The Legislative Budget Board (LBB) was required in HB 3 to study possible methods of providing property tax relief through the reduction of school district Maintenance and Operation (M&O) taxes. The Property Tax Compression study published by the LBB is organized into five sections: 1) an overview of the current Texas state revenue system and comparison to the other 49 states’ systems; 2) four considerations for evaluating sources of revenue; 3) a list of potential sources of revenue grouped that may be used to reduce school district M&O taxes into four categories; 4) various information for each potential source depending on the category; and 5) a focus on property taxes and overview of the current school district M&O property tax system including a history of some recent legislative efforts to reduce those taxes.
Although the LBB did identify potential revenue sources, the report argues the need for lawmakers to contextualize tradeoffs and deliberate on the order and magnitude of each potential source. Considerations include: administrative costs, revenue volatility, revenue efficiency, and revenue equity. Additionally, LBB points out the identified sources are not an exhaustive list but rather examples of potential methods to reduce school district property taxes.
The four identified sources:
- Dedicate Existing Revenue Sources – includes options involving the dedication of existing nondedicated state revenue to school district property tax reduction
- Increasing Rate of Existing Revenue Sources – The current-law Texas state tax system contains approximately 50 different rates that could be adjusted to raise various amounts of revenue to offset school district property tax reductions, depending on the intent of the Legislature.
- Expanding the Base of Existing Revenue Sources – expanding the base of the tax simply means including more types of transactions into the potential source’s base, the CPA publishes a Tax Exemption and Tax Incident report that outlines various exemptions, exclusions, discounts, deductions, etc.
- Establish New Revenue Sources – sources of state revenue used by other states that currently are not levied in Texas
