Opinion ID: 1723051
Heading Depth: 2
Heading Rank: 2

Heading: State ad valorem tax

Text: The property-rich districts also argue that the new finance system, viewed as a whole, effectively imposes a statewide ad valorem tax in violation of article VIII, section 1-e of the Texas Constitution. In Edgewood III, this Court set out the following test for determining whether a particular ad valorem tax is a statewide tax in violation of article VIII, section 1-e: An ad valorem tax is a state tax when it is imposed directly by the State or when the State so completely controls the levy, assessment and disbursement of revenue, either directly or indirectly, that the authority employed is without meaningful discretion. 826 S.W.2d at 502. In doing so, we recognized that the boundary between a state-encouraged local tax and a statewide tax was difficult to delineate: Clearly, if the State merely authorized a tax but left the decision whether to levy it entirely up to local authorities, to be approved by the voters if necessary, then the tax would not be a state tax. The local authority could freely choose whether to levy the tax or not. To the other extreme, if the State mandates the levy of a tax at a set rate and prescribes the distribution of the proceeds, the tax is a state tax, irrespective of whether the State acts in its own behalf or through an intermediary. Between these two extremes lies a spectrum of possibilities. Id. at 502-03. The tax in the present case lies somewhere in that spectrum of possibilities. Senate Bill 7 does not leave the imposition of a property tax entirely up to local authorities, to be approved if necessary. To receive any Foundation School Fund payments at all, a district must tax at an effective rate of at least $0.86. See TEX.EDUC. CODE § 16.252(a), (d). Senate Bill 7 does not, however, mandate a set rate or prescribe the distribution of the proceeds. While a district may maximize its state aid by taxing at $1.50, there is no requirement that it do so. Thus, Senate Bill 7 most closely resembles the third scenario we described in Edgewood III: If the State required local authorities to levy an ad valorem tax but allowed them discretion on setting the rate and disbursing the proceeds, the State's conduct might not violate article VIII, section 1-e. 826 S.W.2d at 503. The property-rich districts insist that Senate Bill 7 gives the State such complete control over the finance system that local districts are left with no meaningful discretion. They complain, in particular, that Senate Bill 7 requires rollback elections for rate increases of more than $0.06, places extensive restrictions on each of the five options that may be used to lower district wealth, and sets minimum and maximum tax rates. The requirement of rollback elections imposes no such limits. At worst, it may only slow a district's efforts to reach a desired rate. Nor is a district's taxing discretion reduced by restrictions on the five options. While the exercise of certain options may affect the disbursement of tax proceeds, any such effects are attributable to the district's own selection of particular options. [21] The property-rich districts are correct, however, that Senate Bill 7 does, to some extent, limit the districts' discretion in choosing a tax rate by imposing minimum and maximum tax rates; however, the imposition of such limits does not render Senate Bill 7 unconstitutional. Districts are still free to set a tax rate within a range, which includes, for some districts, a maximum rate of $2.00 under article 2784g. Although financial incentives for property-poor districts and the desire to maintain previous levels of revenue in the property-rich districts may encourage districts to tax at the maximum allowable rate, the State in no way requires them to do so. Thus, the State's imposition of such limits does not presently so completely [control] the levy, assessment, and disbursement of revenue, either directly or indirectly, that the [district] is without meaningful discretion. See Edgewood III, 826 S.W.2d at 502. However, if the cost of providing for a general diffusion of knowledge continues to rise, as it surely will, the minimum rate at which a district must tax will also rise. Eventually, some districts may be forced to tax at the maximum allowable rate just to provide a general diffusion of knowledge. If a cap on tax rates were to become in effect a floor as well as a ceiling, the conclusion that the Legislature had set a statewide ad valorem tax would appear to be unavoidable because the districts would then have lost all meaningful discretion in setting the tax rate. Taken together, these restrictions do not at this time approach the level of control exercised in Senate Bill 351, which set uniform tax rates and prescribed the distribution of all tax proceeds. We accordingly conclude that the State's control under Senate Bill 7 is not presently so great as to fall within the prohibition of article VIII, section 1-e. The Stafford appellants emphasize the Legislature's heavy reliance on local ad valorem taxes and urge that the use of such taxes to fulfill a state obligation amounts to the imposition of a state tax. We recognized in Edgewood III that the framers and ratifiers of article VIII, section 1-e specifically intended to eliminate the state ad valorem tax as a source of funds for public education. 826 S.W.2d at 502. We did not, however, hold that local taxes supporting education would automatically be considered state taxes. To the contrary, we left to the Legislature the question of what part local revenue should play in funding education, noting that the Constitution contains no specific requirement that public education be funded completely with state revenue. Id. at 503. Thus, we hold that the State's reliance on local ad valorem taxes does not amount to the imposition of a state tax.