As the second quarter comes to a close, attention in the property tax industry shifts from the assessment phase of the property tax calendar to the budget and tax rate adoption phase, which ultimately impacts property tax bills issued at the end of the year. Local taxing jurisdictions rely on property tax rates to fund their annual budgets. While assessed property values often receive the most attention from taxpayers, tax rates established by local taxing authorities can have an equally significant effect on the final tax bill and are frequently overlooked by those outside the property tax profession.
In Texas, local taxing authorities typically adopt their budgets and establish tax rates between August and September, with most fiscal years beginning on October 1. Tax rates are set to generate the revenue necessary to support the annual budgets approved by elected officials such as County Commissioners, City Council members, and School Board Trustees. These officials are responsible for determining the funding required to maintain local services and operations. As a result, the budgets adopted by these governing bodies directly influence whether tax rate increases are necessary to support the financial needs of the taxing districts.
The overall tax rate is composed of two separate components: the Maintenance and Operations (M&O) rate and the Interest and Sinking (I&S) rate. Together, these rates form the total tax rate applied to a property’s taxable value and reflected on the taxpayer’s bill. The M&O rate funds general governmental operations and services, while the I&S rate is used to repay debt obligations. In some cases, local bond elections may be approved by voters to increase the I&S portion of the tax rate in order to finance additional projects or services.
Tax rates are often an overlooked component of the property tax process. Property assessments typically receive the greatest level of scrutiny from taxpayers because increases are more easily identified on assessment notices and tax bills. However, tax rates are recalculated and adopted annually based on the revenue needs established by each taxing unit. In many cases, tax rates and assessed values maintain an inverse relationship. As property values have risen in recent years due to strong housing market conditions, some taxing jurisdictions have reduced tax rates to help provide relief to taxpayers by keeping tax bills relatively stable or, in some instances, slightly lower.
Taxpayers can take several steps to become more involved in the tax rate and budget adoption process. First, it is important to understand which entities and elected officials are responsible for setting budgets and tax rates, as well as when and where public meetings and hearings are held. The Texas property tax website (taxas.gov/propertytaxes) provides valuable resources that allow taxpayers to review proposed tax rates, hearing schedules, and public comments related to budget and tax rate discussions. Additionally, taxpayers may participate directly by attending public hearings and voting in bond elections that could impact future tax rates and community services.
In summary, the budget and tax rate adoption process plays a critical role in determining a taxpayer’s final property tax bill. While assessed property values are an important factor, tax rates established by local taxing authorities significantly influence the total amount owed. Taxpayers can play an active role in this process by staying informed, participating in public hearings, and voting in bond elections. Utilizing resources provided by local taxing authorities and state agencies can also help taxpayers remain informed about budget decisions and proposed tax rate changes.