                              Office of the !Z4ttornep@mecal
                                            &date of PCexas
DAN MORALES                                   August 13,1992
 ATTORNEY
       GENERAL



     Honorable John Sharp                      Opinion No. DM-155
     Comptroller of Public Accounts
     LBJ State office Building                 Re: Whether a county education district must
     Austin Texas 78774                        comply with the “truth-in-taxation” provisions in
                                               chapter 26 of the Tax Code by calculating
                                               effective and rollback tax rates, publishing
                                               notices of hearings, holding hearings, and if it
                                               receives a valid petition, calling a rollback
                                               election before adopting its tax rate, and related
                                               questions (RQ-384)

     Dear Comptroller       Sharp:

             You have requested an opinion regarding the apRlicability of the truth-in-
     taxation provisions of the Tax Code to county education districts (CEDs). Although
     the Texas Supreme Court has declared the CEDs unconstitutional,        it stayed the
     effect of its ruling until June 1, 1993. See Cmrollton-Farmers Bmnch Independent
     School District v. Edgewood Independent School District, 826 S.W.2d 489, 522 (T’ex.
     1992) (hereafter Edgewood IV). This stay permits the CEDs to levy and collect taxes
     for the 1991-1992 and 1992-1993 school years, see id, and makes the applicability of
     the truth-in-taxation provisions a relevant concern.

             The truth-in-taxation provisions have two purposes: to educate taxpayers
     about tax-rate proposals and, under certain circumstances, to allow taxpayers to
     limit tax increases. STATEPROPERTYTAX BOARD, TRUTH IN TAXATION 1991: A
     GUIDE FOR SETTING TAX RATES, at l(l991).       The provisions require a taxing unitt
     to calculate and publish its effective and rollback tax rates each year before
     adopting its actual tax rate. Tax Code 5 26.04(e). Before adopting a tax rate that

             ]A “taxing unit” is any polithl sobdivlsiw of the state that is authorized to impose aad is
     imposhg property taxes. TaxCode.     5 1.04(U). The truth-in-taxation provisionsapply to entities that
     aretaxiag units.See,e.g, id 0 26.04.




                                                    p.   811
Honorable John Sharp - Page 2                      ml-155)




exceeds either the effective tax rate* plus three percent or the rollback rate,3 a
taxing unit must also publish notices and hold a public hearing. Id #2605(d),
26.06. In addition, if a taxing unit adopts a rate that exceeds the rollback rate, the
taxpayers may, by submitting a valid petition, demand that the taxing unit hold an
election to determine whether the tax rate should be limited to the rollback rate.
For taxing units other than school districts, a successful rollback election limits the
tax increase for the current year. Id. 5 26.07(e). For school districts, however, a
successful rollback election limits the tax increase for the following year. Id
5 26.08(e).

        The CEDs were created in 1991 by Senate Bill 351, as amended by House
Bill 288K4 Nothing in either bill or in its legislative history clearly indicates whether
the truth-in-taxation provisions apply to CEDs. However, the legislature’s failure to
indicate that the truth-in-taxation provisions are inapplicable to CEDs permits the
inference that they do apply. Section 1.02 of the Tax Code states that the Property
Tax Code,5 which includes the truth-in-taxation provisions, applies to all taxing units

         ZThe effective tax rate is the tax rate a taxing unit would need to adopt to raise the same
revenue as it raised the previous year given the current value of the property taxed ia the previous year.
See STATEPROPERTYTAX BOARD,supnr, at 4. The formula for calculating the effective tax rate io
dollars per $100 of taxable value is as follows:

               @at Year’s Lew - Lost Pm              = Effective Tax Rate
             (Current Total Value - New Property Vab~c.)

Tax Code P 26.04(c)(l).

         %Jalike the effective tax rate, the rollback tax rate diitingaisbes between the maintenance aad
operations tax rate and debt-service tax rate. This distinction allows a taxing unit to increase its debt-
service tax rate to whatever rate is necessary to pay the interest aad principal oa bonds without
triggeriag a rollback election, while it limits the increase ia the maintenance aad operations rate to
eight cents for school districts aad eight percent for all other taxiag u&s. See SrATE PROPERTYTAX
BOARD,sups, at 5; Tax Code $5 2&04(c)(2), 2&08(a). Because the rollback tax rate allows unlimited
increases ia the debt-service tax rate, the rollback tax rate will exceed the effective tax rate, unless the
taxing unit experiences a decrease in its bonded indebtedness. STATE!       PROPERTYTAX BOARD, supna.
Accmdiig to the Property Tax Division of the Comptroller’s Oftice, however, the CEDs levy only
maiateaance and operations taxes because they have ao bonded indebtedness. Therefore, a CED’s
effectiw tax rate differs littie from its rollback tax rate.

          4Aets 199l,72d Leg., ch. 20, at 381, amended by Ads 1991,72d Leg., ch. 391, at 1475. In the
rest of this opiaion, we will refer to Senate Bii 351 as amended by House Bii 2885 as Senate Bii 351.

         %he Property Tax Code is title one of the Tax Code. See Tax Code 8 1.01.




                                                  p.   812
 Honorable John Sharp - Page 3                 (r&l-155)




unless the law creating the taxing unit expressly provides otherwise. In the past, the
legislature has expressly provided otherwise. See, eg., Acts 1985,69th Leg., 1st C.S.,
ch. 1, 9 2(a), at 3788 (expressly making the truth-in-taxation provisions inapplicable
to tax increases necessary to provide services required under the Indigent Health
Care and Treatment Act). In addition, in Senate Bill 351, the legislature amended
the definition of “taxing unit” to include the CEDs. See Acts 1991,72d Leg., ch. 20,
# 13, at 411 (amending section 1.04(12) of the Tax Code).

         Gn the other hand, the characteristics of the CEDs suggest that the truth-in-
taxation provisions do not apply. A CBD is not a typical taring unit; it does not
establish its own budget and adopt a tax rate sufficient to generate the revenue
necessary to meet that budget. Rather, the legislation creating the CEDs, in effect,
establishes the tax rate for each CED. Section 20.945(a) of the Education Code
directs each CBD to “levy a tax at a rate necessary to collect its local fund
assignment under Section 16.252 of this code.. . .” Section 16.252 defines a CED’s
local fund assignment as the product of a specified tax rate6 and the taxable value of
the property in the CED for the prior tax year as determined by the comptroller
under section 11.86 of the Education Code. This formula gives the CEDs no
discretion in setting their tax rates.’ See Edgewood IV, 826 S.W.2d at 500 (holding
that Senate Bill 351 establishes an unconstitutional statewide property tax because
the state leaves the CEDs no discretion in setting their tax rates or distributing the
revenue they raise).

        Given these circumstances, you ask if a CBD is required to calculate effective
and rollback tax rates, publish notices, and hold a hearing before adopting the
required tax rate. You also indicate that the formula for setting the tax rate will
result in a 1992-1993 rate sufficient to subject all the CEDs to a rollback election.


         6For the 1991-1992 school year, the specSed tax rate was SO.72per hundred dollars valuation;
for the 1992-1993 school year, the spetied tax rate will be SO.82per hundred dollars valuation. Edw
Code 0 16.2S2.

        90   calculate the actual tax rate for the year, a CED needs to use the taxable value of its
property for the conent year and fire       out what tax rate will allow it to collect its local fund
assignment. The tax rate necessary to permit a CED to collect its local fond assignment may diier
from the tax rate osed to calculate the local fund assignment because the CED must figure in the
cokction rate and any other applicableadjustments. Even w&de&g these adjustments,Senate Bii
351 does not give the CEDs any real discretion in setting their tax rates. See Edgewood IV, 826 S.W.2d
at 501.




                                                p. 813
Honorable John Sharp - Page 4             ci"l-155)




Therefore, you ask whether a CED must call a rollback election if it is presented
with a valid petition. If we answer either of these questions aBhmatively, you then
ask whether the CEDs are governed by the truth-in-taxation provisions pertaining to
school districts or those pertaining to other taxing units.      In addition, if we
determine that a CED must call a rollback election, you ask what tax rate the CED
must adopt if the rollback election succeeds.

        These questions require us to resolve a conflict between general provisions
and special provisions dealing with the same subject. Both the truth-in-taxation
provisions and the relevant portions of Senate Bill 351 deal with setting tax rates
and levying taxes: The truth-in-taxation provisions apply to taxing units in general,
and Senate Bill 351 contains specific provisions that deal with how CEDs set tax
rates and levy taxes. The conflict arises because the truth-in-taxation provisions tell
taxing units how to exercise their discretion in setting tax rates, while Senate Bill 351
essentially tells the CEDs that they have no discretion.

        When construing statutes, we must determine the intent of the legislature
and construe the statutes so that they will accomplish the legislature’s purposes.
Brown v. Owens, 674 S.W.2d 748,750 (Tex. 1984). In a problem involving a conflict
between general provisions and special provisions dealing with the same subject, we
must attempt to harmonize the provisions if possible. If, however, the general
provisions and the special provisions are irreconcilable, then the special provisions
prevail unless the general provisions were enacted after the special provisions and
the manifest intent was that the general provisions prevail. Gov’t Code $311.026.
When special provisions prevail over general provisions, the special provisions
become an exception to the general provisions on the theory that the special
provisions more accurately express the legislature’s intent.     State w. Jones, 570
S.W.2d 122, 123 (Tex. Civ. App.--Austin 1978, no writ).

        The intent behind Senate Biil 351 was to remedy the defects in the school-
financing system identified by the Texas Supreme Court in Edgewood Independent
School District v. Kirby, 777 S.W.2d 391,394 (Tex. 1989) (hereafter Edgewood Z) and
in Edgewood Independent School District v. Kirby, 804 S.W.2d 491 (Tex. 1991)
(hereafter Edgewood 10. In Edgewood I, the court held that the school-financing
system then in effect did not make suitable provisions for an “efficient” system of
education to accomplish a “general diffusion of knowledge” as required by article




                                         p. 814
Honorable John Sharp - Page 5                         a-155)




VII, section 1 of the Texas Constitution .* Following this decision, the legislature
passed Senate Bill 1,9 which the court also declared unconstitutional under article
VII, section 1. See Edgewood II, 804 S.W.2d 491. The legislature then passed
Senate Bill 351.10

         The problem that caused the supreme court to declare the school-financing
system unconstitutional in both Edgewood I and Edgewood II arose from the effect
of a school district’s property wealth on the amount of revenue available to that
district and the tax effort required of the district to raise sufftcient revenue. The
school-financing systems at issue in both cases required each local school district to
raise about fifty percent of its revenue from local property taxes. Edgewood I, 777
S.W-2d at 392; Edgewood II, 804 S.W.2d at 496. Therefore, the property-rich school
districts could tax low and spend high, while the property-poor districts had to tax
high merely to spend low. Edgewood I, 777 S.W.2d at 393. Although the court
refused to tell the legislature what kind of system would pass constitutional muster,
the court did state that “[tlhere must be a direct and close correlation between a
district’s tax effort and the educational resources available to it; in other words,
districts must have substantially equal access to similar revenues per pupil at similar
levels of tax effort.” Id. at 397; see uko Edgewood II, 804 S.W.2d .at 496.

        The CEDs are the most significant new feature of the school-financing
system created by Senate Bill 351. They are groups of local school districtstt
consolidated for the limited purpose of exercising a portion of the taxing power
already granted to the component school districts. Educ. Code $20.942. The school


        *ArticIe VII, section 1 of the Texas Constitution provides:

                 A general diion      of knowledge beiig essential to the preservation of the
             liberties aad rights of the people, it shall be the duty of the Legislature of the
             State to establish and make suitable provision for the support aad
             maintenance of aa efficient system of public free schools.

        9Acts 1990,llst   Leg., 6th C.S., cb. 1, at 1.

        ‘Drhe Texas Supreme Court has not ruled or commented on the coastitutioaatity of Senate
Bii 351 under artidc VII, section 1.

        “One hundred aad fdty-seven of the CEXk consist of aU the school districts in a single county.
The remaining thirty-one CEDs consist of aU the school districts in hvo or more counties. See Educ
Code 0 20941(a)-(b).




                                                 p.      815
Honorable John Sharp - Page 6                     (w-155)




districts within each CED were selected to ensure that no CED has taxable property
worth more than $280,000 per weighted student in average daily attendance.      Id
5 20.941(c).

         The CEDs levy and collect taxes to fund the first tier of a two-tier financing
system.‘* Id. 5 16251(b). In the first tier, each school district receives a specific
allotment for each student in average daily attendance.13 This allotment comes
from three sources: (1) the school district’s share of the revenue collected by the
CBD; (2) the state available school funds distributed to the school district; and (3) a
grant from the commissioner of eduction equal to the difference between the
district’s tier-one entitlement and the amount the district receives from the other
two sources. Id.

        The legislature directed the CEDs to raise the revenue they need for this tier
by levying and collecting taxes on all property within the CBD at the tax rate
necessary to raise its local fund assignment. Id. @20.945(a), 16252(a). The CED
then divides the revenue it raises from this tax among the school districts within the
CED, as directed by the commissioner of education. Id. 8 16.501(a), (b). Because
affhtent and poor school districts are combined in the CEDs, the CBDs recapture
and redistribute property’tax revenue from the component school districts: The
poorer school districts receive back more than they contribute in tier-one revenue,
while the affluent school districts receive back less than they contribute.     Yudof,
School Finance Reform: Don’t Warty, Be Hnppy, 10 REV. LITIG. 585, 593 (1991).
This system of levying and distributing tax revenue serves to equalize the amount of
revenue the component school districts receive from similar tax effort.

        Because the notice and hearing requirements of the truth-in-taxation
provisions can be harmonized with this financing scheme and its purpose, we


          ‘*School districts are also permitted to levy taxes beyond those necessary to fond these hvo
tiers, up to a certain limit. See Educ. Code 5 20.09.

          ‘*he allotment for each district coasists of a basic allotment with any applicable adjustments
plus special allotments. For the 1991-1992 school year, the basic allotment was f2200, for the
1992.1993 school year, the basic allotment witI be 52,400. Educ. Code P 16.101. The basic allotment is
adjusted to reflect geographic variations in resource costs aad the costs of education due to factors
beyond the district’s control. Id. p 16.102. The basic allotment is also adjusted for particularly smaU or
sparsely populated districts. Id. 5s 16.103, 16.104. b addition to the basic allotment, each school
district receives special allotments for various programs such as special education. Id 05 16.151-.160.




                                                  p. 816
Honorable John Sharp - Page 7                  uN-155)




conclude that the CEDs are required to publish notices and hold hearings before
adopting their actual tax rates. Requiring CEDs to give notice and hold public
hearings will not impose any inconsistent duties on the CEDs: The CEDs can still
levy and collect taxes at a rate sufficient to raise their local fund assigmnents, and
they can still distribute the taxes they collect as directed by the commissioner of
education. In addition, applying the notice and hearing requirements of the tmth-
in-taxation provisions to CEDs would advance one purpose behind the tmth-in-
taxation provisions without impairing this school-financing scheme. Even though
the CEDs camrot reduce their tax rates in response to taxpayer pressure, requiring
the CEDs to give the taxpayers notice and hold public hearings will still help
educate the taxpayers.

         Furthermore, publishing notices and holding hearings as required by the
truth-in-taxation provisions will not impose a significant new burden on the CEDs.
The Texas Education Agency informs us that it already requires the CEDs to
publish notices and hold hearings. To comply with the truth-in-taxation provisions,
the CEDs must simply make sure that the notices they publish conform to the
requirements in sections 26.04(e) and 26.06 of the Tax Code and that the hearings
they hold meet the standards set in sections 26.05(d) and 26.06 of the Tax Code.

        We also conclude that the CEDs are school districts for the purposes of
applying the truth-in-taxation provisions.    Senate Bill 351 defines the CEDs as
independent school districts. See Educ. Code 9 20.942.” In addition, the same
section provides that the CEDs were established for the limited purpose of
exercising part of the taxing power possessed by the component school districts. See
id Because the CEDs exercise part of the taxing power formerly held by the
component school districts, the rationale for treating school districts differently than
other taxing units applies to CEDs as well.

        As school districts, the CEDs must use the rollback-rate formula contained in
section 26.08(a) of the Tax Code rather than the formula contained in section
26.04(c)(2). Before the legislature enacted Senate Bill 351, both school districts and
other taxing units were required to calculate their rollback tax rates using a formula
that allowed them to increase their tax rates by eight percent before triggering the

         140ther sections of the Education Code state that “school district” does not include a CED
unless the context clearly indicates otherwise. However, these. sections apply only to the Education
Code. See Educ Cede PI 1.05,16.010.




                                               p. 817
Honorable John Sharp - Page 8                   (Ix-155)




possibility of a rollback election.      In Senate Bill 351, however, the legislature
amended section 26.08(a), changing the formula for calculating a school district’s
rollback tax rate.is See Acts 1991, 72d Leg., ch. 20, 520. This amendment permits
school districts to raise their tax rates eight cents, rather than eight percent, before
triggering the possibility of a rollback election. Other taxing units are still restricted
to an eight percent increase and must calculate their rollback rates accordingly. See
Tax Code 80 26.04(c)(2), 26.07.0

       You also ask whether a CED must call a rollback election if it is presented
with a valid petition and what tax rate a CED must adopt if a rollback election
succeeds. However, because CEDs are school districts for the purposes of applying
the truth-in-taxation provisions, we do not need to answer these~questions.           A
successful rollback election during the 1992-1993 school year would merely require
a CBD, as a school district, to limit its tax increase during the 1993-1994 school year,
see Tax Code B 26.08, and the supreme court has enjoined the CEDs from levying
and collecting taxes after the 1992-1993 school year.




         ‘sActually, by amending section 23.08(a), the legislature changed only the formula for
dcterrnining when the taxpayers can petition for a rollback election. The legislature did not amend the
provisions of the Tax Code that prescxii the formula for the rollback rate a school district must
publish or the formula for determining when a school district must publish notices and hold a public
hearing before adoptinga tax rate. See Tax Code 50 26.04(c)(Z),    26.05(d).

         However, requiring school districts to publish a rollback rate Merent than the one used to
determine the actual rollback would be unreasonable and absurd. Even when the literal language of a
statute supports one constructionof a statute, we do not have to adopt that const~ction when it would
lead to an unreasonable and absurd result. Rather, we must look at the intent of the legislatureand
adopt a constructionthat will further that intent. See Gov’tCode 5 311Xnl;Solos v. Slute, 592S.WZd
653,655 (3%~.Civ. App..-Austin 1979, no wit). The purposes behind the truth-in-taxation provisions
would not be served by requiring a school district to use different rollback tax rates at different stages
in the truth-in-taxation process; tbii procedure would co&se the taxpayers rather than help educate
them. Therefore, despite the statutory language, we conclude that the school districts need to use the
same formula to calculate the tax rates they publish as they do to determine whether the taxpayers can
insist on a rollback election.




                                                p.   818
Honorable John Sharp - Page 9           (Ix+155)




                                   SUMMARY

                The county education districts (CEDs) must comply with the
          notice and hearing requirements          of the truth-in-taxation
          provisions contained in sections 26.04 through 26.86 of the Tax
          Code. These requirements are consistent with Senate Bill 351,
          which creates the CEDs and indicates how they should set their
          tax rates, levy their taxes, and distribute the tax revenue they
          collect.     For the purpose of satisfying the truth-in-taxation
          provisions, the CEDs are school districts. Therefore, the CEDs
          must use the formula contained in section 26.08(a) of the Tax
          Code to calculate their rollback tax rates. In addition, because
          the Texas Supreme Court has enjoined the CEDs from levying
          and collecting taxes after the 1992-1993 school year, we do not
          need to determine whether a CED must call a rollback election
          if it receives a petition.

                                                   Very truly yours,




                                                   DAN      MORALES
                                                   Attorney General of Texas



WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by Margaret A. Roll
Assistant Attorney General




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