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05-C Tax System ReformsDRAFT F:~Attorney\Lisa~O~esolutions\CURRENT\School Finance Reform Res.wpd March 4, 2004 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS, OPPOSING ANY SCHOOL FINANCE OR TAX SYSTEM REFORMS THAT WOULD NEGATIVELY AFFECT CITY REVENUES AND ECONOMIC DEVELOPMENT EFFORTS; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND DECLARING AN EFFECTIVE DATE. WHEREAS, it is likely that the Texas Legislature will address school finance and tax system reforms in the near future; and, WHEREAS, during theses deliberations by the Texas Legislature, proposals to limit the ability of cities to collect property taxes and sales taxes are likely to be offered by some members of the Legislature; and, WHEREAS, additional restrictions on city taxes fly in the face of a history of frugal tax administration by Texas cities; and, WHEREAS, all Texas cities combined collect only 15.3 percent of all property taxes collected in the State of Texas, while schools collect more than 60 percent; and, WHEREAS, between 1985 and 2002, the municipal share of all property tax revenue fell from 20.3 percent to 15.3 percent; and, WHEREAS, adjusted for inflation, municipal property taxes went up by only 37 percent between 1985 and 2002, while population grew by 33 percent, demonstrating that growth in municipal property tax levies roughly matched population growth; and, WHEREAS, Texas cities rely on tax revenue to build basic infrastructure, to ensure public safety through police and fire departments, and to provide numerous essential services for city residents, who are 80 percent of the state's population; and, WHEREAS, Texas cities engage in numerous economic development activities that produce jobs and revenue for the entire State of Texas; and, WHEREAS, cities must meet the challenges of homeland security and compliance with state and federal mandates, many of which are unfunded mandates; and, WHEREAS, Texas cities have shown over the years that they are fiscally responsible and good stewards of taxpayers' money; and, WHEREAS, efforts to limit the ability of cities to collect sales and property tax revenues or to set tax rates would have severe negative impacts on city services, city employees, economic development efforts, and ultimately the citizens of the State of Texas; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS: Section 1. That the findings set out in the preamble to this resolution are hereby in all things approved. Section 2. That the City Council of the City of Paris, Paris, Texas, will oppose all school finance or tax reform efforts by the Texas Legislature that negatively impact the ability of the City to provide basic essential services, conduct economic development activities, and ensure public safety by limiting our ability, beyond the provisions of current law, to collect property tax or sales tax revenues. Section 3. That this resolution shall be effective from and after its date of passage. PASSED AND APPROVED this 8th day of March, 2004. ATTEST: Curtis Fendley, Mayor Mattie Cunningham, City Clerk APPROVED AS TO FORM: Larry W. Schenk, City Attorney Legislative Legislative Services TML DRAFT RESOLUTION OPPOSING SCHOOL FINANCE OR TAX REFORMS THAT NEGATIVELY IMPACT CITIES TML has prepared a draft resolution opposing school finance or tax reform proposals that negatively impact cities. The resolution highlights numerous reasons to oppose limitations on the ability of cities to levy property taxes and collect sales taxes. Additionally, the resolution lists negative consequences that would result from any limitation on our cities' abilities to generate sufficient tax revenue. If your city is interested in using this resolution, it may be obtained by clickint~ here. If you have any additional questions regarding this issue, please contact TML at (512) 231-7400. TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League. Back to Legislative Update Index I I_EGISI.A'I'IVE S[iRV1CES [ HOME I TEXAS LEGISt. A FURE O'x't. INE ] ©2004 loxas Municipal League Austin, lexas (512) 231-7400 RESOLUTION NO. A RESOLUTION OF THE CITY OF ., TEXAS, OPPOSING ANY SCHOOL FINANCE OR TAX SYSTEM REFORMS THAT WOULD NEGATIVELY AFFECT CITY REVENUES AND ECONOMIC DEVELOPMENT EFFORTS WHEREAS, it is likely that the Texas Legislature will address school finance and tax system reforms in the near future; and WHEREAS, during theses deliberations by the Texas Legislature, proposals to limit the ability of cities to collect property taxes and sales taxes are likely to be offered by some members of the Legislature; and WHEREAS, additional restrictions on city taxes fly in the face of a history of frugal tax administration by Texas cities; and WHEREAS, all Texas cities combined collect 0nly 15.3 percent of all property taxes collected in the State of Texas, while schools collect more than 60 percent; and WHEREAS, between 1985 and 2002, the municipal share of all property tax revenue fell from 20.3 percent to 15.3 percent; and WHEREAS, adjusted for inflation, municipal property taxes went up by only 37 percent between 1985 and 2002, while population grew by 33 percent, demonstrating that growth in municipal property tax levies roughly matched population growth; and WHEREAS, Texas cities rely on tax revenue to build basic infrastructure, to ensure public safety through police and fire departments, and to provide numerous essential services for city residents, who are 80 percent of the state's population; and WHEREAS, Texas cities engage in numerous economic development activities that produce jobs and revenue for the entire State of Texas; and WHEREAS, cities must meet the challenges of homeland security and compliance with state and federal mandates, many of which are unfunded mandates; and WHEREAS, Texas cities have shown over the years that they are fiscally responsible and good stewards of taxpayers' money; and WHEREAS, efforts to limit the ability of cities to collect sales and property tax revenues or to set tax rates would have severe negative impacts on city services, city employees, economic development efforts, and ultimately the citizens of the State of Texas; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF , TEXAS: That the goveming body of the City of will oppose all school finance or tax reform efforts by the Texas Legislature that negatively impact the ability of the City to provide basic essential services, conduct economic development activities, and ensure public safety by limiting our ability, beyond the provisions of current law, to collect property tax or sales tax revenues. PASSED AND ADOPTED this day of ,2004. Mayor, City of ATTEST: , Texas. City Secretary APPROVED AS TO FORM: City Attorney DRAFT F:\Attorney~Lisa~Resolutions\CURRENT~School Finance Report Res.wpd March 4, 2004 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS, OPPOSING ANY SCHOOL FINANCE OR TAX SYSTEM REFORMS THAT WOULD NEGATIVELY AFFECT CITY REVENUES AND ECONOMIC DEVELOPMENT EFFORTS; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND DECLARING AN EFFECTIVE DATE. WHEREAS, it is likely that the Texas Legislature will address school finance and tax system reforms in the near future; and, WHEREAS, during theses deliberations by the Texas Legislature, proposals to limit the ability of cities to collect property taxes and sales taxes are likely to be offered by some members of the Legislature; and, WHEREAS, additional restrictions on city taxes fly in the face of a history of frugal tax administration by Texas cities; and, WHEREAS, all Texas cities combined collect only 15.3 percent of all property taxes collected in the State of Texas, while schools collect more than 60 percent; and, WHEREAS, between 1985 and 2002, the municipal share of all property tax revenue fell from 20.3 percent to 15.3 percent; and, WHEREAS, adjusted for inflation, municipal property taxes went up by only 37 percent between 1985 and 2002, while population grew by 33 percent, demonstrating that growth in municipal property tax levies roughly matched population growth; and, WHEREAS, Texas cities rely on tax revenue to build basic infrastructure, to ensure public safety through police and fire departments, and to provide numerous essential services for city residents, who are 80 percent of the state's population; and, WHEREAS, Texas cities engage in numerous economic development activities that produce jobs and revenue for the entire State of Texas; and, WHEREAS, cities must meet the challenges of homeland security and compliance with state and federal mandates, many of which are unfunded mandates; and, WHEREAS, Texas cities have shown over the years that they are fiscally responsible and good stewards of taxpayers' money; and, WHEREAS, efforts to limit the ability of cities to collect sales and property tax revenues or to set tax rates would have severe negative impacts on city services, city employees, economic development efforts, and ultimately the citizens of the State of Texas; NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PARIS, PARIS, TEXAS: Section 1. That the findings set out in the preamble to this resolution are hereby in all things approved. Section 2. That the City Council of the City of Paris, Pads, Texas, will oppose all school finance or tax reform efforts by the Texas Legislature that negatively impact the ability of the City to provide basic essential services, conduct economic development activities, and ensure public safety by limiting our ability, beyond the provisions of current law, to collect property tax or sales tax revenues. Section 3. That this resolution shall be effective from and after its date of passage. PASSED AND APPROVED this 8th day of March, 2004. Curtis Fendley, Mayor ATTEST: Mattie Cunningham, City Clerk APPROVED AS TO FORM: Larry W. Schenk, City Attorney Legislative ILegislative Services SCHOOL FINANCE REFORM: CITIES IN THE CROSS HAIRS? If there had been any doubt that Texas cities can be harmed by a special session on school finance reform, that doubt was erased by comments made at a public policy conference in Austin last week. The conference, sponsored by the Texas Public Policy Foundation, included a panel discussion about school finance. On the panel were two prominent members of the legislature. After the panelists had finished their prepared remarks, there was a standard question-and-answer period. The executive director of a statewide business lobby organization immediately asked the following question: if local school property taxes are reduced, what can the legislature do to prevent cities and counties from enacting large tax increases to make up the difference? One of the legislators on the panel answered that the legislature would need to devise a way to statutorily "slow down" local rates, including a possible requirement that a vote of the public be required to raise municipal taxes. New Reasons for Concern This exchange was alarming for several reasons. Most obvious, of course, is the very real possibility that the legislature will attempt to erode the ability of cities to raise revenue to pay for services. Further, it is clear that this effort may be undertaken not just by the legislature, but by other groups such as the business lobby. The most likely scenario is that a special session on school finance will be held in April, and it is clear that cities face the very real possibility that school finance "reform" will include efforts to constrict municipal taxing authority. One approach may be to enact the so-called Taxpayer Bill of Rights (TABOR), which has already been enacted in Colorado and other states. Features of TABOR include the following: 1. any tax rate hike, new tax, or tax policy change resulting in additional revenue requires voter approval; 2. property tax revenues cannot, without voter approval, increase from one year to the next beyond the rate of inflation plus additions to the tax rolls from annexations and certain other adjustments; and 3. all multi-year obligations (bonds and other contractual obligations) require voter approval. Since some state leaders appear to be interested in requiring votes of the people prior to tax increases, it is easy to anticipate the filing of a bill to enact TABOR in Texas. Advocates of such an approach are apparently unimpressed with the Truth-in-Taxation safeguards already on the books. These safeguards, combined with old-fashioned anti-tax sentiment by local voters, have been more than sufficient to keep city taxes in check for years. No matter, say those who think that all taxing entities are out of control and must be reigned in. Here's more. The January 28, 2004, edition of the San Antonio Express News reported that the school funding approach favored by the Governor's chief of staff"would also prevent city and county governments from trying to raise their taxes after local school tax rates drop." In addition, the January 29, 2004, edition of the Quorum Report, an Austin-based newsletter, reported the following about the governor's school finance proposal: In order to prevent non-school taxing authorities from simply raising taxes to take advantage of school property tax reductions, there would be severe restrictions on other taxing authorities. Any effort to increase revenues would have to be approved in a public referendum by the voters...In order to 'fix the appraisal problem, ' local property tax appraisal boards would be elected. As if these possibilities weren't scary enough, still lurking in the background is S.J.R. 1, a bill that passed the Senate during the 2003 legislative session. (Please seethe January 9, 2004, edition of the TML Legislative Update.) That bill would have diverted some city sales taxes to the state, without providing a reliable mechanism to calculate the state's share versus the city's share. Also, that bill would have dramatically reduced local school property taxes, resulting in cities and counties paying a much higher share of appraisal district operating costs. There is every reason to think that a proposal similar to S.J.R. 1 may surface again. It is possible, in other words, that cities will face attacks on property and sales taxes during a special session, a session that is ostensibly about schools. The TML Task Force on the Impacts of School Finance Reform As previously reported, TML formed a special task force on school finance in August 2003. The Task Force on the Impacts of School Finance Reform was asked to: 1. identify the potential impacts on cities of legislation designed to reform the manner in which public schools are funded; 2. describe the potential impacts on specific revenue sources (property tax, sales tax, other revenues); 3. recommend ways in which the potentially negative impacts can most effectively be opposed; and 4. report to the TML Board at its November 19, 2003, meeting in San Antonio. On November 19, the TML Board adopted the recommendations made by task force. City officials have already begun to participate in the recommended actions by scheduling and conducting meetings with key members of the legislature. TML has provided material that has facilitated these meetings, and will continue to do so in the coming days and weeks. The fear that Texas cities will go on a property tax binge if local school property taxes are reduced is thoroughly refuted by historical realities. Here are the facts: 1. All Texas cities combined (nearly 1100 cities) collect only 15.3 pement of all property taxes collected in the Lone Star State. Schools account for 60.1 percent. 2. Between 1985 and 2002, the municipal share of property taxes fell from 20.3 percent to 15.3 percent. 3. Adjusted for inflation, municipal property taxes went up by only 37 percent between 1985 and 2002, a period during which population increased by 33 percent. Thus, inflation-adjusted increases in municipal property tax levies roughly matched population growth. For more info, click on "Where Do Texas Cities Get Their Money" and "School Finance and Texas Cities." TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League. Back_to L_egislative U~pdate Index I LEGIS1.ATIVE SERVICES [ tlOME I_TEXAS LEGISLATURE ONLINE [ ©2004 Texas Municipal League Austin, Texas (512) 231-7400 Legislative Legislative Services SENATOR FLORENCE SHAPIRO WILL SPEAK AT MARCH 1.2 SEMINAR State Senator Florence Shapiro (R-Piano) will be a featured speaker at the TML-sponsored March 12 seminar titled "School Finance and Texas Cities." Senator Shapiro is Chair of the Senate Education Committee and' Co- Chair of the Joint Select Committee on Public School Finance, the committee that is charged with developing public school finance reform recommendations. Senator Shapiro is the former mayor of Plano and a past president of TML · Please plan now to attend this special seminar. Details are available on the TML Web site: www.tml.org. TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League. Back to Legislative Update Index I I.EGISLATI\;E SERVICES [HOME IEXAS LEGISLATURE ONLINE [ ©2004 Texas Municipal League Austin, Texas (512) 231-7400 School Finance and TexasCities Are cities and schools in Texas interconnected? Y~e Texas cities and school districts are intemonnected in a number of ways. To a great extent, cities form the environment in which schools exist. For instance, cities provide the infrastructure that is used by all schools within their boundaries. City services like police and fire protection, utilities, parks and recreational facilities, and libraries all benefit area schools. Because of the close relationship that exists between the two entities, legislation that harms cities can also harm schools. If cities are unable to provide the necessary basic services and infrastructure for their citizens, then the local school districts will also suffer. If a city stag- nates in its ability to prosper and grew, so too will its schools. It would be unfortunate if school finance reform backfires because cities are unable to provide the services that help schools to thrive. I; school finance reform harm dties? Y~se A number of the options proposed for school finance reform could have negative impacts on cities. Specifically, these options could: Negatively affect the ability of cities to generate proper- ty tax revenue. The property tax is a primary source of revenue for Texas cities. Revenue from property taxes paves our city streets, pays our police and firefighters, builds and maintains parks, and supports many other functions. There is a danger, however, that school finance reform proposals will address a per- ceived need to "reform" existing property taxes, even city taxes. While rising property taxes are a burden to landowners, it is crit- ical that the legislature recognize that the source of the problem is not, and has never been, the city property tax component of a citizen's tax bill. While school district taxes have been on the rise, for example, city property taxes have generally held steady. Further, city property taxes as a percentage of total property tax bills have shrunk compared to school, county, and special district taxes. Accordingly, the Texas Legislature should resist efforts to "reform" city property taxes through new caps, freezes, or other artificial limitations. Current "Truth-in-Taxation Laws" are ade- quate to protect taxpayers. Reduce sales tax revenue. Statewide, city sales taxes are nearly equal to property taxes as a source of city revenue. Most cities have adopted a basic one-cent city sales tax, and many cities have additional, dedicated-purpose sales taxes. Recent legislation has proposed expanding the state sales tax base to include many previously untaxed services. Rather than allowing each city to apply its sales tax rate to the expanded base, howev- er, the proposed legislation would appropriate the entire increase in both state and municipal sales tax revenue to a state education fund. This is troubling for two reasons. First, it takes from cities what should be theirs. The one-cent city sales tax should apply to the same base as the state's sales tax. Second, it will be diffi- cult, if not impossible, for the state to accurately determine the extent to which city sales tax increases are due to the expanded base and which increases are due to ordinary economic growth. As a result, city sales tax revenue can be reduced. O Harm municipal and regional economic development efforts, particularly those involving tax incentives. When a city engages in tax incentives for economic development reasons, it is frequently desirable to have county and school district partic- ipation in the incentives if possible. Because school district prep- erty taxes constitute the lion's share of most tax bills, failure to involve schools can doom a city-initiated economic development program. If the school property taxing function is moved to the state, but no provision is made for continuation of school partici- pation in economic development, statewide economic develop- ment will suffer. The legislature should continue current public school economic development authority, and look for proactive ways to work closely with cities and counties for economic devel- opment purposes. Can school finance reform occtw without harming dries? Y~, School finance reform can occur wilhout negatively impacting cities and their citizens if the legislation: Does not reduce city sales tax revenue; Does not affect the current authority of cities to generate property tax revenue; and Does not affect municipal economic development authority. Distribution of Property Tax Collections 1985 2002 $C ool FOR MORE INFORMATION CONTACT T/ Texas Municipal League 1821 Rutherford Lane, Suite 400 Austin, TX 78754 512-231 4400 (phone) T E X A S 512-231-7490(fax) MUNICIPA.L IW.~GUE www.tml.org Section 305.027, Government Code, requires legk~laUve advertising to disclose certain infmmation, A per- son who knowingly enters into a contract or other agreement to print, publish, or broadcast legislaUve advertising that does not contain the information required under that section commits aA offeflse that is a Class A misdemeanor. Mr. Sturzl represents the member cities of the Texas Municipal League. His address is 1821 Ruthel~ord Lane, Suite 400, Austin, Texas 78754-5128. December 2003. 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. Franchises When utilities and other industries use city property to distribute their services, cities are permitted by law to col- lect rental fees, also known as 'franchise' fees, for the use of public property. Franchise fees are calculated by various methods, depending on industry type. Permits and Fees Cities may collect fees for issuing permits for building construction, environmental regulation, and for other services. Because cities incur costs to regulate in these areas, the permit fees must be tied to the cost of provid- ing the service. Court Fines A city that operates a municipal court may impose fines for violations of traffic laws and city ordinances. Maximum fines typically range from $200 for traffic vio- lations, up to $2,000 for city ordinance violations relating to health and safety. Much of a city's fine revenue offsets the costs of law enforcement and operation of the munic- ipal court system. Interest Earnings When a city invests its funds, it must closely follow the mandates of the Public Funds Investment Act. Because of the twin concerns of safety and liquidity, investment income is a relatively small source of city revenue. Transfers from Other Funds Many cities operate utilities and other optional services that generate substantial gross revenues. By law, the fees for such services must closely offset the cost of pro- viding the service. In addition to the cost factor, cities are permitted to retain a reasonable "return" which can then be transferred to the general fund. This return amounts to less than six percent of overall city revenue. Other Sources City revenue can take various other forms, including user fees for some services, amusement taxes, and hotel occupancy taxes. The Bottom Line The state could put municipal revenue at risk in at least two ways. First, the state could increasingly look to cities for revenue to fund state programs. When a state provides direct financial assistance to its cities, such trading of revenue might be work- able. Texas is not such a state. Texas cities receive virtually no direct funding from the state, and cannot afford to fund the state's obligations. Second, the state could erode the statutory authori- ty under which cities raise their own revenue. While cities are indeed subservient to the state, city officials hope that the respectful nature of the fiscal relationship between Texas cities and the state will continue for years to come. For More Information Contact TEXAS MUNICIPAL LEAGUE Texas Municipal League 1821 Rutherford Lane, Suite 400 Austin, TX 78754 512-231-7400 (phone) 512-231-7490 (fax) www.tml.org Section 305.027, Government Code, requires legislative adverfising to disck~e certain infor- mation, A persoe who kne~ngly enters into a contract ~ other agreement to print, publish, or broadcast legislative advertising that does no{ contain lhe tnformatio~ reguimd under that sec- eon commits an offense that is a Class A miademeano~. Mi** Sturzl represents the member cities of the Texas Municipal League. His address is 1821 Rutherford Lane, Suite 400, Austin, Texas 78754-5128. Januaf-/2004. Legislative Legislative Services CALL TO ACTION: CITY OFFICIALS SHOULD CONTACT LEGISLATORS As recent editions of the TML Legislative Update have warned, school finance reform poses serious threats to city finances. Not a day goes by without new reports of proposals by key state officials to limit the ability of cities and counties to raise revenue. The conventional wisdom in some Capitol offices seems to be that the moment school property taxes are reduced or replaced, cities and counties will rush to fill the void with higher taxes of their own. This is an unfounded fear based on the belief that local officials are anxious to gouge the taxpayers. City officials should now meet with their local legislators about this specific issue and the effect of school finance reform on cities generally. While letters and phone calls can be useful, nothing works as well as face-to-face meetings with legislators in their district offices. TML encourages each city to arrange a meeting with each of their state legislators within the next month. The following points may be useful when conducting the meetings: 1. There is no evidence whatsoever that city taxes are poised to increase even one dollar as a result of school tax reform. City tax rates are held in check for a number of reasons, none of which has to do with the level of school taxes, high or low. For one, city government is the government closest to the people, and people don't like tax increases. City councils are elected by the same voters who elect state officials: an electorate that doesn't look kindly on new taxes. 2. City property taxes have generally kept pace with inflation and population growth (see chart on the next page). There is no indication they would accelerate because of any changes to school taxes. Total Property Tax Levies ($ Millions) 1985 2002 Percent Inflation- Change Adjusted Change Special 1,056.802 2,864.455 +171.05% +61.47% Districts Cities Il 1,820.345114, 86.795 1+130.00% 11+37.o1% ~Schools l14,663.8921116,418.7891+252.04% l+109.71% Total 118,968.794 127,319.76711+204.61% 1+81.46% During the 17-yearperiod (1985-2002) municipal property tax levies (adjusted for inflation) grew by 3 7percent. During the same period, population grew by 33 percent. Inflation-adjusted growth in municipal property tax levies was roughly equal to population growth. 3. City services benefit all Texans, city residents and non-residents alike. Municipal public safety personnel are the first and most important line of defense in homeland security. When disasters strike, city fire trucks, police cars, and ambulances don't stop at the city limits. City roads and airports are the foundations of our economy-- without them, state commerce would grind to a halt. The list of invaluable municipal services goes on and on. 4. City services benefit schools. It would be unfortunate to improve the school funding system only to harm the cities in which schools are located. 5. Texas cities receive virtually no funding from the state to assist in providing these essential services. Tax caps or revenue limits of any sort, in the absence of any state funding, are patently unfair and may lead to a disastrous reduction in city services. 6. Current truth-in-taxation laws are designed to prevent sudden property tax increases. Fears about "hiding" tax increases within appraisal increases are unfounded. When valuations rise, the effective tax rates of cities drop in exact proportion. This lowered effective rate is the baseline from which cities must operate, triggering tax hearing requirements and the potential of a rollback election. In other words, the effective rate, which is well-publicized by cities, is designed to shed light on the relationship between appraisal valuations and tax rates. Cities that must raise property taxes do so now in the full light of day, thanks to the effective rate calculations. 7. Proposed tax or revenue caps ignore budget realities. (Please see article below.) Prior to meeting with members of the legislature, it may be helpful to download these two pamphlets prepared by TML staff.' "Where Do Cities Get Their Money?" and ~School Finm~ce and Texas Cities." City officials should feel free to share these materials during their meetings with their legislators. TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League. Legislative Legislative Services PROPOSED TAX CAPS IGNORE BUDGET REALITIES As noted above, the school finance reform debate has spawned several proposals to limit city revenue; new caps on property tax rates; popular elections to approve any new taxes, higher tax rates or increased revenues; lowered rollback rates; and others. All these ideas are based on the flawed belief that the need for city services, and thus revenue, is easily predictable and steady from year-to-year. In fact, the opposite is true. Cities frequently face new budgetary crises. The following are but a few examples of unexpected expenses that cities face: 1. the high cost of homeland security, a cost that would increase if there is another terrorist attack; 2. skyrocketing health care premiums for city employees; 3. natural disasters requiring direct expenditures; 4. new development creating the need for additional infrastructure and services; 5. lost municipal court fine revenue because of state fees on court convictions; 6. a deluge of open records requests by disgruntled citizens (some cities have had to hire new staff just to respond); 7. loss of sales tax revenue due to the closing of major businesses or a general economic downturn; 8. premature aging of city infrastructure; 9. state and federal mandates for which no state/federal funding is provided; 10. lawsuits against the city; 11. the expansion of a police or fire department from four to five employees triggering a legal requirement for overtime pay; and 12. proposed changes to federal overtime laws expanding the number of employees eligible for overtime pay. Any of these budgetary emergencies might require a one-time tax increase that could be impossible to accomplish under some of the tax cap proposals being offered up during the school finance debate. City officials should be prepared to share this fact with their legislators. TML member cities may use the material herein for any purpose. No other person or entity may reprodttce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.