Mr. Michael Morath Commissioner ofEducation Texas EducationAgency 1701 North CongressAvenue Austin, Texas 78701-1494

Dear Mr. Morath: 

### KEN PAXTON ATTORNEY GENERAL OF TEXAS
April 24, 2017

Opinion No. KP-0144
Re: Whether the computation of state funding for school districts rece1vmg additional state aid for tax reduction must include local option homestead exemptions that were determined to be authorized in Attorney General Opinion KP-0072 (2016) (RQ-0137-KP)

You ask about your exercise ofthe duties ofthe Commissioner ofEducation as they relate to computing state funding for school districts. 1 You tell us your questions arise, in part, because ofthe recent issuance ofAttorney General Opinion KP-0072. See Request Letter at 2. Opinion KP-0072 examined the effect of 2015 legislation in which the Legislature increased the state homestead exemption from $15,000 to $25,000. Tex. Att'y Gen. Op. No. KP-0072 (2016) at 1-6. In that**l~gislation,** the Legislature also added Tax Code subsection 11.13(n-1) providing that the "governing body ofa school district, municipality, or county that adopted a [local option homestead exemption, or "LOHE"] under Subsection (n) for the 2014 tax year may not reduce the amount ofor repeal the exemption." TEX. TAX CODE § l 1.13(n-l); see also id. § 11.13(n) (authorizing the governing body of a taxing unit to provide an additional homestead exemption). Opinion KP-0072 concluded that Tax Code subsection 11.13(n-1) "prohibits a school district

... from repealing or reducing the local option homestead exemption from the amount that was adopted for the 2014 tax year," recognizing that the Legislature froze local homestead exemptions at their 2014 level. Tex. Att'y Gen. Op. No. KP-0072 (2016) at 5 (concluding that subsection 11.13(n-1) is not constitutionally retroactive). 2 Your questions arise

1See Letterfrom Mr. Michael Morath, Comm'rofEduc., Tex. Educ. Agency, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Oct. 26, 2016), https://www.texasattomeygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter"). 2Since the issuance ofOpinion KP-0072, several school districts repealing or reducing their LOHE in 2015 contrary to section I I.l3(n-l) have been sued for tax refunds in various Texas courts by local taxpayers. See, e.g., Plaintiff's Orig. Pet. and Application for Temp. Injunction, Martin v. White Deer Indep. Sch. Dist., No. 11807 (1 OOth Jud. Dist. Ct., Carson CtY., Tex. filed Sept. 15, 2015) (on file with the Op. Comm.).Mr. Michael Morath

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because the subsection 1l.13(n-1) prohibition against a LOBE reduction or repeal impacts your calculation of the additional state aid for tax reduction ("ASATR"). See TEX. EDUC. CODE § 42.2516. TheASATR calculation involves the determination ofa district's local revenue, which increases when a district repeals its LOBE. See id. § 42.2516(b)-(f-1)(1)-(2). Currently, section 42.2516 ofthe Education Code provides for payment ofthe ASATR. 3 See generally id. § 42.2516. Within the greater context ofdetermining the amount of state and local revenue to which a school district may be entitled under the complex school financing formula, the ASATR requires the education commissioner to make adjustments to "a school district's local revenue derived from maintenance and operations tax collections." Id. § 42.2516(f-1). Relevant here, subsection 42.2516(f-1) provides that [t]he commissioner shall, in accordance with rules adopted by the commissioner, adjust the amount ofa school district's local revenue derived from maintenance and operations tax collections, as calculated for purposes ofdetermining the amount ofstate revenue to which the district is entitled under this section, ifthe district, for the 2010 tax year or a subsequenttax year: (1) adopts an exemption under Section 1l.13(n), Tax Code, that was not in effect for the 2009 tax year, or eliminates an exemption under Section 1l.13(n), Tax Code, that was in effect for the 2009 tax year; (2) adopts an exemption under Section ll.13(n), Tax Code, at a
...lesserpercentagethanthepercentage ineffectfor the district for the 2009 tax year;
.... Id. § 42.2516(f-1)(1)-(2); see also TEX. 

### Gov'T CODE § 311.016(2) ('"Shall' imposes a duty."). The commissioner's rules mustrequire the commissionerto determine, along with chapter41, the effect of "a school district's action described by Subsection (f-1)(1), (2), (3), or (4) on the total state revenue to which the district would be entitled or the cost to the district of purchasing sufficient attendance credits to reduce the district's wealth per student to the equalized wealth level." TEX. EDUC. CODE § 42.2516(f-2)(1). The commissioner's rules must also "require an increase or reduction in the amount ofstate revenue to which a school district is entitled

... that is substantially equivalent to any change in the total state revenue or the cost of purchasing attendance credits." Id. § 42.2516(f-2)(2). Your ultimate question is howto reconcile subsection 42.2516(f-1) ofthe Education Code and subsection ll.13(n-1) ofthe Tax Code as you make the ASATR calculation for those districts that repealed their LOBE in 2015.

3The ASATR is expected to be eliminated in 2017. See TEX. EDUC. CODE§ 42.2516(c-1). Several bills in the 2017 Legislative Session provide for an extension to the ASATR. See, e.g., Tex. H.B. 308, 85th Leg., R.S. (2017), Tex. H.B. 527, 85th Leg., R.S. (2017).Mr. Michael Morath

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In considering the interaction between Education Code subsection 42.2516(f-1) and Tax Code subsection 11.13(n-1), we follow the rules ofstatutory construction utilized by the courts. The primary objective in such ataskis to give effectto the Legislature's intent as ascertained from the plain meaning ofthe words used in the statute. See City of Houston v. Bates, 406 S.W.3d 539, 543--44 (Tex. 2013). Courts "analyze [the] language in context, considering the specific sections at issue as well as the statute as a whole." CHCA Women's Hosp. L.P. v. Lid.Ji, 403 S.W.3d 228, 232 (Tex. 2013). To give effectto every word and phrase, a court will not interpret a statute "in a manner that renders any part ofthe statute meaningless or superfluous." Crosstex Energy Servs. L.P. v. Pro Plus, Inc., 430.S.W.3d 384, 390 (Tex. 2014).
The plain language of Education Co.de subsections 42.2516(f-1)(1) and (2) triggers the commissioner's dutyto make an adjustment only 

## "if the district

... eliminates an exemptionunder Section 1l.13(n)" or adopts an exemption at a lesser percentage. TEX. EDUC. CODE § 42.2516(f-1)(1)-(2) (emphasis added); see also Hohenberg Bros. Co. v. Gibbons & Co., 537 S.W.2d 1, 3 (Tex. 1976) (recognizing that the word "if' connotes a condition). Yet the language ofTax Code subsection 1l.13(n-1) expressly prohibits a repeal or reduction ofa LOHE in 2015. As any reduction or repeal of a LOHE in 2015 is prohibited by statute, a district's repeal or reductionofits LOHE cannotserve as the conditionthattriggersthe applicationofEducationCode subsection42.2516(f-1). To construe otherwisewouldneedlesslynegatethe meaning ofTax Code subsection 1l.13(n-l) withinthe school finance scheme. See CrosstexEnergy Servs., 430 S.W.3d at 390.
The context ofthe two statutes considered withinthe whole ofthe school financing system bolsters this conclusion. Though located in different codes, they are both necessary to the calculation of a district's local revenue for school finance purposes and should be considered together. Cf Ochsner v. Ochsner, 2016 WL 3537255, at **3-5 (Tex. 2016) (considering child support arrearage question within statutory context ofseveral Family Code chapters to "look to the statutory scheme as a whole in order to establish the meaning ofthe arrearage provision, not to snippets taken in isolation"); Valdez v. Hollenbeck, 465 S.W.3d 217, 226-29 (Tex. 2015) (considering statute oflimitations question inprobate matter within "the comprehensive statutory scheme governing the probate process"). The delivery ofthe ASATR is a result ofthe Texas Supreme Court's 2005 determination that the school property tax was unconstitutional and the Legislature'sresponse ofreducingpropertytax rates across the State. Neeley v. West Orange-Cove Consol. Indep. Sch. Dist., 176 S.W.3d 746, 797-99 (Tex. 2005). The Legislature established a compressed maintenance and operations tax4 rate, which decreased each school district's rate by a specific percent. See Morath v. Tex. Taxpayer & StudentFairness Coal., 490 S.W.3d 826, 836-37 (Tex. 2016) (describing legislative changes to the maintenance and operations tax rate). But the Legislature maintained a district's level of funding with a "hold harmless" provision-the ASATR-toprovide additional state revenue to a district so that it wouldreceive the same amount ofmoney (per weighted student) that it had received in the target school year. See HOUSE WAYS & MEANS COMM., BILL ANALYSIS, Tex. Comm. Substitute H.B. 1, 79th Leg., 3d

## c.s. (2006) at 1

4School districts may collect two discrete annual ad valorem taxes: one to pay debt service on bonds issued for school buildings and other related purposes, and one for the further maintenance ofpublic schools in the district. See TEX. EDUC. CODE§§ 45.00l(a)(2), .002.Mr. Michael Morath

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("This additional state aid for tax reduction from the results ofproperty tax rate compression ensures that each district receives at least the amount ofrevenueper studentthatthe district would have received duringthe 2006-2007 schoolyearifpropertytaxrateshadnotbeencompressed[.]");
see also Morath, 490 S.W.3d at 838 (describing the alternative "targetrevenue" system as "based on certain hold harmless rules and [applicable] ifthe target revenue amount exceeds the amount the district receives" under the "onformula" funding system, and noting that the "State makes up the difference with [ ASATR]"). Similarly, in Tax Code subsection ll.13(n-1), the Legislature adopted another "hold harmless" provision designed to preserve the $10,000 increased property tax exemptionprovidedbythe State without offsetby a local taxing entity. See SENATERESEARCH CENTER, BILL ANALYSIS, Tex. S.B. 1, 84th Leg., R.S. (2015) at 1 ("Any local taxing units that currently offer the optional homestead exemption must maintain the current exemptions offered for IO years."). Taken together, it is evident that the Legislature intended to make school districts whole as to the compressedmaintenance and operationstax rate at specific funding levels but also to grant and protect tax relief to the taxpayers in each district. To construe Education Code subsection42.2516(f-1) to require the commissionerto make an adjustmentbasedupon a district's prohibitedLOHEreduction orrepeal wouldnegatethe Legislature's intendedbenefitto a district's taxpayers and would instead confer an undeserved benefit on a district that violated Tax Code subsection 1l.13(n-1) beyond the hold harmless funding level that the Legislature intended to preserve for the district. Accordingly, you shouldnot use orrecognize a school district's LOHE repeal orreduction made inviolation ofTax Code subsection l 1.l3(n-1) for the ASATRcalculationunder Education Code subsection 42.2516(f-l).Mr. Michael Morath

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SUMMARY
The computation of state funding for school districts receiving additional state aidfor tax reductionmustnotinclude local option homestead exemption repeals or reductions that Tax Code subsection 1l.13(n-1) prohibits.

JEFFREYC. MATEER FirstAssistantAttorney General
BRANTLEYSTARR Deputy FirstAssistantAttorney General
VIRGINIA K. HOELSCHER Chair, Opinion Committee
CHARLOTTE M. HARPER Very truly yours,

KEN PAXTON Attorney General ofTexas

AssistantAttorney General, Opinion Committee