitycouncilorschoolboardmembers,andprohibitemployeesoftaxingentitiesfromservinginanycapacitywithanappraisaldistrictorappraisalreviewboardbecauseoftheobviousconflictofinterest. Inthe85thregularsession,SB2(Bettencourt)proposedreformstoappraisaldistricts.Undercurrentlaw,appraisaldistrictdirectorsareappointedbytaxingunitswithinthecounty.SB2wouldhavemandatedthatallmembersofeachappraisaldistrictmustbeelectedofficialsintheirrespectivecounties.Priorto1979,countytaxassessor-collectorshadbeenresponsibleforpropertytaxappraisals.However,SB621(66R,1979),orthe“PevetoBill”,gaveappraisalauthoritytonewly-createdCountyAppraisalDistrictswhichwerephasedinduringtheearly1980s.57UnderSection6.01ofthePropertyTaxCode,eachcountyisrequiredtohaveanappraisaldistrict,and“[t]hedistrictisresponsibleforappraisingpropertyinthedistrictforadvaloremtaxpurposesofeachtaxingunitthatimposesadvaloremtaxesonpropertyinthedistrict.”58Sincethesereforms,thepropertytaxburdeninTexashasrisensignificantly.StatisticsfromtheComptrollershowthatpropertytaxrevenueshaveincreasedbyabout650percentsince1982:Around$6billioninlocalpropertytaxrevenueswerecollectedin1982while$45billionwascollectedin2013.59Althoughpartofthisgrowthisdueinparttonewdevelopmentandconstruction,removingappraisalauthorityfromelectedtaxassessor-collectorstoappointedappraisaldistrictscanalsobelinkedtotheincreaseinthepropertytaxburden.Puttingappraisalauthoritybackinthehandsofelectedofficialsatthelocallevelwillhelptobringgenuineaccountabilitytotheappraisalprocess.Atthesametime,toendaninherentconflictofinterest,non-electedemployeesoftaxingentitiesshouldbeprohibitedfromservingasappraisaldistrictdirectors.

56http://law.missouri.edu/lawreview/files/2013/01/Bremer.pdf57“TexasPropertyTaxesPastandPresent,”TexasTaxpayersandResearchAssociation,May2008,and2016-17FiscalSize-Up,LegislativeBudgetBoard(2016).58TexasPropertyTaxCode,Section6.01(b)59Ibid.

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Recommendation:Improvetherightsofpropertyownersinthepropertytaxappraisalprocessandthepropertytaxappraisalprotestprocess. Inthe85thLegislature,theTexasHouseandSenatebothpassedSenateBill669(Nelson),whichproposedcomprehensivechangestothepropertytaxappraisalreviewprocess.Theauthor’sbillanalysisexplainedthatthebill’sintentwasto“increasefairnesstotaxpayers,expandtaxpayerrightsandparticipationintheprocess,andrequiremoretrainingforappraisalreviewboardmembersandarbitrators.”Despitepassingbothchambersduringtheregularsession,aconferencecommitteewasnotappointedbeforetheLegislatureadjourned.Themainprovisionsofthebillwereasfollows:

1) Requiringthecomptrollertoappointapropertytaxadministrationadvisoryboard,2) Requiringappraisalreviewboardmemberstogothroughatleast8hoursofclassroomtraining,

aswellas4hoursofcontinuingeducation,3) Repealingaprovisionrequiringanarbitratortocompleteatrainingprogramonpropertytax

law,andinsteadrequiringthecomptrollertoapprovecurricula,whichmaybecompletedonlineandmustemphasize“equalanduniformappraisalofproperty”(thecomptrollermayalsocollecta$50feefromparticipatingarbitrators),

4) Requiringthecomptrollertoprepareanappraisalreviewboardsurveyformthatallowsspecifiedindividualstosubmitcommentsandsuggestionsregardinganappraisalreviewboard,

5) Transferringthedutytoselectachairmanandasecretaryofanappraisalreviewboardfromtheboardofdirectorsoftheappraisaldistricttothelocaladministrativedistrictjudgeinthecountyinwhichtheappraisaldistrictisestablished,

6) Prohibitinganappraisalreviewboardfromdeterminingtheappraisedvalueofthepropertythatisthesubjectofaprotesttobeanamountgreaterthantheappraisedvalueofthepropertyasshownintheappraisalrecords,

7) Authorizinganappraisalreviewboardtoschedulethehearingsonallprotestsfiledbyapropertyownerortheowner'sdesignatedagenttobeheldconsecutively,andrequiringthenoticeofthehearingstostatethedateandtimethatthefirsthearingwillbegin,thedatethelasthearingwillend,andtheorderinwhichthehearingswillbeheld,

8) Increasingfrom$3millionto$5millionthemaximumappraisedormarketvalueofpropertyasdeterminedbyanappraisalreviewboardorderconcerningthevalueofthepropertythattriggersapropertyowner'sentitlementtoappealsuchanorderthroughbindingarbitration,

9) Settingtheamountofthearbitrationdeposittoappealanappraisalreviewboardorderthroughbindingarbitrationat$1,250ifthepropertydoesnotqualifyastheowner'sresidencehomesteadunderstatutoryprovisionsconcerningresidencehomesteadexemptions,and

10) Settingthemaximumfeeforwhichaneligiblepersonmustagreetoconductanarbitrationtoqualifytoserveasanarbitratorat$1,200.

TheLegislativeBudgetBoard’sfiscalnoteforthebillexplainedoneofthebill’smostimportantprovisions:

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[P]assageofthebillwouldprohibitanappraisalreviewboardfromdeterminingtheappraisedvalueofaprotestedpropertytobeanamountgreaterthantheappraisedvalueofthepropertyasshownintheappraisalrecords.

Thewouldhaveimprovedthepropertytaxappraisalsystemandtheappraisalreviewsystem.Inparticular,theprovisionhighlightedbyLBBwillensurethattheappraisedvalueofapropertycannotbeincreasedasaresultofanappraisalappeal.Thisisacriticaltaxpayerprotectionthatremovesanypossibledownsidetocontestinganappraisal.Thesereformsshouldbepursuedagain.

Recommendation:ImprovepropertytaxtransparencybyrequiringtheOfficeoftheComptrollertodevelopandmaintainacomprehensivedatabaseofpropertytaxratesandleviesapplicabletoeverypropertyinthestate. Inthe85thLegislature,HouseBill15(Bonnen,D,)wouldhaverequiredtheComptrollerofPublicAccountstocreateandmaintainapubliclyaccessibleandsearchabledatabasedetailingthepropertytaxburdenforeachpropertyinthestate.Thedatabasewouldhavebeenconfiguredinsuchawayastoprovidetaxpayerswithclearinformationabouttheimpactofproposedrateincreases,aswellasthedateandlocationofthepublichearingatwhichtheratewouldbeadopted:

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Providingthisinformationinaclearandaccessiblewayfortaxpayersunderscoresthepointthatpropertytaxesarelocaltaxesandthatoneofthebestwaystorestraintheirgrowthistoempowerlocaltaxpayerstoengageintheprocess.Propertyownersmustbegiveneveryopportunitytoengageintheprocessbywhichpropertytaxratesareadopted.Creatingonesingledatabasewherepropertyownerscanaccessallofthisinformationwouldbeanimportantsteptowardincreasingpropertyownerengagementinthepropertytaxprocess.Itshouldbepursuedagain.

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2.LocalDebtBackgroundTexashasextremelyhighlevelsoflocaldebt.AccordingtotheTexasBondReviewBoard(BRB),localgovernmentshave$218.46billioninoutstandingbonddebt.60Thistranslatesto$8,350inlocaldebtpercapita-thesecondhighestpercapitalocaldebtburdeninthenationamongthetenlargeststates,behindonlyNewYork,andimmediatelyaheadofCalifornia,Pennsylvania,andIllinois.61Itisalsoworthnotingthatlocalgovernmentdebtaccountsfor85percentofallpublicdebtinTexas,withstatedebtaccountingfortheremaining15percent.62Localdebtisalsogrowingrapidlyandhasincreasedby55percentoverthelastdecadealone:

Source:TexasBondReviewBoard

NeitherTexas’rapidlygrowinglocaldebtnorthefactthatlocaldebtdwarfsstatedebtisunusual.Indeed,researchfromtheFederalReserveBankofSt.Louisconcludesthat:

Localgovernmentshaveissuedagreateramountofdebt(combined)thanstategovernmentshave.Insomestates,thedifferenceisstriking…Itisclearthatlocalgovernmentdebtcomprises

60TexasBondReviewBoard,AnnualReport(2016).61TexasBondReviewBoard,AnnualReport(2016).62TexasBondReviewBoard,AnnualReport(2016).

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ahugecollectiveliability.However,thatliabilityisspreadacrossnumerousmunicipalities,makingtheactualburdenofdebt(andriskofdefault)lesstransparent.63

Whilemuchofthisdebtislegitimatebecauselocalgovernmentsplayakeyroleinprovidingtransportation,water,andothertypesofinfrastructure,thestatemusttakecaretoensurethatdebtisaffordableanddoesnotreachlevelsthatimperilthefuturefiscalandeconomicstabilityofTexas.Atthesametime,localdebtandpropertytaxesareinextricablylinkedbecausepropertytaxationistheprimarysourceofrevenuethatlocalgovernmentsusetosupporttheirdebtissuances.AsarecentForbespieceentitled“TheTexasBorrowingBinge:What'sAnother$30BillionInLocalDebt?”explains:

AsTexas’appetitefordebthasgrown,sotoohasthetaxburdennecessarytosustainit.Inanenvironmentofelevateddebtandaccompanyingdebtservicepayments,Texas’propertytax—leviedexclusivelyatthelocallevelandtheirmainsourceoftaxrevenue—isoneofthenation’sworst.AccordingtoonemeasurefromtheTaxFoundation,thestatehasthenation’ssixth-highesteffectivepropertytaxrate.64

Restrainingthegrowthoflocaldebt,then,iskeytoreducingpropertytaxburdens.Inthelastdecadealone,atleastadozenschooldistrictshaveconstructedfootballstadiumscostingtensofmillionsofdollarseach,65$500millionhasbeenspentonindoorpracticefacilities,66andaveragecostofahighschoolfootballstadiumhasquadrupled.67AtleastonesmallTexastownnarrowlyavoidedbankruptcyin2007.Facedwith$1.2millionofbonddebt,theCityofEdcouchlaidoffmostofits21-personworkforcetoavoidbankruptcy.68Today,DallasandHoustonbothfaceacrushingmunicipalpensionburden.69Houstonisseekingtomeetitspensionshortfallinpartbyissuingbonds,70whichwereapprovedbyvotersinNovember.Othercitiesaroundthecountry,includingDetroit,andStocktonandSanBernardinoinCaliforniahaveallenteredbankruptcyinpartbecausetheydefaultedonbondstheyhadissued.71 63https://www.stlouisfed.org/publications/regional-economist/october-2012/state-and-local-debt-growing-liabilities-jeopardize-fiscal-health64“TheTexasBorrowingBinge:What'sAnother$30BillionInLocalDebt?,”VanceGinn&JamesQuintero,Forbes,February26,2016;onlineat:https://www.forbes.com/sites/realspin/2016/02/26/the-texas-borrowing-binge-whats-another-30-billion-in-local-debt/#94203a364ce965https://sportsday.dallasnews.com/high-school/high-schools/2017/07/19/timeline-high-school-football-stadium-arms-race-went-15-60-million-costs66https://www.dallasnews.com/news/education/2016/12/09/texas-high-school-footballs-latest-arms-race-multimillion-dollar-indoor-practice-facilities#_ga=2.77219222.206719953.1503938904-659882750.150283720967https://www.forbes.com/sites/bobcook/2016/05/11/another-shot-fired-in-the-great-texas-high-school-football-stadium-war/#77de99076a2568http://www.themonitor.com/news/local/article_819b3ded-3bec-5da9-bd66-aa215c0fde0b.html69https://www.nytimes.com/2016/11/21/business/dealbook/dallas-pension-debt-threat-of-bankruptcy.html70http://www.houstonchronicle.com/news/politics/houston/article/Turner-city-could-issue-pension-bonds-without-11203797.php71https://www.stlouisfed.org/publications/regional-economist/october-2012/state-and-local-debt-growing-liabilities-jeopardize-fiscal-health

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Recommendation:Improvethetransparencyoflocaldebt,prohibitdebtfrombeingusedfornon-specifiedpurposes,andrestricttheuseofcertificatesofobligation.In2012,theTexasComptrollerofPublicAccountsreleasedaseriesofreportsfocusingonlocaldebt,schooldistrictspendingandtransparency,andpublicpensionobligations,72andrecommendedactiontoensuretransparencyondebtelections.Specifically,thereportrecommendedthatstateandlocalbondelectionballotsshouldberequiredtoincludethefollowinginformation:

● theamountofdebtcurrentlyoutstanding,● currentdebtservicepayments,● currentpercapitadebtobligations,● theamountofnewdebtbeingproposed,● estimateddebtserviceforthenewdebt,and● estimatedpercapitaburdenbeingproposed.

Thesetransparencyrequirementsshouldapplytoallpoliticalsubdivisions,includingcities,counties,schooldistricts,andspecialtaxingdistricts.HouseBill110(Murphy,85S1)wouldhaveimposedsimilartransparencyrequirementsandshouldbepursuedagain.Belowisanexampleofwhatarevisedballotmightlooklike:

Source:TexasComptrollerofPublicAccounts

72“ARoadmaptoBetter,”SusanCombs,TexasComptrollerofPublicAccounts,December2012,availableonlineathttp://www.texastransparency.org/yourmoney/pdf/TexasItsYourMoney-Roadmap.pdf(lastcheckedMarch15,2013).

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Statelawshouldalsobeamendedtoprohibitlocaltaxingentitiesfromissuingbonddebt“foranypublicpurpose.”WhiletheTexasConstitutionprohibitstheissuanceofbonddebtforeconomicdevelopmentpurposes,“AHomeRuleCity’sChartermaypermittheissuanceofeconomicdevelopmentbondswithanelectionifitpermitstheissuanceofbondsfor“anypublicpurpose”or“anypurposenotprohibitedbylaw”orsimilarlanguage.”73Tax-supportedbonddebtshouldonlybeissuedforspecifiedpurposesthataremadecleartovotersthroughballotlanguage.Finally,toensurethatpoliticalsubdivisionsarenotabletocircumventdebttransparencyrequirements,thestateshouldnarrowthepermissibleusesofcertificatesofobligation.AsarecentreportbytheOfficeoftheComptrollerexplains,whilealmostallformsoflocaldebthavetobeapprovedbyvoters:

Onecommonformofborrowing,however,representsanexceptiontothisrule:certificatesofobligation(COs),whichsomelocalgovernmentscanusetofundpublicworkswithoutvoterapproval…COsoftenareassociatedwithemergencyspending,buttheiruseisn’trestrictedtosuchpurposes.Theycanbeusedtofundpublicworksaspartofstandardlocalgovernmentoperations.COsprovidelocalgovernmentswithimportantflexibilitywhentheyneedtofinanceprojectsquickly,aswithreconstructionafteradisasterorasaresponsetoacourtdecisionrequiringcapitalspending.ButthewayCOscircumventvoterapprovalhasmadethemcontroversialinthepast,leadingto2015legislationrestrictingtheiruse.74

Thatlegislation,HB1378(84R,2015),prohibitedtheuseofCOsforanyprojectthatlocalvotershadrejectedinthepreviousthreeyears.Thiswasastrongreformthatcanbeimprovedupon,becausethereisgrowingevidencethatcitiesandcountiesareturningmoreandmoretoCOsasafinancingtool.AccordingtodatafromtheBondReviewBoard,COdebtheldbycities,counties,andhospitaldistrictsincreasedby85percentoverthepasttenyears,comparedtoa50percentincreaseintotaldebt.75Thisissignificantbecause“COsareissuedfortermsofupto40yearsandusuallyaresupportedbypropertytaxesorotherlocalrevenues.”76WhilemanyjurisdictionsuseCOsforlegitimatepurposes,theComptroller’sOfficenotesthatopponentsofusingCOsforotherpurposes“sayCOsallowlocalofficialstoburdentaxpayerswithlong-term,tax-fundeddebtwithoutadequatecitizeninputorapproval,andthattheabilitytofundmultipleprojectswithasingleCOissuanceisconfusinganddisguisespublicindebtedness.”77Toaddresstheseconcerns,itwouldbeprudenttolimittheuseofCOstoinfrastructureprojectsrelatedtoanaturaldisaster(suchtherebuildingofaroadorhospital,forexample.)

73https://texascityattorneys.org/2013speakerpapers/RileyFletcher/MunicipalFinanceAttachment-KOommen.pdf74https://comptroller.texas.gov/economy/fiscal-notes/2017/january/co.php75Ibid.76Ibid.77Ibid.

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Recommendation:Requireatwo-thirdssupermajorityvotetoapproveissuanceofnewlocaldebtMeanwhile,theelectionscalledtoapprovetheissuanceofnewlocaldebtshouldrequireatwo-thirdssupermajorityvoteinorderforthenewdebttobeapproved.Suchsupermajorityrequirementsarenotuncommoninotherstates.Indeed,amongstatesthatdohavesucharequirement,itvariesfrom55percentto67percentofvoterturnout.78Californiahassucharequirement:

Withtheexceptionofcertainschoolbonds,two-thirdsapprovalofvotersisalsorequiredforgeneralobligationbonds.Theproceedsofthesebondsmustbeusedfortheacquisitionorimprovementofrealproperty…[The]votethresholdappearstohavemadeadramaticdifferenceinthesuccessofschoolbonds.Fewerthanhalfofthesucceedingmeasuresachievedthetwo-thirdsapprovallevelrequiredofotherbondsandspecialtaxes.79

InArizona,theGoldwaterInstituteisanadvocateforestablishingatwo-thirdsthresholdfordebtissuances:

Theissuingofdebttopayfornewspendingis,bydefinition,aclaimtofuturerevenuesandanaddedburdenonfuturetaxpayers.IfagovernmentprogramorinitiativeweretobepaidforwithcurrentrevenuesviaataxincreaseonArizonaresidents,thestateconstitutionrequiresa2/3supermajorityvoteintheLegislature.Yet,bondscanbeissuedbyasimplemajority.Debtissuesshouldbeviewedasakintoataxincrease,andthereforeshouldalsobesubjecttoa2/3supermajorityrequirement.80

The84thTexasLegislature(2015)hasalreadytakenastepinthisdirectionbyrequiringa60percentvoteofthemembersofthegoverningbodyofapoliticalsubdivisionbeforetheeffectivetaxratecanbeincreased.SB1760(Creighton,84R),whichamendedSection26.05(b)oftheTaxCodereadsinpart:

Forataxingunit…thevoteontheordinance,resolution,orordersettingataxratethatexceedstheeffectivetaxratemustbearecordvote,andatleast60percentofthemembersofthegoverningbodymustvoteinfavoroftheordinance,resolution,ororder.

Thislanguagecanbeusedasthebasisforapplyingasimilarsupermajorityrequirementforlocaldebtissuanceswhentheyarepresentedtovotersforapproval.Similarly,establishingaminimumturnoutrequirementforbondelectionswouldsetahigherstandardbeforewhichnewlocaldebtcouldbeissued.AmendingSection45.003(a)oftheEducationCodeasfollowsisonepossibleapproach:

78https://ballotpedia.org/State-by-state_comparison_of_school_bond_and_tax_laws79http://arev.assembly.ca.gov/sites/arev.assembly.ca.gov/files/California%20City%20Finance%20handout%20from%20Coleman.pdf80http://goldwaterinstitute.org/en/work/topics/free-enterprise/related-reforms-free/debt-and-taxes-recommendations-for-reform/

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BondsdescribedbySection45.001maynotbeissuedandtaxesdescribedbySection45.001or45.002maynotbeleviedunlessauthorizedbyamajorityofthequalifiedvotersofthedistrict,votingatanelectionheldforthatpurpose,inwhichatleastthirtythreepercentofthequalifiedregisteredvotersinthedistrictvote.

Thischangewouldmeanthatatminimum,somereasonablepercentofthequalifiedvotersinadistrictwouldhavetosupportabondpackagebeforethedebtcouldbeissued.