KBS Law Lines: Local Option Homestead Exemption (UPDATE)

Q: Due to the passage of SB 1 in the 2015 legislative session, my District acted before June 1, 2015, to adopt a Local Option Homestead Exemption (LOHE) of zero percent (0%) that was previously twenty percent (20%).  Our CFO has told us that action is void and our prior 20% LOHE is automatically reinstated.  Is that true? How can proper Board action be void?

A: That is the apparent effect of the recent opinion by the Texas Attorney General issued in KP-0072 (March 17, 2016).  The AG’s opinion is that any such action taken after the passage of SB 1 in 2015 is void because it violated the intent of SB 1.

The AG opinion addressed this issue and the effect of the recent Constitutional amendment (SJR1), which enacted its companion bill SB 1 increasing the state imposed homestead exemption from $15,000 to $25,000 and locking in the LOHE at 2014 levels through 2019.  In anticipation of SB 1 taking effect, many school districts repealed their LOHE prior to June 1, 2015 (some might more accurately say “adopted a zero percent LOHE”).  However, the AG’s guidance is that any action taken after May 29, 2015 (the supposed effective date of SB 1), “to reduce or repeal a local option homestead exemption would be in direct conflict with [the] intent” of the legislation, and thus is void as action outside the authority of the board.

This reasoning comes from a provision in SB 1 stating that the “governing body of a school district, municipality, or county that adopted an exemption under Subsection [11.13(n) of the Texas Tax Code] for the 2014 tax year may not reduce the amount of or repeal the exemption. This subsection expires December 31, 2019.” S.B. 1, § 1, 84th Leg., R.S. (2015) (now codified as TEX. TAX. CODE § 11.13(n-1)) (emphasis added).

The Attorney General optimistically points out that “[w]ith the promise of additional funds from the state to minimize the loss of revenue to the school districts, the extent of the expected impairment, at least with respect to school districts, is slight.”  Some may respond that indeed, local control has been slighted.  It is possible that the 20-plus school districts that adopted something less than a 20% LOHE prior to June 1, 2015, could take legal action.  That would seem even more likely if the State doesn’t make good on its promise of additional funds to school districts.  It is plausible that SB 1 could be revisited in the 2017 session . . . A session in which the Legislature may very well already be addressing our school finance system.

What’s next?  Districts that adopted a lower (or zero) LOHE probably recently received a letter from the Comptroller asking Superintendent’s to provide information about their LOHE.  You may want to discuss your response with your school attorney.

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