The Rollback Tax Rate
Calculating the Rollback Tax RateThe rollback tax rate calculation is more complicated than the effective tax rate calculation. The Legislature wanted to avoid injuring a taxing unit's ability to pay its debt. Thus, the rollback rate calculation splits the rate into two separate components – a maintenance and operations rate and a debt rate.
For most taxing units, revenue falls into two general categories: maintenance and operations (M&O) and debt service. M&O includes such things as salaries, utilities and day-to-day operations. Debt service covers the interest and principal on bonds and other debt secured by property tax revenues (sometimes called "interest and sinking," or I&S). Section 26.012, subsections (7) and (8), Property Tax Code, provide the full legal definition of debt. Line 32 of the Rollback Tax Rate Worksheet on page 40 provides a four-part test based on that legal definition.
Calculating an effective tax rate does not require the taxing unit to distinguish between M&O and debt expenses. The rollback tax rate, however, is the sum of the debt and the M&O.
In most cases, the rollback tax rate exceeds the effective tax rate. Occasionally, however, decreases in a taxing unit's debt create situations where the effective rate might be higher than the rollback rate.
The M&O portion of the rollback tax rate is the tax rate that would be needed to raise 8 percent more operating funds than the unit (other than a school district) levied in the preceding year. This calculation is similar to the effective rate calculation.The debt rate portion is the tax rate that will be needed to pay the unit's debt payments in the coming year. This part of the calculation does not depend on the prior year's debt taxes at all; it simply considers what the unit will actually need for the current year. The portion of the overall rate used to retire debt may rise as high as necessary without triggering the threat of a rollback. The M&O portion, however, may rise only 8 percent (or $0.06 for most school districts).
M&O component. For taxing units (other than school districts) to calculate the M&O rate (see Table 3 below), begin with the adjusted 1999 total taxable value used to calculate the effective tax rate. Multiplying that value by the 1999 M&O rate gives the adjusted 1999 M&O taxes. Dividing the adjusted M&O taxes by the adjusted 2000 taxable value used to calculate the effective tax rate yields the "effective M&O rate."
Table 3: Calculating the M&O Portion of the Rollback Tax Rate
Truth-in-taxation laws allow an 8-percent increase in the M&O rate without triggering a rollback. Multiplying the effective M&O rate by 1.08 gives the M&O portion of the rollback rate. Chapter 42 school districts add $0.06, and do not multiply by the 1.08. Chapter 41 school districts should consult their legal counsel about adding $0.03 or $0.06 for the M&O rollback rate.
Special steps required by some taxing units are discussed below.
County criminal justice mandate. Counties may increase their rollback rate to replace funds spent to house prisoners sentenced to state correctional facilities. Counties adjust the maintenance and operations rate in their rollback rate calculation for the amount spent above that amount calculated in the prior year. (In the first year that a county has expenditures for the criminal justice mandate, the full amount is included in the rollback rate calculation.)
The amount spent by a county includes the cost during the previous 12 months to keep inmates in county-paid facilities after they have been sentenced to a Texas Department of Criminal Justice facility. The county auditor certifies the amount, based on information provided by the county sheriff, minus any amount received from the state for reimbursement. If the amount is the same or less, the county does not adjust the maintenance and operations rate. The county continues to use the same 12-month period in subsequent years.
In addition, the county publishes a special notice about the county criminal justice mandate -- Schedule D (discussed later in this manual on page 28).
For state information, call the Texas Commission on Jail Standards at 512/463-5505.
School districts. The Texas Education Agency (TEA) has a worksheet entitled Worksheet to Assist Districts in Calculating Rollback Rate .
Call the Texas Education Agency's State Funding Division at 512/463-9238 with questions on the student enrollment, state funding formulas and this special rollback worksheet.
School districts on the TEA worksheet will calculate the amount for the 2000-2001 school year that is comparable to the 1999-2000 school year, using Education Code funding elements. A school district’s M&O rollback rate is the sum of:
(1) the property tax rate that, applied to the current total value of a school district, would impose M&O taxes that, when added to state funds for the 2000-2001 school year, would provide the same amount of state and local funds per WADA for the 2000-2001 school year as in the 1999-2000 school year. State funds are those available to the school district at the maximum tax rate for the current year under Education Code Section 42.253(e). The school district does not include amounts provided to the district under Education Code Sections 42.2512 or 42.2513. The TEA worksheet will provide the steps to determine the local property tax amount needed.
(2) $0.06 per $100 of taxable value for Chapter 42 school districts. Chapter 41 school districts should consult their legal counsel about adding $0.03 or $0.06 for the rollback rate.
(3) the district’s debt rate (see next section about the debt rate).
The TEA worksheet will assist the school district in finding the local property tax amount needed in (1) above. That property tax amount is divided by the local certified 2000 taxable values (excluding the homestead value of the over-65 homeowners with tax ceilings). The result is a school district's 2000 effective M&O tax rate. To this rate, Chapter 42 school districts add $0.06 for their highest M&O rate. Chapter 41 school districts should consult their legal counsel about adding $0.03 or $0.06 for the rollback rate. All school districts then add their 2000 debt rate for the final 2000 rollback tax rate.
Some school districts also have an additional step in the rollback rate calculation for additional state assistance received by districts that offered the optional percentage homestead exemption, if state funds are available. The TEA worksheet includes this reduction and the reduced amount of property tax is entered on Line 28 of the rollback tax rate worksheet.
Tax increment financing. In the rollback rate calculation, school districts eliminate the increases in taxes and taxable value occurring within reinvestment zones established by Chapter 311, the Tax Increment Financing Act. For those school districts in a reinvestment zone, the districts exclude the portion of their taxes deposited into a tax increment fund and the percentage of captured value taxable by a district that results in the taxes deposited into the tax increment fund. This provision applies only to school districts.
Taxing units transferring a function. If a taxing unit discontinues all or part of a department, function or activity and transfers it to another unit by written contract, the two units must adjust their M&O rates for the transfer. The unit discontinuing the "function" subtracts the amount spent for the function in the 12 months preceding the month of the rollback rate calculation. If the unit did not operate this function for this 12-month period, the discontinuing unit uses the amount spent in the last full fiscal year in which the unit operated the function. The unit receiving the function adds to the rollback rate this amount for the function's expenses. Collections contracts are not subject to this provision since the original taxing unit never fully transfers and discontinues operating its collections function.
In 1999, S. B. 1804 changed this provision to add the transfer of portion of a department, function or activity. The provision for transferring a portion of a function will expire January 1, 2001. Transferring all of a department, function or activity will remain.
Additional rollback protection for pollution control. A taxing unit may increase its rollback rate by the rate that generates the amount of funds the unit will spend for pollution control property, divided by the unit's current total value. Lines 49-52 of the rollback rate worksheet on page 42 provide for calculating the additional rate to add to the rollback rate.
Section 26.045, Tax Code, permits the additional protection to allow the taxing unit to raise its rate for maintenance and operation funds used to pay for a facility, device or method for the control of air, water or land pollution. The unit's expenses are necessary to meet the requirements of a permit issued by the Texas Natural Resource Conservation Commission (TNRCC).
A "facility, device, or method of control" means any land, structure, building, installation, excavation, machinery, equipment or device that is used, constructed, acquired or installed wholly or partly to meet or exceed pollution control requirements. The definition includes any attachment or addition to or reconstruction, replacement or improvement of property. The requirements include preventing, monitoring, controlling or reducing air, water or land pollution.
The taxing unit must present information to the TNRCC's executive director in a permit application or in a request for permit exemption. The information details:
1. the anticipated environmental benefits from the installation of the facility, device or method;
2. the estimated cost of the facility, device or method;
3. the installation's purpose and the proportion of the installation that is pollution control property.
The TNRCC shall determine if the facility, device or method is used wholly or partly for pollution control. If yes, then the TNRCC executive director shall issue a determination letter stating the portion of the cost of the installation for pollution control. The TNRCC may charge a fee for processing the information, making a determination and issuing the letter. Taxing units should check with the TNRCC for rules regarding this process by calling TNRCC's Policy and Research Division at 512/239-6348.
The taxing unit shall provide its tax assessor with a copy of the TNRCC's letter. The assessor shall accept the copy as conclusive evidence and shall adjust the rollback tax rate. The additional lines on page 42 provide for entering the amount of pollution control expenditures and the 2000 total taxable value. The additional rate is added to the unit's rollback rate.
In addition, taxing units also are able to exclude the taxable value of property exempted for the current tax year for the first time as pollution control property. Because the taxable value of exempt property is zero, this provision read literally has no effect. Taxing units that wish to exclude the market value of the exempted pollution control property should consult with their attorneys. A unit subtracts the exempted properties' appraised values from the current total value in the calculation.
Additional rollback protection for enhanced indigent health care expenditures. A taxing unit may increase its rollback rate by the rate that generates the amount of funds the unit will spend for enhanced indigent health care expenses, divided by the unit's current total value. Lines 53-56 of the rollback rate worksheet on page 42 provide for calculating the additional rate to add to the rollback rate.
Beginning with a tax rate adopted on or after January 1, 2000, H. B. 1398 allows a taxing unit to increase its effective M&O rate to reflect enhanced indigent health care expenditures. The enhanced expenditures are defined as the amount spent by the taxing unit for M&O costs of providing indigent health care at the increased minimum eligibility standards under Health and Safety Code Section 61.006. Those standards were effective on or after January 1, 2000.
Debt component. The debt portion of the rollback rate differs entirely from the M&O portion. It does not use the adjusted 2000 taxable value (the current value of properties taxed in the prior year). Instead, it uses the total 2000 taxable value (the current value of all properties) in the lower part of the formula. The current value of all properties for school districts does exclude the 2000 homestead value of the over-65 homeowners with tax ceilings.
The top half of the formula is the actual debt payments required for 2000-2001 fiscal year, not the prior year's debt. Remember, these are debt payments using 2000 property taxes. A taxing unit that pays debt with other funds should not include these payments in the calculation.
Table 4: Calculating the Debt Portion of the Rollback Rate
Certain types of taxing units may increase their current debt tax rate to pay for debts that the units anticipate incurring in the next calendar year. These units will include these payments in their published schedule of debt payments (Schedule B discussed later in this manual). These taxing units are created under Section 52, Article III, Texas Constitution, or Section 59, Article XIV, Texas Constitution.
The only adjustment to the 2000 debt is for anticipated collection losses. Subtract the amount of 1999 excess debt tax collections from the current year's debt payments, then divide the resulting figure by the anticipated 2000 collection rate. Obtain the figures for excess debt tax collections and the anticipated collection rate from the tax collector. The discussion of anticipated and excess collections below will tell the collector how to calculate these figures.
Dividing the adjusted debt payments by the total 2000 taxable values gives the debt portion of the rollback rate. (See Table 4.)
Total rollback tax rate. Totaling the M&O rate and the debt rate and multiplying by 100 (to convert to a rate per $100 of value) gives the rollback tax rate.
Anticipated and Excess Collections
A taxing unit that levies a debt tax must consider anticipated collections in calculating the debt component of its rollback tax rate. The collector for such a unit must certify two items to the governing body:
- The estimated debt collection rate for 2000 and
- Excess debt tax collections for 1999.
The estimated debt collection rate for 2000. To find the estimated collection rate, the collector must first estimate the unit's total debt collections from July 1, 2000, through June 30, 2001. This estimate equals the total tax dollars collected (for current debt taxes, delinquent taxes, special appraisal rollback taxes, penalties, interest and the additional penalty for attorney fees under Sections 33.07 and 33.08, Property Tax Code). Obviously, the collector will not know the precise amount until the period is over. However, truth-in-taxation laws require an estimate. The collector will compare this amount with what the unit plans to levy for 2000-2001 fiscal year to pay for debt.
Dividing the estimated collections by the debt taxes gives the estimated collection rate. Suppose, for example, the collector projects the unit will take in $950,000 in debt revenues during the period. The unit's budget calls for it to levy $1,000,000 in debt taxes for 2000. The anticipated collection rate is $950,000/$1,000,000, or 95 percent.
If the collector's anticipated collection rate exceeds 100 percent, the collector would use 100 percent in the calculation. Delinquent taxes from prior years may generate more than a 100-percent rate.
Excess debt tax collections for 1999. The law requires the collector to compare the amount of taxes (including current taxes, delinquent taxes, special appraisal rollback taxes, penalties, interest and the additional penalty under Sections 33.07 and 33.08, Property Tax Code) actually collected for debt in 1999 (July 1, 1999, through June 30, 2000) with the amount that should have been collected according to the 1999 anticipated collection rate. If the unit took in more debt tax dollars than should have been collected, the collector certifies the amount of excess debt tax collections to the governing body.
For example, last year the collector projected a 1999 collection rate of 95 percent, and the governing body levied $500,000 in 1999 debt taxes. The anticipated debt tax collections for 1999 were $475,000 (.95 x $500,000). The collector determines whether the total amount of debt taxes collected from July 1, 1999, through June 30, 2000, exceeds $475,000 and determines the amount of any excess. If the unit collected $485,000 in 1999 debt taxes, the collector certifies excess debt tax collections of $10,000.
If the collector projected a 1999 collection rate of 100 percent and collected more than 100 percent, the collector certifies excess debt collections of "0" (zero).
