05-C Tax System Reforms - Laserfiche WebLink

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Where Do Texas ( i ieS Get Their Money City government is where the rubber meets l the road. Cities pave our streets, fight crime and fires, prepare us for disaster, brino water to our taps, take our trash away, build and maintain our parks--the list Does on and on. These services cost money. This pamphlet describes the sources of municipal revenue. A TML survey shows that municipal general fund rev- enue in Texas is made up of the following sources: ~P"Operly _ Conspicuously absent from this list is financial assis- tance from the state. This is unusual--most states pro- vide direct financial assistance to cities in recognition of the fact that cities provide basic services on which the entire state depends. Instead of revenue, Texas cities receive something equally important from the state--broad authority to govern themselves, including the authority to raise their own revenue. This local authority has worked to the benefit of cities and the state for many decades, and should continue into the future. Here's more information on each source of municipal revenue. Sales Taxes Sales taxes are a leading source of city revenue. Nearly 93 percent of Texas cities levy a basic one-cent city sales tax. The revenue can be used for any purpose other than pay- ment of debt. Many cities, though not all, also impose addi- tional sales taxes in varying amounts of up to one cent. These additional sales taxes are known as dedicated taxes, because their proceeds may be spent only for certain pur- poses. Some popular dedicated sales taxes include mass transit, economic development, property tax relief, and sports venue taxes. All city sales taxes, including the basic one-cent sales tax, require a local-option election of the cit- izens. Collection of sales taxes is performed by the Texas comptroller, who 'rebates' the city share on a monthly basis. The comptroller retains a small portion of the city tax rev- enue to cover the state's administrative costs. Property Taxes Property taxes are equal to sales taxes as a leading source of city revenue. Though crucial to city budgets, city prop- erty taxes make up just a fraction of a property owner's total property tax bill. DistribuUon of Property Tax Collections Cities have statutory authority to levy property taxes at a rate of up to $1.50 per $100 of assessed value for most cities under 5,000 population, and up to $2.50 for most cities over 5,000 population. Despite this broad authority, the average city property tax rate was only $.57 for tax year 2002. City property tax levies are tied by law to fluctuating property tax values. As values increase, the city must adjust its rates or face potential rollback elections. In reality, such tax rollback elections are rare. City rates have held relatively steady for years, both in terms of actual rates and in terms of total levy as adjusted for inflation and rising income.