Transcript Slide 1

New Tax Laws’ Effect on
the Austin Community
NAPMW-Austin Monthly Luncheon
August 8, 2006
Eva DeLuna Castro, Budget Analyst,
Center for Public Policy Priorities
Spring 2006: Special Legislative
Session on School Finance
• Texas Legislature was facing a June 1 Supreme
Court deadline to change how K-12 education is
funded and give districts “meaningful discretion”
in setting local school tax rates
• Solution: replace some local school property
taxes with state revenue (mostly from “surplus,”
higher cigarette taxes, and reformed franchise
tax). Tax rate of $1.50 per $100 for M&O will
drop to $1.33 by 2006 tax year (an 11% cut),
$1.00 by 2007 tax year (a 33% cut).
2
Franchise Tax Reform
• Doesn’t raise new revenue until fiscal 2008
• Texas corporations and business partnerships
earning more than $300,000/year (minus the cost
of labor or goods sold) will pay 1 percent or less.
• Sole proprietors of any size and small businesses
earning less than $300,000 are exempt from the
tax (2 times the current $150,000 exemption);
businesses owing $1,000 or less are also exempt
from filing.
3
Impact on Property Taxes
School District
Total tax rate
M&O rate
11% Reduction, Plus
Debt Service Rate
33% Reduction,
Debt and 4 Cents
Austin
1.623
1.500
1.45
1.16
Pflugerville
1.850
1.500
1.68
1.39
Manor
1.800
1.470
1.63
1.35
Del Valle
1.870
1.500
1.70
1.41
Eanes
1.661
1.500
1.49
1.20
Lake Travis
1.801
1.500
1.63
1.34
Leander
1.749
1.449
1.58
1.31
Round Rock
1.833
1.497
1.66
1.37
Bastrop
1.728
1.500
1.56
1.27
Elgin
1.850
1.500
1.68
1.39
Hays
1.876
1.485
1.71
1.42
Wimberley
1.673
1.500
1.50
1.21
Dripping Springs
1.826
1.500
1.66
1.37
4
Other Features of Rate Cuts
• Benefits businesses and other property owners,
not just homeowners; also means a much bigger
cut for high-value property owners (unlike an
increase in the homestead exemption)
• Doesn’t help those who already had their taxes
frozen (like, 65 and over)
• 4 cents enrichment: School districts have the
discretion to levy up to 4 cents more, without
voter approval
5
New Spending for Schools
Almost all the new state money in the system will
go to cut local property taxes; only a small amount
will fund these new items:
• $2,000/year pay raise for teachers, librarians, counselors,
and nurses (includes former $500 health insurance
supplement); “pay for performance” incentives
• $275 per-student allotment for 9-12 grades to reduce
dropout rates, better prepare students for college. Four
years of math & science required for HS students to
graduate.
6
Home Affordability Impact
• Example of a $130,000 home in AISD:
School taxes at $1.16 rate (versus current
$1.623) would drop from $1,866 to $1,334, a
29% savings. But total tax bill (ISD, city,
county, hospital, ACC) drops only 17%, from
$3,167 to $2,634. Monthly savings: $44
• Using housing-cost-to-income ratio of 28%,
this does not significantly increase the
affordability of homes
7
Higher-Income Households
Benefit More
• Owners of expensive homes get enough of
a local tax cut to outweigh increased state
taxes (cigarette tax, franchise tax)
• Many lower income households will end up
paying more in taxes than they do now;
special session made no major changes to
regressive state/local tax system
8
School Tax Cuts are Not Yet Paid For
• For 2008-09 (the next state budget cycle), the
actions taken in the special session require the
state to spend $19 billion more (a 25%
increase in state GR spending), but the tax
changes raise only $9 billion in new revenue
• This means existing state taxes will have to
grow enough to cover the gap; OR, the 2007
legislature will have to raise taxes again or cut
state spending
9
General Revenue Budget, 2006-07
Total: $68 billion
Business/
Econ Dev
0.4%
Other
6%
Public Safety/
Crim. Justice
10%
Health &
Human Svcs
25%
Higher
Education
16%
K-12
43%
10
Options for 2008-09
• Higher state sales taxes (already among
the highest in the nation)
• More “user fees” (highway tolls, higher
ed tuition, occupational licenses)
• Cuts to higher ed. (staff & benefits) and
to state employee staffing or benefits
(Austin MSA: 11% of wages/salaries are from state govt employment
compared to 4% statewide average)
• More cost-shifting to local governments
11
For the most recent information or to sign up for
our free E-Mail Updates, visit www.cppp.org.
Center for Public Policy Priorities
900 Lydia Street
Austin, TX 78702
Phone 512-320-0222 Fax 512-320-0227
12