The Honorable Jane Nelson Chair, Committee onFinance Texas State Senate Post Office Box 12068 Austin, Texas 78711-2068

Dear SenatorNelson: 

### KEN PAXTON
ATTORNEY GENERAL OF TEXAS

March 17, 2016

OpinionNo. KP-0072

Re: Whether a school district, municipality,
or county may reduce or repeal the local optionhomesteadexemptionfrom the amount thatwas adoptedforthe 2014taxyearthrough the 2019 tax year (RQ-0082-KP)

You seek our opinion on whether a school district, municipality, or county may reduce or repeal the local option homestead exemption from the amount that was adopted for the 2014 tax yearthrough the 2019 tax year. 1 Among other things, Senate Bill 1 ("S.B. 1"), enacted by the Eighty-fourth Legislature, amended section 11.13 ofthe Tax Code. See Act ofMay 29, 2015, 84th Leg., R.S., ch. 465, § 1, 2015 Tex. Gen. Laws 1779 (codified at TEX. TAX CODE§ 11.13). Prior to S.B. 1, subsection ll.13(b) provided that the amount ofhomestead exemption was $15,000 for purposes ofschool district taxation.2 Subsection 1l.13(n) authorizes a governing body ofa taxing unit to provide an additional homestead exemption. TEX. TAX CODE § 1 l .13(n). In S.B. 1, subsection 11.13(b) was amended to increase the amount ofhomestead tax exemptionto $25,000. See id. § 1l.13(b). S.B: 1 also added subsection 11.13(n-1), which provides that the "governing body ofa school district, municipality orcounty that adopted an exemptionunder Subsection (n) for the 2014 tax year may not reduce the amount oforrepealthe exemption. This subsection expires December 31, 2019." Id. § ll.13(n-1). S.,13. 1provides that**th~** Act "applies beginning with the 2015 tax year." Act of May 29, 2015, 84th Leg., R.S., ch. 465, § 26, 2015 Tex. Gen. Laws 1779, 1786. Yet, most provisions in S.B. 1, including the new subsection 1l.13(n-1), are effective on the date on which the "constitutional amendment proposed by S.J.R. 1

...takes effect." See id. § 27(a)(l) at 1786.

1Letter from Honorable Jane Nelson, Chair, Senate Fin. Comm., to Honorable Ken Paxton, Tex. Att'y Gen. at I (Dec. 15, 2015), https://www.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

2See Act ofMay 31, 1997, 75th Leg., R.S., ch. 592, § 2.0I, sec. I 1.13(b), 1997 Tex. Gen. Laws 2061, 2067, amendedbyAct ofMay 29, 2015, 84th Leg., R.S., ch. 465, §I, 2015 Tex. Gen. Laws 1779.The Honorable Jane Nelson

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The constitutional amendmentproposed by Senate Joint Resolution 1 ("S.R.J. l")amends article VIII, subsection 1-b(c) ofthe Texas Constitution to increase the amount ofthe homestead exemption from $15,000 to $25,000. See Tex. S.J. Res. 1, 84th Leg., R.S., § 1, 2015 Tex. Gen. Laws 5412. Theproposedamendment also authorizes the Legislatureto prohibitagoverningbody that adopts an exemption from ad valorem taxation of a percentage of the market value of a homestead from reducing the amount ofor repealing the exemption. See id. at 5413-14. Texas voters approved the constitutional amendment on November 3, 2015. 3 As a result, S.B. 1's effective date isNovember3, 2015. Yourquestionarises from thepossibilityofalocal government reducing the amount ofor repealing its local option exemption during the 2015 tax year, before the effective date ofsubsection 1l.l3(n-1).
The cardinal rule in statutory construction is to ascertain and effectuate the Legislature's intent. See Zanchiv. Lane,408 S.W.3d 373, 376 (Tex. 2013). "The best guideto that determination is usually the plain language ofthe statute." Tex. Adjutant Gen. .'s· Office v. Ngakoue, 408 S.W.3d 350, 354 (Tex. 2013). Here, the statute's plain language clearly indicates that the Legislature intended to set a floor for the local option exemption rates at the level they were in 2014 until the end ofthe 2019taxyear. See TEX. TAX CODE§ 11.13(n-l). Accordingly, any repeal oforreduction in the amount ofa local option homestead exemption by a school district, municipality, or county in 2015 would have no effect under subsection 11.13(n-1)'s express terms. Briefing submitted in response to this request argues that in certain instances application of subsection 11.13(n-1) violates article 1, section 16, ofthe Texas Constitution.4 The briefing explains that prior to the November 3, 2015 election, no statute prevented a taxing unit from repealing or reducing the local option homestead exemption. Wood Briefat 2. Thus, ifa taxing entity took formal action to repeal the exemption prior to July 1, 2015, no homeowner would be entitled to the exemption for the 2015 tax year under the law at that time. See id. Ifeffective, however, subsection 11.13(n-1) would retroactively void any repeal orreduction in the amount of the exemption.
Article 1, section 16 provides "[n]o bill ofattainder, ex post facto law, retroactive law, or any law impairing the obligation of contracts, shall be made." TEX. CONST. art. I, § 16. A retroactive lawis onethat "acts onthings which are past." Union Carbide Corp. v. Synatzske, 438 S.W.3d 39, 55 (Tex. 2014). Here, subsection 11.13(n-1) renders ineffective a repeal or reduction in the amount ofa local homestead exemption made in 2015 by a school district, municipality, or county made prior to the subsection's November 3, 2015 effective date. "But retroactive effect alone will not make a statute unconstitutional." Id. In addition, a challenge to a statute's

3See TEX. SEC'Y OF STATE, ELECTION INFORMATION, HISTORICAL ELECTION RESULTS (1992-CURRENT), www.sos.state.tx.us://elections.sos.tx.us/ (2015 Constitutional Amendynent Election).

4See Brieffrom Randall 8. Wood, Ray & Wood, to Honorable Ken Paxton, Tex. Att'y Gen. at 2-3 (Jan. 14, 2016) (on file with the Op. Comm.) ("Wood Brief').The Honorable Jane Nelson

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constitutionality begins with a presumption that the statute is constitutional with the burden to establish otherwise on the challenging party. Id.
The Texas Supreme Court has identified a three-part test for consideration ofchallenges under article I, section 16. 5 See Robinson v. Crown Cork & Seal Co., 335 S.W.3d 126, 138-47 (Tex. 2010) (discussing myriad prior cases and recognizing the difficulty in utilizing the "impairs vested rights" test for unconstitutional retroactivity); see also Tenet Hasps. Ltd. v. Rivera, 445 S.W.3d 698, 707 (Tex. 2014) (following three-part test established in Robinson). In doing so, the court stated that constitutional provisions limiting retroactive legislation must be applied to achieve "their intended objectives-protecting settled expectations and preventing abuse of legislative power." Robinson, 335 S.W.3d at 139. Itfurther recognized that "[n]o bright-line test for unconstitutional retroactivity is possible." Id. at 145. In lieu ofthe "impairs vested rights" analysis, the court said that "courts must consider three factors in light ofthe prohibition's dual objectives: the nature and strength ofthe public interest served by the statute as evidenced by the Legislature's factual findings; the nature ofthe prior right impaired by the statute; and the extent ofthe impairment." 

### Id. The court advised that "[t]heperceived public advantage ofa retroactive law is not simplyto be balanced againstits relatively small impactonprivate interests

. . . . There mustbe a compellingpublic interestto overcomethe heavypresumption againstretroactive laws." Id. at 145-46. The analysis also "encompasses the notion that statutes are not to be set aside lightly." TenetHasps. Ltd., 445 S.W.3d at 707 (internal quotation marks omitted).

In accordance with the Robinson opinion, a court would first consider the nature and strength of the public interest served by the statute as evidenced by the Legislature's factual findings, mindful that the public interest in section 11.13 must also serve a compelling interest. See Robinson, 335 S.W.3d at 145-46. The purpose of S.B., 1 was to reduce "the property tax burden on homeowners by increasing the homestead exemption for school district taxes" as well
as to reduce the limitationon school districtpropertytaxes thatmay be imposed onthe homestead ofan elderly or disabled person. See SENATE RESEARCH CTR., BILL ANALYSIS, Tex. S.B. 1, 84th Leg., R.S. (2015) at 1, HOUSERESEARCH 0RG., BILLANALYSIS, Tex. S.B. 1, 84thLeg., R.S. (2015) at 1. It is presumed that a consequence of reducing homeowners' property tax burden is to stimulate real economic growth by increasing consumption, which in turn drivesjob growth. See HOUSE RESEARCH ORG., BILLANALYSIS, Tex. S.B. 1, 84th Leg., R.S. (2015) at 3. "Increasingthe homestead exemption would put more money in consumers' pockets, allowing more money to be used more efficiently in the economy." 

### Id. at 3-4. And reducing the limitation for those who are elderly or disabled enhances their ability to be able to stay in their homes instead ofbeing forced to sell due to an inability to pay taxes. In contrast to the situation in Robinson, wherein only one party was benefited by the challenged statute, the legislative purpose in enacting S.B. 1 is to

5The briefing argues that the test for unconstitutional retroactivity is whether a retroactive law destroys or impairs a vested right and that a school district has a vested right to the taxes once any exemptions are determined. See Wood Briefat 2-3 (statingthat "[f]or any school district that repealed orreduced its homestead exemption before July 1, 2015, the exemption would have been determined based upon the amount adopted by the school district and would have been determined on July 1, 2015," a date prior to the effective date of subsection l l.l3(n-l)) (citing Corpus Christi People's Church, Inc. v. Nueces Cty. AppraisalDist., 904 S.W.2d 621, 626 (Tex. 1995)).The Honorable Jane Nelson

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address a concern important to all Texas homeowners (and to a degree Texas renters) and to improve the state's overall economy. See generally Tenet Hasps. Ltd., 445 S.W.3d at 707 (contrasting legislation that was a comprehensive overhaul ofTexas's medical malpractice laws with legislation at issue in Robinson, which was enacted solely to benefit one company); Union Carbide Corp., 438 S.W.3d at 58 (contrasting similar comprehensive legislative scheme addressing asbestos litigation with legislation benefiting a particular entity). A court would likely find thatlegislationaddressingpropertytaxreliefforTexas citizensto improvethe state'seconomy is a strong public purpose and serves a compelling public interest.
A court would next consider the nature ofthe prior right impaired by the statute. See Robinson, 335 S.W.3d at 145. Here, the right purportedly affected is that oflocal taxing entities such as school districts, municipalities, and counties to receive additional taxrevenues priorto the effective date ofa lawthatprohibitedthemfrom doing so byreducing orrepealingthe local option homestead exemption. See TEX. TAX CODE § 11.13(n), (n-1). However, the extent to which any particular local taxing entity had a concrete expectation ofexercising its right to reduce or repeal its local option homestead exemption is unclear. See TEX. Ass'N OF SCH. Bos., S.J.R. 1, S.B. 1, AND THE LOCAL OPTION HOMESTEAD EXEMPTION (2015)6 (noting arguments against attempting to repeal orreduce a local optionexemptionand advising schoolboardsto consultwithattorneyprior to making any changes). Furthermore, giventhat S.B. 1was passedby theLegislature onMay 29, 2015, local taxing entities were on notice at thatpointthat the Legislature intended for reductions
or repeals to be ineffective, and any action taken after that date to reduce or repeal a local option homestead exemption would be in direct conflict with that intent. Moreover, to the extent the vested rights analysis may still be relevant to this aspect ofthe inquiry, thetaxing authorities' right to file suit for property taxes is not ripe until the taxes are delinquent. See Gribble v. Layton, 389 S.W.3d 882, 890-96 (Tex. App.-Houston [14th Dist.] 2012, pet. denied) (utilizing Robinson analysis but still conducting vested rights analysis as part of second prong of three-part test). Under the Tax Code, property taxes are not delinquent until they are unpaid by February 1 ofthe following tax year. See TEX. TAX CODE§ 33.41(a) (providing that a taxing entity may file suit to collect tax at "any time after its tax on property becomes delinquent"), id. § 3l.02(a) (providing generally that taxes are delinquent "ifnot paid before February 1ofthe year following the year in which imposed"). For the 2015 tax year, taxes are not delinquent until they are unpaid by February 1, 2016. Accordingly, while a court could determine that a priorright enjoyed by taxing entities is impaired by subsection 1l.13(n-1), it would likely also determine that the legislation does not have a significant detrimental impact on settled expectations. Finally, a courtwould considerthe extent ofthe impairment. See Robinson, 335 S.W.3d at 145. Provisions ofthe Education Code were added by S.B. 1to require the state to cover certain shortfalls that a school district may incur due to the changes to the exemption with state funds. See, e.g., TEX. Eouc. CODE§§ 42.2518, 46.071. With the promise ·ofadditional funds from the state to minimize the loss ofrevenue to the school districts, the extent ofthe expectedimpairment, at least with respect to school districts, is slight. See FISCALNOTE, Tex. S.B. 1, 84th Leg., R.S. (2015) at 3 (stating that "[n]o fiscal impact to units oflocal government is anticipated"); FISCAL

6 Availableatwww.tasb.org/Services/Legal-Services/TASB-School-Law-eSource/Business/documents/local _option_ homestead_exemption June15.pdf.The Honorable Jane Nelson

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NOTE, Tex. S.J. Res. 1, 84th Leg., R.S. (2015) (acknowledging some reduction in school district tax revenue from the constitutional amendment likely offset by additional provisions in S.B. 1 requiring the state to hold school districts harmless for property tax losses). Moreover, the Legislature'sprovisionformakingup the shortfalltothe school districtsmitigates against afinding ofany abuse oflegislative power.
A court balancing these factors, while also effectuating the presumption against unconstitutionality, would likely conclude that subsection 1l.13(n-1) is not unconstitutionally retroactive. Accordingly, subsection 1 l.13(n-1) of the Tax Code prohibits a school district, municipality, orcounty from repealing orreducing the local optionhomestead exemption from the amount that was adopted for the 2014 tax year through the 2019 tax year.The Honorable Jane Nelson

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SUMMARY

Subsection l 1.13(n-1) of the Tax Code prohibits a school district, municipality, orcounty from repealing orreducingthe local option homestead exemption from the amount that was adopted for the 2014 tax year through the 2019 tax year.

JEFFREY C. MATEER First Assistant Attorney General
BRANTLEY STARR Very truly yours,

# ~?~ KEN PAXTON Attorney General ofTexas

DeputyAttorney General for Legal Counsel
VIRGINIAK. HOELSCHER Chair, Opinion Committee
CHARLOTTE M. HARPER AssistantAttorney General, Opinion Committee