Effective Rate and Rollback Rate

by Coy Holcombe.  

Two of the calculations that school districts must make are the effective tax rate and the rollback tax rate. School districts are required to publish their rollback tax rate. Today, I want to talk about the definition of these two tax rates. I will be using the definitions from the 2009 Truth in Taxation Guide published by the Texas Comptroller’s office.

Effective Tax Rate:

The effective tax rate is a calculated rate that would provide the school district with about the same amount of revenue it received in the year before, on properties taxed in both years. If property values rise, the effective rate will go down and vice versa (Truth in Taxation Guide, p 1).

Effective M & O Tax Rate:

The effective maintenance and operations rate is the rate that, when imposed on the current year’s taxable value, yields state and local revenue per student equal to the state and local revenue per student for the preceding year, including the new funds distributed for property tax relief and additional funding for teacher pay raises and high schools (Truth in Taxation Guide, p.1).

The basic calculation for the effective rate is to take the prior year’s taxes less the taxes on property lost for the current year and divide it by the current value of property taxed in the prior year. The result is then multiplied by 100. The calculations can be fairly simple if a school district knows all the numbers required to plug into the worksheet. This is where the appraisal district comes in: school districts receive the required numbers from the appraisal district.

Rollback Tax Rate:

The rollback rate is a calculated maximum rate allowed by law without voter approval. The rollback rate is the LESSER of (1) the sum of the current compression percentage (0.6667 for 2009) times $1.50 (or times the 2005 M & O rate for school districts with 2005 M & O rates above $1.50), plus 4 cents, plus the rate that is equal to the sum of any differences between the adopted tax rate and the rollback rate approved by the voters for 2006 and subsequent years, plus the current debt rate OR (2) the sum of the effective M & O tax rate plus the rate equal to the current state compression percentage times 0.06 (this amounts to 4 cents in 2009), plus the current debt rate. In future years, the commissioner of education may determine a different compression percentage (Truth in Taxation Guide, p 1).

M & O revenue for a district is what the district uses for day to day operations. M & O revenue pays salaries, utilities, etc. The debt service revenue (usually referred to as interest and sinking, or I & S) is the tax rate amount used to pay for voter approved bonds. The calculations for the effective tax rate do not require that a district distinguish between M & O and I & S. However, the calculation for the rollback tax rate is the sum of the maximum M & O rate and debt service rate.

While the definition of the rollback rate sounds complicated, once the effective tax rate is calculated, it is really a fairly easy calculation to make; however, in order to calculate the rollback rate, the effective tax rate must be done first. So, again, we get back to the numbers needed from the appraisal districts. EISD is very fortunate to be associated with two appraisal districts that understand the importance of these calculations and always strive to get these required numbers to us in a timely manner.

More on taxes tomorrow.

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