DALLAS – Credit ratings for Texas school districts should withstand a $1.2 billion reduction in property taxes over the next two years, according to Fitch Ratings.
Under Proposition 1 approved by voters Nov. 3, the residential homestead exemption on property taxes will rise to $25,000 from the previous $15,000. Under legislation approved this year, the state would cover any revenue shortfall caused by the reduced taxes during the two-year state budget period that ends Aug. 31, 2017.
Most Texas school districts levy taxes at the maximum statutory amount for operations of either $1.04 or $1.17 per $100 of taxable assessed value, depending on prior voter approval of an additional $0.13, said Fitch analyst Steve Murray.
Districts have more flexibility on debt service, although a number of districts levy debt service tax rates at or near the statutory cap of 50-cents for new issuance approval.
"Nine districts rated by Fitch currently levy at the $0.50 cap," Murray said. "The debt service make whole provision applies only to debt issued (and first payment made) prior to Sept. 1, 2015, so any declines in taxable value from the increased exemption may affect the timing and size of new borrowings for those districts with tax rates at or near the statutory cap."
The property tax cut comes after Texas enjoyed a banner year for revenue in 2014. With oil prices falling by half by the end of that year, 2015 began with signs of spreading economic weakness. Despite the oil slump, school districts in Texas continue to expand rapidly, with billions of dollars of construction bonds issued this year.
"Generally strong economic conditions in Texas over the past several years have contributed to solid gains in TAV [taxable assessed value] for local governments (the exceptions being those areas with large mineral value concentrations)," Murray wrote.
"These TAV gains, along with funds made available through the make whole provision, will cushion the blow from the homestead exemption increase," he wrote. "For the many districts with limited debt service tax rate flexibility, TAV gains will shorten or eliminate delays in borrowings that might have otherwise occurred."
