TO THE ADMINISTRATOR ADDRESSED:
Re: Optional Homestead Exemption
Over the past several weeks, there has been much discussion of the possibility of recognizing half the value of local optional homestead exemptions for school funding purposes. Texas Education Code (TEC) §42.2522 provides that the calculation of state aid can use the reduced taxable value resulting from recognition of half the optional homestead values only if funds are specifically appropriated for that purpose, or if the commissioner determines that the total amount of funds appropriated to the Foundation School Program exceed the amount that will be distributed before any deduction for the optional exemption.
There has been no appropriation made specifically for the purpose of optional homestead recognition, but it appears that a surplus of appropriated funds will result either from settle-up for the 1999-2000 school year or from early adjustment for rapid property value growth as described in TEC §42.2522(b). This expected surplus of appropriations will make it possible for half the optional homestead exemption to be recognized for calculating 2000-01 school year entitlements (tax year 1999) under TEC Chapters 42 and 46, and the amount of recapture owed under TEC Chapter 41. A new summary of finances for the 2000?01 school year indicating the increased state aid will be generated sometime in July using the reduced final taxable value ("T4") certified by the Comptroller.
Under TEC §42.2522(e), school districts must take the additional assistance provided by the optional homestead exemption recognition into consideration in calculating the rollback tax rate for 2000-01. The instructions for the "WORKSHEET TO ASSIST DISTRICTS IN CALCULATING ROLLBACK RATES", already discuss the use of the "T4" value if this adjustment for the optional homestead exemption is made instead of the value that does not recognize the optional exemption ("T2"). The worksheet and instructions, as well as an automated version, may also be downloaded from the TEA web site at www.tea.state.tx.us/school.finance/funding.
This adjustment should be viewed as a "one-time only" change to the amount of funding to the district. School districts that had a percentage optional homestead exemption in tax year 1999 will be able to realize a financial benefit, but school districts should not expect automatic continued adjustment, and should plan accordingly when considering changes to tax rates, authorizing new exemptions, or developing communications related to this adjustment. There is no certainty that a surplus of appropriations will exist in future years and even less likelihood in the first year of a state fiscal biennium.
If you have any additional questions, please contact the State Funding Division at (512) 463-9238.
Sincerely,
Jim Nelson
Commissioner of Education
For further information on this topic, contact the State Funding Division at (512) 463-9238.