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Senate Finance met on September 21 to discuss SB 1 (Bettencourt | et al.) relating to compressed tax rates of a school district. CSSB 1 was voted out of committee 14-0. A link to a video of the hearing can be found here.

 

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Nelson – SB 1 is identical to SB 91; passed the Senate in the second special session, ran out of time in the House

 

SB 1 (Bettencourt | et al.) Relating to a temporary reduction in the maximum compressed tax rate of a school district and the form of the ballot proposition to be used in an election to approve a tax rate adopted by a school district that exceeds the district’s voter-approval tax rate; making an appropriation.

  • Bettencourt – Have a CS; was a drafting error, effective date changed 91 days after the election
    • Will not affect any school elections during 2021
  • Bill is identical to SB 91; voted out 29-2 in the Senate
  • Intent is, if there are excess monies, give it back to the tax payer
  • $2 billion buydown 22-23 school year; provide 6.6 pennies compression
    • Median home could save hundreds of dollars
  • Is a sharing of excess GR to taxpayers; brings up to $330 savings for average households
  • SB 2 and HB 3; SB 63 (Nelson) has good appraisal forms not in place, HB 988 (Hancock) had good reforms that are coming
  • Phelan has tweeted support for SB 91
  • Nelson – Federal government has put strict reigns on ARPA funds; have about $6 billion in GR that is not allocated
  • Nelson – Which funding source you anticipate using?
    • Based upon a certification by the Comptroller, GR
  • Nelson – Intent is to not to use ARPA monies?
    • Correct
  • Nelson – Current budget, how much are we paying to buy down local property taxes?
    • LBB – Have $180 million
  • Nelson – Not using ARPA monies? Want to make that clear
    • LBB – Correct, using GR
  • Hancock – Supportive of bill; should tighten language to lead to a tax decrease rather than an increase in debt of local school districts; concerned about I&S rate
  • Hancock – Kolkhorst and I worked on this in 2006, and it just changed from M&O to I&S
    • Are working with legislative counsel on that; are controlling the leavy increases
    • Are plugging into HB 3 language; HB 1525 prohibits the swapping you are talking about
  • Nichols – Is two years only?
    • Yes
  • Nichols – Would like you to consider capping the cost; would like you to look at something more permanent
  • Nichols – Could make this more permanent by fixing the appraisal side; go from 10% to 5%, or keeping at 10% and taking every two years
    • Have considered those things; have filed bills on those subjects before
    • Are looking at a new spending cap in 2023; this expenditure will not be a part of that cap
    • Appraisal caps shift back to the other side of the tax roll that is not governed
    • Are better off looking at the levies of the jurisdictions; HB 3’s 2.5% reversed the flow of Robin Hood dollars
  • Nichols – Voted for this when it was brought up in the last special session, but am nervous to bring this back to the voters if the final amount is unknown
    • Are talking about at $2 billion, a $330 in savings to the taxpayer
    • Nichols – Is temporary tax relief
    • Focus on the leavy is better for long term
  • Nichols – Would like to see have the protection language that Hancock is talking about
    • Will redouble to get that language out of legislative council
  • Nichols – Do we have to vote this out today, would like that language in the bill for a committee substitute
    • Want to move
    • Will have that amendment when it is brought to the floor; is the Lt. Governor’s priority
  • Nichols – Are issues with this bill, would like it more permanent, and do not want to take the change we are increasing the rates
    • Are given a new opportunity in 2023; can handle in the future
  • Perry – Have constituents who are paying more this year; Lubbock is growing, but takes billions to move the needle in a small way
  • Perry – Concerned about retail taxes; legislature cannot control a lot in property taxes
  • Perry – How much in buy down in property taxes?
    • LBB – $180 million above property entitlement; have about $1.2 billion over the 22-23 biennium
  • Perry – Uncomfortable spending estimates knowing what our economic picture could be in 22-23; many kids/families coming through the border who will affect the state economically
  • Perry – Close to busting a spending limit?
    • LBB – Current law spending limit for 22-23; $4.4 billion in capacity
    • Perry – Takes this bill into account?
    • Does not
    • Perry – Would be $0.4 billion away from the spending cap?
    • Yes
  • Perry – Are we going to have a problem with ARPA $16 billion counted towards a spending cap?
    • LBB – Do not think that will be an issue; cap does not count federal funds
  • Lucio – Never voted against property tax relief; except in 2011
  • Lucio – Will support bill; do not like making something permanent because we do not know the economic picture in the future
  • Campbell – Could put some permanency in this effort by decreasing appraisals after this ends?
    • Appraisal cap requires a constitutional amendment and a 2/3 vote
    • Counties took advantage of the emergency exemption to get rolls up to the past rates
    • Reiterates that controlling the leavy is the way to go; new legislation will help as well
  • Nichols – Would like to fix that before it is voted out of committee; it does lower it, but not if the school district issues the bonds
    • Believes HB 1525 fixes that problem already; assures that legislative council will help with that
  • Nichols – While ballot language cannot lie, advertisement initiatives can lie to the public
    • Have increased transparency; combined tax rate portals; more awareness/interest in this
  • Nichols – Language with prohibitions of school districts from jacking up more bonds; is urgency to get that into the bill before it leaves committee
    • Have to respect voter-approved debt
    • Nichols – Sometimes voters are deceived on what they vote about
    • They cannot do that anymore; HB 1525 prohibits them from “chop and swap” in ballot language
  • Taylor – Variable tax savings in January 2022, if we had a $1 billion –
    • Has a floor of $2 billion
    • Every $1 billion is a 3.3 penny compression
  • Taylor – With $2 billion?
    • Could cut up to 7 cents
  • Taylor – Concerned about the temporary nature; unsure about oil and inflation changes
  • Taylor – Revised spending cap only kicks in when you have the money
  • Taylor – Could get TEA up here to talk about HB 1525?
    • Leo Lopez, TEA – HB 1525 strengthens language for agency to address violations of M&O rates
  • West – Ballot language transparency? Disclosure in SB 1?
    • Leo Lopez, TEA – Need to make it clear that if there is an increase above M&O
  • West – After bonds are paid off, goes to M&O or I&S?
    • Leo Lopez, TEA – Stays with I&S
  • West – Still would have to have a bond election to use those funds?
    • Leo Lopez, TEA – Would accumulate in debt service fund balance
    • Von Byer, TEA ­- Believe that is correct; could extend, or approve new bonds; generally, have to be in alignment with payment of bonds
  • West – Once the debt is paid off, what happens with those funds?
    • Leo Lopez, TEA – Need to stay in the fund to pay of future bonds
  • West – School districts and employees cannot promote/persuade anyone to vote for something?
    • Von Byer, TEA ­- Correct
  • Bettencourt – Has to be a notice in the buydown; will have an amendment that comes from Nichol’s and Hancock’s comments
    • Nichols – Have an amendment?
    • Bettencourt – No
  • Taylor – Constituents are not as happy with a cut, but are concerned as it goes up
  • Kolkhorst – Paying off debt, cannot add a new project to it; can move M&O to I&S?
    • Von Byer, TEA – Began to prevent this in HB 3; HB 1525 more fully prohibits
  • Kolkhorst – None of that is undone by this bill?
    • Von Byer, TEA – Correct; this is about Tier 1 to I&S
  • Perry – I am going to be in trouble for this because there are a lot of construction companies that serve on school boards
  • Perry – If you want to deal with the I&S side, drop the 50 cents to 45 cents
  • Perry – Should exempt those who have current projects because they have bonding requirements based on it, or those who start in January
  • Perry – If we have the political will to deal this to limit their ability to play games between I&S and M&O, then capping what they spend is the only way
  • Perry – Did this last session with 2.5 and 3.5 on the I&S; just need to put it out there
  • Perry – May make them force better priority on use of dollars
  • Perry – Should allow them to accumulate monies to pay down on bond applications; should allow them to be flexible
  • Perry – Should limit what they can do on the I&S side and be done with it
  • Nichols – Liking what I am hearing on that end, since the bill is a temporary tax cut, that should be a temporary application of a reduction in I&S equal to the amount we reduce
  • Nichols – That could be put in statute; could prevent them from bonding up whatever money we free up
  • Bettencourt – That is almost exactly the language we turned in to legislative council
  • Nichols – What happened to it? When did you turn that language in?
  • Bettencourt – Turned it in 10 days ago, and is not ready yet
  • Nichols – Do not know why it would be difficult to put in language in legislative council since we can talk about it on the dais
  • Bettencourt – We did not use the hard limit, did an overall prohibition so we could do it on a per penny basis
  • Nichols – Would be temporary?
  • Bettencourt – Yes
  • Kolkhorst – Need to look at ESSER 1, ESSER 2, and ESSER 3; billions are going to school districts, need to talk about if those funds being spent on recurring costs
    • Nelson – Taylor worked to have those billions have parameters
    • Taylor – Is $16 billion without parameters; is also temporary; working with TEA to ensure those funds are aimed at learning loss

 

Public Testimony

Dale Cramer, Texas Taxpayers and Research Association – For

  • School taxable values and tax levies have changed due to HB 3
  • Last two years HB 3 has resulted in $7.5 billion in tax relief
  • Would like these cuts to be permanent; $2 billion cut would be sustainable
  • Nelson – Was looking for that $7.5 billion when talking to LBB
  • Bettencourt – Controlling the leavy versus and appraisal cap?
    • Anything given up in an appraisal cap, lose in rate compression
    • Those who do not have appraisal caps, would have to subsidize
  • Are above the national average in property taxes

 

Rod Bordelon, TPPF – For

  • Would support further limiting school districts from “eating up” that gap
  • Want to make this permanent; GR related funds has increased around 9%, spending cap is 5-6%
  • Property taxes are currently a burden to tax payers; 76% of Texans believe this
  • Nelson – What can we do to prevent that gap from being eaten up?
    • Agrees with Perry’s suggestion; some type of specific restrictions for greater transparency or limitations on revenue growth
  • West – ESSER funds can be utilized to buy down debt?
    • Yes
    • Nelson – Not sure if they can do that
    • Treasury guidance is not specific on this, but is some suggestion the state cannot use it to reduce state taxes, but open question on buying down local debt
  • West – Is worth looking into this
  • Bettencourt – Is broad support for this
    • Reiterates thought should be put into making this a permanent mechanism
  • Schwertner – How do we keep the amount from being eaten up?
    • Would support language Perry was discussing earlier
  • Schwertner – Currently in this bill?
    • No
  • Bettencourt – Turned in prohibition language 10 days ago; Perry suggested an I&S hard limit from 50 to another number
  • Bettencourt – Commitment that amendment will be a part of the bill when it comes to the floor
  • Nelson – Should not take legislative council to take ten days to get that language back

 

Chandra Villanueva, Every Texan – Against

  • Will harm future investments; are not filling all the gaps
  • Before looking at tax cuts, need to look at adjusting for inflation
  • A lot more to fix in public education before we give the money away on tax cuts

 

Closing Comments

  • West – School districts are not here; want their input before bringing this to the floor
    • Bettencourt – Assume they are lined up at my office
  • Nelson – You understand the concerns from the committee; asks your assurance you will not bring this up on the floor without the amendment we have talked about

CSSB 1 passes out of committee (14-0) to the full Senate