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Background

This is an update to a To The Administrator Addressed Correspondence previously sent regarding maximum compressed tax rates (MCRs, a.k.a. Tier One tax rates) for the 2023 tax year (TY) and the related state funding implications for the 2023–2024 school year (SY) based on Texas Education Code (TEC) §§48.255, 48.2551, and 48.2552, and 19 Texas Administrative Code (TAC) §61.1000. Due to timing of recent legislative actions (specifically, Senate Bill (SB) 2, 88^th Texas Legislature, Second Called Session), MCR determinations for tax year 2023 will be calculated in two steps, incorporating laws effective with the 88^th Texas Legislature, Regular (88-R) and Second Called (88-2) sessions. This correspondence assumes SB 2 will be signed by the Governor and enacted.

Step 1: Local Property Value Survey

The agency is conducting a survey of local taxable property value growth through the Foundation School Program (FSP) System in the Texas Education Agency Login (TEAL) . Due to timing of legislative decisions, the Local Property Value Survey (LPVS) application will calculate MCRs under Regular session (88-R) law only. The LPVS for the 2023-2024 school year opens for data submission on Tuesday, July 18, 2023, and will close at midnight on Tuesday, August 1, 2023 . This survey does NOT apply to charter schools or institutions of higher education.

For purposes of the LPVS, districts should enter local district taxable property values (and calculated estimates of district comptroller property values, or “T2” values) for TY 2023 reflecting the $40,000 state homestead exemption (HSE). Enter net taxable values from the Grand Totals report.

Districts will be required to submit the following:

  1. The Chief Appraiser’s July 25 certified taxable property values from the certified appraisal roll under Tax Code, §26.01(a) or (a-1) for tax year 2022 (@$40K HSE);
  2. The Chief Appraiser’s July 25 certified taxable property values from the certified appraisal roll under Tax Code, §26.01(a) or (a-1) for tax year 2023 (@$40K HSE); and
  3. The amount of value estimated to be lost due to the Local Option Homestead Exemption (LOHE), if applicable.
 

Please ensure that your district has completed and submitted the LPVS using the online FSP System by Tuesday, August 1, 2023. Except to make necessary changes related to implementing the provisions of SB 2 (88-2), a district’s MCR will not be adjusted after it is approved by the TEA unless an appeal is granted. Refer to the MCR Status and Appeals section below for more information.

Step 2: Tax Compression Interaction with SB 2 (88-2)

SB 2 of the 88th Texas Legislature, Second Called Session (contingent on the passage of HJR 2), increases the state mandatory homestead exemption applicable to school districts from $40,000 to $100,000 per eligible homestead and creates additional state aid to hold districts harmless for the decrease in local tax revenue.

SB 2 also directs the TEA to reduce districts’ MCRs by an additional $0.107, after determining the district’s MCR under §§48.2551 and 48.2552(b), if applicable, and subject to the limit on local compression (90% equity floor), as follows:

TY 2023 State MCR: 0.8941 × (1.025 ÷ 1.0443) - 0.0825 = $0.7950 - $0.1070 = $0.6880

If SB 2 is signed by the Governor and is enacted, MCRs for TY 2023 will range from $0.6880 to $0.6192.

Additionally, SB 2 directs appraisers to prepare supplemental appraisal records, assessors to determine the total taxable values, and governing bodies of taxing units to calculate the voter-approval tax rate as if the changes in law made by SB 2 are in effect for TY 2023. If voters approve the increased homestead exemption, the state certified "T2" values will reflect the $100,000 exemption and will be incorporated into the Summary of Finances (SOF) reports in February 2024. When this happens, the local share of the FSP will be adjusted to reflect the increased homestead exemption.

Due to timing of legislative decisions, the LPVS will calculate MCRs under regular session law only (88-R). However, TEA will then make additional calculations prior to publishing the Preliminary MCRs to incorporate additional tax reduction per SB 2, in accordance with 19 TAC §61.1000:

Consequently, the MCR that will be shown in the local property value survey in TEAL will not correctly reflect your district’s final MCR as determined under Senate Bill 2 (88-2). Districts should wait to proceed with tax rate adoption until the TEA publishes preliminary MCRs on or before August 5^th. If an appeal is requested, then districts should wait to receive from TEA a final MCR determination.

As a reminder, a lower MCR does not impact your district’s total FSP entitlement, but rather shifts funding between the state and local share.

Tax Rate and MCR Template Tool

The TEA has posted a new Tax Rate and MCR Template on the TEA State Funding Webpage under the District & Charter Planning Tools subheading, which can help districts understand the calculations behind the TY 2023 maximum Tier One tax rates. Districts are still required to complete the LPVS and wait for preliminary MCR determinations to be published by TEA, which will incorporate additional tax reduction calculations. Please note that the purpose of this template is limited to assistance only and does not anticipate any tax rate increase that the district may be considering. Legal responsibility to adopt a tax rate in accordance with the law remains with the district, which should consult with its own legal counsel.

MCR Status and Appeals

Once the district has submitted the LPVS data to TEA and received approval of the submission through the FSP system (the district’s LPVS status shows as “Approved”), no additional action is required unless the district chooses to appeal the calculated rate. However, as outlined above, districts must wait for TEA to incorporate additional tax rate reduction calculations under SB 2 and determine preliminary MCRs prior to adopting a tax rate. Pursuant to Section 48.2552(c) of the Texas Education Code, districts that do not submit their LPVS will receive the lesser of the prior year MCR or the state compression rate of $0.6880 [$0.7950 (88-R) minus $0.1070 (88-2)] as their MCR.

Districts may submit an appeal in compliance with 19 TAC §61.1000 within 10 days after August 1, 2023. The LPVS must be submitted before the deadline and approved by TEA in order for the district to be eligible for an appeal. Appeals should be submitted electronically to the attention of Amy Copeland on district letterhead, signed by the superintendent, to taxprograms@tea.texas.gov.

Final Determinations

If TEA receives an appeal of a preliminary MCR, a final determination will be issued to the school district no later than August 31, 2023. Final MCRs will also incorporate adjustments under SB 2. The SOF reports will be updated by February 2024 when the TEA receives preliminary state certified property values from the Comptroller’s Property Tax Assistance Division. It is important to remember that Tier One tax compression does not impact the overall level of funding a district is entitled to. Rather, tax compression only impacts the balance of the state and local share of a school district’s total Tier One entitlement. There is no settle up on MCRs.

FSP System Roles

The TEA recommends that a designated Data Survey User, usually the business manager or Chief Financial Officer (CFO), enter the information into the LPVS. The FSP System requires that a designated District Approver, usually the superintendent, submit the LPVS data to the TEA. The FSP System is an application within the Texas Education Agency Login (TEAL). If you already have a TEAL account but do not have access to the FSP System, please apply for access by clicking the My Application Accounts button found in the upper-left corner of the Self-Service menu. In the My Accounts tab, click on Request New Account and select the FSP hyperlink for the Foundation School Program application. Select the Add Access, insert your employing organization (district name/county district number), and select the applicable roles. If you already have access to the FSP System, please check that you have the appropriate role assigned for submitting the data.

If you are not the superintendent or District Approver: Your district’s Service Account Manager must approve all requests for access to the FSP System and modifications to access via the TEAL. (Note that Service Account Manager is a role within the TEAL system. Each employing organization must have at least one employee with a Service Account Manager status.) If you have submitted a request for access or a request to modify access and it has not been granted, please consult with your superintendent or district approver or check with your district’s Service Account Manager to check the status of the request before contacting TEA.

Questions

For more information on the FSP System, including information on applying for specific roles in the system, please see the TEA FSP System web page. For help with accessing the FSP system or submitting the 2023–2024 LPVS, please contact Namrata Parikh by phone at (512) 463-6220 or email taxprograms@tea.texas.gov.