HBA-NRS H.B. 3259 77(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3259 By: Green Public Education 4/3/2001 Introduced BACKGROUND AND PURPOSE The over reliance on local property taxes to fund K-12 education coupled with inequities among the levels of funding within school districts have resulted in a need to reform the current school funding system. The complexity of the funding system demands that reform be made a top priority. By incorporating additional services or products under state sales tax provisions such as real estate, the legislature could effectively abolish the school property tax. Moving school funding from a property tax system to a sales and use tax system could result in lower mortgage rates, the elimination of tax abatements, and financial equity within all school districts. House Bill 3259 abolishes the school property tax system and funds public schools through an increase in the state's sales and use tax. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the comptroller of public accounts in SECTION 2.06 (Section 151.802, Tax Code) of this bill. ANALYSIS House Bill 3259 amends the Tax, Education, and Government codes by repealing provisions authorizing school districts to levy an ad valorem tax and deleting related provisions (SECTIONS 1.01-1.28, 3.23). The bill prohibits the governing body of a school district from imposing an ad valorem tax (SECTION 3.08). The bill amends the Tax Code to provide that real property including a building, structure, or other improvement to real property is a taxable item subject to the limited sales tax and the use tax (SECTION 2.01-2.03). The bill provides that the sale for resale of a taxable item other than real property is exempted from limited sales, excise, and use taxes (SECTION 2.05). The bill provides that receipts from the sale, use, or rental of real property are exempt from the sales and use taxes for special purpose taxing authorities (SECTION 2.07). The bill increases the sales tax rate 6.25 percent to 8 percent of the sales price of the taxable item sold (SECTION 2.04). The bill requires the comptroller of public accounts (comptroller) to distribute to the foundation school fund an amount sufficient to provide each school district with the money allotted to the district under the foundation school program. The bill requires the chief financial officer of a school district to send an affidavit to the comptroller stating the amount of principal and interest payments due by the school on bonded indebtedness in 2001 for bonds for which the district's ad valorem taxes are pledged. The bill requires the comptroller by rule to provide for the form of the affidavit and specifies any information that must accompany it. The bill requires the comptroller to send to each school district the amount of money stated in the affidavit. The bill requires that any remaining revenue be deposited to the credit of the general revenue fund (SECTION 2.06). The bill authorizes a school district to adopt the sales and use tax at an election held in the school district for the reasonable and necessary expenses of the school district. The bill prohibits the rate of the school district sales and use tax from exceeding one-half of one percent and must be in increments not less than one-eighth of one percent. The bill sets forth provisions relating to the adoption of the school district sales and use tax. The bill provides that an election to adopt the school district sales and use tax is called by adoption of a resolution by the governing body of the school district and sets forth ballot language. The bill requires the governing body of the school district to call an election if the equivalent of at least five percent of the total number of voters who cast votes in the most recent regular school district election petitions the governing body to call the election (SECTION 2.08). The bill amends the Education Code by deleting the provision requiring the public school finance system to adhere to a standard of neutrality that provides for substantially equal access to similar revenue per student at similar tax effort. The bill deletes certain provisions relating to the purpose of the foundation school program to provide equalized resources to school districts and the two-tier system for distributing funds (SECTION 3.01). The bill repeals provisions relating to the guaranteed yield program, equalized wealth level, and references in applicable current law (SECTIONS 3.01, 3.07, 3.09-3.12, 3.16, 3.18, 3.19, and 3.23). For each student in average daily attendance, the bill provides that a school district is entitled to a basic allotment of $3,700 rather than $2,537 (SECTION 3.02). The bill authorizes the commissioner of education to reduce proportionately each school district's compensatory education allotment and career and technology education allotment, as appropriate, rather than each district's tier one allotments, to finance intensive accelerated instruction programs, life skills programs for student parents, school counselors and counseling programs, and regional career and technology education planning (SECTIONS 3.03 and 3.04). If a school district fails to reduce administrative costs to a certain level, the bill requires the commissioner to deduct from a school district's foundation school program payments, rather than tier one allotments, an amount equal to the amount by which the district's administrative costs exceed the amount permitted by its administrative cost ratio (SECTION 3.06). The bill deletes provisions relating to the establishment of tier one allotments and equalized wealth levels as part of the foundation school program, additional state aid for professional staff salaries, and the distribution of the foundation school fund. The bill deletes provisions requiring the Texas Education Agency and the comptroller to submit to the legislature estimates of property tax values and rates (SECTION 3.07). H.B. 3259 authorizes the governing body of an independent school district, the governing body of a rural high school district, and the commissioners court of a county to pledge state funds to be received under the foundation school program, the permanent school fund and the available school fund and revenue from a school district sales and use tax to pay the principal of and interest on bonds issued for school buildings and property as the principal and interest become due (SECTION 3.08). The bill deletes the provision authorizing a school district to levy and collect taxes necessary to pay principal and interest on the assumed debt of another district so long as the debt is outstanding, without an election on the assumption of indebtedness (SECTION 3.13). The bill deletes provisions limiting the adjustment of two contiguous school district boundaries by agreement based on taxable value of the territory transfer (SECTION 3.14). The bill changes the formula to determine teacher and staff salaries to be based partially on foundation school payments per student made during the preceding school year rather than state and local funds per weighted student available to a district through the guaranteed yield program (SECTION 3.15). The bill modifies provisions relating to how costs of an approved contract for residential placement for students with disabilities will be paid from a combination of federal, state, and local funds (SECTION 3.17). The bill requires that the cost of preparing, administering, or grading the assessment instruments to be paid from the funds allotted under the compensatory education allotment, and requires each district to bear the cost in proportion to its allotment under the compensatory education allotment, rather than in the manner described for a reduction in allotments, under the distribution of the foundation school fund (SECTION 3.20). H.B. 3259 repeals provisions related to school facilities inventory and standards, entitling a school district that accepts students under the public education grant program under certain conditions, establishing criteria for notice of a school board's public meeting to discuss and adopt the budget and the proposed tax rate (SECTION 3.23). The bill amends the Utilities Code to remove provisions relating to the school funding loss mechanism (SECTION 3.22). EFFECTIVE DATE September 1, 2001. The bill provides that the article relating to school district property taxes takes effect January 1, 2002 (SECTION 1.29). The bill provides that sales and use tax provisions take effect January 1, 2002 (SECTION 2.10).