SB2 and the City Tax Rate


What is Senate Bill 2?
 Senate Bill 2 (SB2), also known as the Texas Property Tax Reform and Transparency Act of 2019, was passed by the Texas Legislature in 2019. At its most fundamental level, SB2 reforms the system of property taxation in three primary ways:

(1) lowering the tax rate a taxing unit can adopt without voter approval and requiring a mandatory election to go above the lowered rate;
(2) making numerous changes to the procedure by which a city adopts a tax rate; and
(3) making several changes to the property tax appraisal process.


Is there a provision in SB2 allowing cities relief from the lowered voter-approval rate during a disaster?
Yes, in two different ways.

First, a city council may direct the designated officer or employee* to calculate the voter-approval tax rate in the manner provided for a special taxing unit (8 percent) if any part of the city is located in an area declared a disaster area during the current tax year by the governor or by the president of the United States (TEX. TAX CODE § 26.04(c-1)). The designated officer or employee shall continue calculating the voter-approval tax rate using 8 percent instead of 3.5 percent until the earlier of:

  • the second tax year in which the total taxable value of property in the city exceeds the total taxable value of property taxable by the city on January 1 of the tax year in which the disaster occurred; or
  • the third tax year after the tax year in which the disaster occurred.

The other SB2 provision pertaining to disasters gives cities the ability to avoid an automatic tax rate approval election following certain disasters. When an increased expenditure of money by a city is necessary to respond to a disaster, including a tornado, hurricane, flood, wildfire, or other calamity, but not including a drought, that impacted the city and the governor has declared any part of the city as a disaster area, an election (petitioned or automatic) is not required to approve the tax rate adopted by the governing body for the year following the year in which the disaster occurs (Id. § 26.07(b)).

* The term “designated officer or employee” is not a new one added by SB2. The city council has the ability to designate any officer or employee to calculate the tax rate (Tax Code § 26.04(c)).


Did the City Council vote to trigger the disaster provision of SB2 at the June 16, 2020 City Council Meeting?
Yes. The City Council passed a resolution to direct the voter-approval tax rate be calculated at 8 percent due to the declarations of disaster because of COVID-19 by the Governor of Texas and the President of the United States.


Did the City Council’s action on June 16 to trigger the disaster provision automatically increase property taxes by 8 percent?
No.  The proposal to adopt a tax rate for Fiscal Year 2021 will be made on August 4, with Public Hearings on the proposed tax rate scheduled for August 18 and September 14.  The vote simply gives the City Council more flexibility in adopting a tax rate for Fiscal Year 2021. 

 

If the City Council’s action on June 16 did not set the tax rate, what did it do?
The resolution adopted on June 16 effectively changed the threshold for an election on the tax rate from an increase of 3.5 percent to an increase of 8 percent.  This is a return to the historical threshold required for an election on property taxes.  Again, the June 16 vote did not establish a new tax rate, but it does give the City Council more flexibility in determining the tax rate for Fiscal Year 2021.


Why did this resolution receive City Council support?

  • The disaster provision was included in the bill for a reason – to assist cities in mitigating the impact of a disaster.  Adjusting the election threshold allows for better assessment of the COVID-19 disaster’s impact on the current FY2020 budget and preserves the ability of the City to address the currently unknown future financial impacts of COVID-19. 
  • It delays the decision on the tax rate until after certified property values are received, giving the city a clearer picture of property tax revenue for the upcoming fiscal year before the budget is adopted.


City of Rowlett Property Tax Information
Ad valorem (property) tax is one of the largest revenue sources for the City and is based on certified assessed values provided by the Dallas County Appraisal District (DCAD) and the Rockwall County Appraisal District (RCAD), as well as the tax rate set by the Rowlett City Council.

The ad valorem tax rate is allocated between the General Fund and the General Debt Service Fund.  The Debt Service Rate provides for the payment of principal and interest of the City’s tax supported debt each year.  The Operations and Maintenance (O&M) rate provides for operations and maintenance of the services provided by the General Fund to the citizens of Rowlett, such as police & fire services and response, public works roadway and utility services and improvements, community and economic development, parks and recreation facilities and programs, and library facility and programs.

Over the past two years, the City of Rowlett tax rate has decreased by 2 cents.  The tax rate history is shown below –

tax rate decrease chart

Exemptions and Tax Freezes provided in Rowlett are some of the most beneficial in the area to citizens.  Rowlett is one of the few cities in Dallas County to provide a tax freeze for citizens over 65.  All exemptions to Rowlett citizens provide tax relief in an amount equivalent to 7.42 cents on the tax rate for the current FY2020.  Seniors alone receive a benefit equivalent to 5.46 cents. 

The City Council is committed to providing citizens with significant tax relief through exemptions and the senior tax freeze as detailed in the table below –

2

In the current FY2020, approximately 31 percent of Rowlett citizens residing in Rockwall County supports City of Rowlett services.  The remaining 69 percent supports Rockwall County and Rockwall ISD and is based on a rate set by each of those entities.

3

In the current FY2020, approximately 27 percent of Rowlett citizens residing in Dallas County supports City of Rowlett services.  The remaining 73 percent supports Garland ISD, Dallas County, Dallas County Community College, and Parkland Hospital and is based on a rate set by each of those entities.

4


SB2 Information
When did SB2 go into effect?
Most of the bill, including the new tax rate calculations, took effect on January 1, 2020. A few other provisions, including those related to the use of comptroller forms in calculating the tax rate and injunctive relief for failure to comply with statutory requirements, do not go into effect until January 1, 2021.


There is some new terminology in SB2, what are the changes?
Prior to SB2, the term “effective tax rate” referred to the benchmark tax rate needed to raise the same amount of maintenance and operations property taxes on existing property as the previous year, after considering changes in appraised values. SB2 changed the terms “effective tax rate” and “effective maintenance and operations tax rate” to “no-new-revenue tax rate” and “no-new-revenue maintenance and operations tax rate,” respectively.

Additionally, the term “rollback tax rate” was changed to “voter-approval tax rate.” More significant than the change in terminology is the modification to both the voter-approval rate formula (discussed in the next question), and the requirement that cities hold automatic elections to approve tax rates exceeding the voter-approval tax rate.


How does SB2 modify the calculation of a city’s rollback tax rate (now called “voter-approval rate”)?
Under pre-SB2 law, a city’s rollback rate was the rate necessary to raise precisely eight percent more maintenance and operations tax revenue as the year before after considering appraisal fluctuations. The debt service component of the tax rate is then added to the product of the effective maintenance and operations rate and 1.08.

In addition to changing the terminology from “rollback rate” “to “voter-approval rate,” SB2 lowers the multiplier used in the rate calculation from 8 percent to 3.5 percent for cities that aren’t considered to be “special taxing units,” which is nearly every Texas city. To illustrate, the old calculation of a city’s rollback rate was as follows:

Rollback Rate = (Effective Maintenance and Operations Rate x 1.08) + current debt service tax rate

Under SB2, that calculation now looks like this:
Voter-Approval Rate = (No-New-Revenue Maintenance and Operations Rate x 1.035) + current debt service tax rate


Do cities use a specific form to calculate their tax rate?
Yes. The comptroller is required to create tax rate calculation forms to be used by cities and other taxing units when calculating their property tax rates (TEX. TAX CODE § 5.07(f)).  Cities are required to use these to calculate the no-new-revenue tax rate and the voter-approval tax rate.


Is the City still required to hold two public hearings on the tax rate if the rate exceeds the no-new-revenue rate?
No. Before SB2, when a city proposed a tax rate that exceeded the lower of the effective tax rate or the rollback rate, the city was required to hold two public hearings prior to adopting the tax rate. Due to the compressed timeframe for adopting a tax rate that exceeds the voter-approval rate, the drafters of SB2 eliminated one of the existing tax rate hearings. Under SB2, a city that adopts a rate exceeding the lower of the no-new-revenue tax rate or the voter-approval tax rate must only hold one public hearing (TEX. TAX CODE § 26.05(d)).


Does SB2 modify the procedure for approval of a tax rate that exceeds the voter-approval rate?
Yes. Previously, any rate adopted that exceeded the 8 percent rollback rate triggered the ability of citizens to petition to hold an election to “roll back” the tax rate to the rollback rate. Generally speaking, SB2 requires a city to hold an automatic election (i.e., the bill eliminates the petition requirement) on the November uniform election date if it adopts a rate exceeding the 3.5 percent voter-approval rate (TEX. TAX CODE § 26.07). That said, some cities under 30,000 population are not subject to the automatic election requirement associated with adopting a rate exceeding the new voter-approval rate.


In the event of a triggered election, what happens if voters don’t approve a city tax rate exceeding the voter-approval rate?
If voters do not approve the city’s adopted tax rate at a tax rate approval election, the city’s rate for the current tax year is set at the voter-approval tax rate (TEX. TAX CODE § 26.07(e)).  If property owners pay their taxes using the originally adopted tax rate and the voters ultimately reject that rate at an election in November, the city must refund the difference between the amount of taxes paid and the amount of taxes due under the voter-approval tax rate.


What changes did SB2 make to how a city provides notice of its tax rate every year?
Prior to the passage of SB2, most cities provided notice of their property tax rates pursuant to Local Government Code Section 140.010. That statute was repealed by SB2 and replaced with a few different mechanisms for providing notice of the city’s tax rate:

By August 7 or as soon thereafter as practicable, the designated officer or employee of a city must post notice on the city’s website, in the form prescribed by the comptroller, the following:
(1) the no-new-revenue tax rate and the voter-approval tax rate, along with an explanation of how they were calculated;
(2) the estimated amount of interest and sinking fund balances and the estimated amount of maintenance and operation or general fund balances remaining at the end of the current fiscal year that are not encumbered with or by corresponding existing debt obligations; and
(3) a schedule of the city’s debt obligations (TEX. TAX CODE § 26.04(e)).   

New notice provisions for the public hearing on the tax rate, loosely based upon the tax rate notice located in Local Government Code Sec 140.010 that was repealed by SB2, are included in the bill. A different notice is required for each of the following scenarios:
(1) the proposed tax rate exceeds the no-new-revenue tax rate and the voter-approval tax rate;
(2) the proposed tax rate exceeds the no-new-revenue tax rate but does not exceed the voter-approval tax rate; and
(3) the proposed tax rate does not exceed the no-new-revenue tax rate but exceeds the voter-approval tax rate; and
(4) in a city with a population of less than 30,000 in which the de minimis tax rate exceeds the voter-approval tax rate, the proposed tax rate exceeds the voter-approval rate (Id. §§ 26.06(b-1) – (b-3), 26.063).

  • SB2 includes new notice provisions for the meeting to vote on a proposed tax rate that does not exceed the lower of the no-new-revenue tax rate or voter-approval tax rate. (Note: this notice is similar to the notice requirements related to the public hearing on the tax rate, except that no public hearing is required because the proposed rate doesn’t exceed the lower of the no-new-revenue rate or voter-approval rate.) Id. § 26.061.
  • SB2 also requires a table to be included at the end of the notice of the hearing on the tax rate or meeting to adopt the tax rate, as applicable, that compares the taxes imposed on the average residence homestead in the city last year to the taxes proposed to be imposed on the average residence homestead this year.


Show All Answers

1. SB2 and the City Tax Rate
2. Sapphire Bay
3. Multi-Family Developments
4. Bayside Project History
5. Utility Bills
6. North Texas Municipal Water District (NTMWD)
7. North Texas Municipal Water District (NTMWD) Cost of Service Review
8. Economic Development
9. Streets and Alleys
10. Village of Rowlett Downtown
11. Liquor Stores
12. Senior Tax Freeze and Exemption
13. Parks
14. Scenic Point Park
15. Rowlett Community Centre
16. State Highway 66 Median Beautification Project
17. Rowlett Public Library
18. Rental Housing Standards Program
19. Housing Finance Corporation