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New state law likely squelches Wichita Falls ISD’s planned tax cut
Wichita Falls ISD’s swap & drop plan to bump down the district’s tax rate and bump up state funding appears to have hit a roadblock in House Bill 3, according to the new law and to materials provided by state officials.
The new law clarifies a prohibition on “swap & drops” such as WFISD's, according to the Texas Education Agency. In addition, any district that set a tax rate before HB 3 must re-adopt a rate to comply with its new requirements.
State Rep. James Frank, R-Wichita Falls, said HB 3 "closed a tax swap loophole that has been available for years."
"I am disappointed that local taxpayers and the WFISD will not be allowed to take advantage of the same taxing mechanisms that numerous other districts around the state have enjoyed and the increased state funding that comes with it," Frank said in a statement released Monday.
WFISD’s swap & drop was designed to net the district an additional $1.4 million in state funding while lowering the property tax rate from $1.22 to $1.17 per $100 of property value, according to WFISD officials.
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The swap & drop proposal got a thumbs up from voters in a June 15 tax ratification election to allow changes in the property tax rate.
More: Voters approve WFISD swap and drop tax proposition
The way WFISD Superintendent Michael Kuhrt sees it, there is room for interpretation of HB 3's possible effect.
“Everything we did was pre-House Bill 3, and that’s what we’re trying to figure out is the retroactive nature of House Bill 3,” Kuhrt said Monday in an interview.
He said conversations are ongoing with the TEA.
Kuhrt said WFISD’s issue is related to timing.
On May 14, the WFISD School Board called for a tax ratification election and approved setting the tax rate at $1.17 upon voters’ approval in the upcoming election, according to a WFISD media release on Monday.
[WIchita Falls ISD Superintendent Michael Kuhrt presents options for an overhaul of elementary school facilities to trustees during a recent work session at the Education Center.]
WIchita Falls ISD Superintendent Michael Kuhrt presents options for an overhaul of elementary school facilities to trustees during a recent work session at the Education Center. (Photo: Trish Choate)
Early voting began May 29 for the measure, which passed with 83 percent of the vote on the June 15 election day, according to previous TRN stories.
Early voting ended June 11, and Gov. Greg Abbott signed HB 3 into law June 12, according to WFISD.
The new law details not only the prohibition of such swap & drops, but it also gives residents the power to seek an injunction. HB 3 states the following:
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(a) A school district may not increase the rate of the district’s maintenance taxes described in Section 45.002 to create a surplus in maintenance tax revenue for the purpose of paying the district’s debt service.
(b) A person who owns taxable property in a school district is entitled to an injunction restraining the collection of taxes by the district if the district adopts a maintenance tax rate in violation of Subsection (a). An action to enjoin the collection of taxes must be filed before the date the district delivers substantially all of the district’s tax bills.
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This part of HB 3 put into the state's education code a Texas Attorney General opinion issued in 2017, according to state officials.
The opinion was that districts do not have the authority to ratchet up their maintenance and operations tax rate to create a surplus to pay debt service with maintenance and operations tax revenue.
More: Our endorsement: Vote yes Saturday for school district's chance for improvements
In Monday afternoon's media release, Kuhrt said HB 3’s retroactive nature and the TEA’s interpretation of the legislation could potentially “nullify” the June 15 tax ratification election and its benefits.
But WFISD is seeking advice from the district’s attorneys and school finance experts about maximizing school funding and providing the most tax relief, Kuhrt said in the media release.
WFISD must have an adopted tax rate by the end of September, Kuhrt said in the release.
Frank said he will keep working with local administrators to determine if there’s a way to accomplish the swap & drop’s positive goals to lower local property taxes and bring additional revenue to WFISD.
“While the way Texas funds schools is better and more streamlined after HB 3 than before, this is another example of the real-world effects an overly complex school finance system has on our students, teachers, and taxpayers,” he said in a statement.
As proposed, WFISD’s swap and drop is a way to pay for debt that puts more emphasis on the maintenance and operation part of the tax rate – which pays for teacher salaries, expenses and more, according to previous Times Record News stories.
The swap & drop also puts less emphasis on the interest and sinking fund part of the rate – which collects revenue for debt payments, according to previous Times Record News Stories.
The swap & drop plan was also designed to allow the district to maximize contributions from the state.
Here is what WFISD officials anticipated doing before HB 3:
The result of WFISD's tax ratification election and the swap & drop plan was to be a lowering of the interest and sinking part of the tax rate from 18 cents to 0.
The maintenance and operations rate -- with voter approval -- was to increase by 13 cents from $1.04 to $1.17.
The net effect would be a tax cut of 5 cents while the district would have more flexibility in how it spent revenue raised by the maintenance and operations rate.