Untitled Texas Attorney General Opinion ( 2016 )

KEN PAXTON
ATTORNEY GENERAL OF TEXAS
March 17, 2016
The Honorable Jane Nelson Opinion No. KP-0072
Chair, Committee on Finance
Texas State Senate Re: Whether a school district, municipality,
Post Office Box 12068 or county may reduce or repeal the local
Austin, Texas 78711-2068 option homestead exemption from the amount
that was adopted for the 2014 tax year through
the 2019 tax year (RQ-0082-KP)
Dear Senator Nelson:
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
year through the 2019 tax year. 1
Among other things, Senate Bill 1 ("S.B. 1"), enacted by the Eighty-fourth Legislature,
amended section 11.13 of the Tax Code. See Act of May 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
l l.13(b) provided that the amount of homestead exemption was $15,000 for purposes of school
district taxation. 2 Subsection 1l.13(n) authorizes a governing body of a taxing unit to provide an
additional homestead exemption. TEX. TAX CODE § 1l .13(n). In S.B. 1, subsection 11.13(b) was
amended to increase the amount of homestead tax exemption to $25,000. See id. § 1l.13(b). S.B:
1 also added subsection 11.13(n-1 ), which provides that the "governing body of a school district,
municipality or county that adopted an exemption under Subsection (n) for the 2014 tax year may
not reduce the amount of or repeal the exemption. This subsection expires December 31, 2019."
Id. § l l.13(n-1 ). S.,13. 1 provides 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.
1
Letter 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").
2
See Act of May 31, 1997, 75th Leg., R.S., ch. 592, § 2.0 I, sec. I 1.13(b), 1997 Tex. Gen. Laws 2061, 2067,
amended by Act of May 29, 2015, 84th Leg., R.S., ch. 465, §I, 2015 Tex. Gen. Laws 1779.
The Honorable Jane Nelson - Page 2 (KP-0072)
The constitutional amendment proposed by Senate Joint Resolution 1 ("S.R.J. l ")amends
article VIII, subsection 1-b(c) of the Texas Constitution to increase the amount of the homestead
exemption from $15,000 to $25,000. See Tex. S.J. Res. 1, 84th Leg., R.S., § 1, 2015 Tex. Gen.
Laws 5412. The proposed amendment also authorizes the Legislature to prohibit a governing body
that adopts an exemption from ad valorem taxation of a percentage of the market value of a
homestead from reducing the amount of or 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 is November 3, 2015. Your question arises from the possibility of a local government
reducing the amount of or repealing its local option exemption during the 2015 tax year, before
the effective date of subsection 1l.l3(n-1 ).
The cardinal rule in statutory construction is to ascertain and effectuate the Legislature's
intent. See Zanchi v. Lane, 408 S.W.3d 373, 376 (Tex. 2013). "The best guide to that determination
is usually the plain language of the 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 of the 2019 tax year. See TEX. TAX CODE§ 11.13(n-l). Accordingly, any repeal of or reduction
in the amount of a 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, of the 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 Brief at 2. Thus, if a 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. If effective,
however, subsection 11.13(n-1) would retroactively void any repeal or reduction in the amount of
the exemption.
Article 1, section 16 provides "[n]o bill of attainder, ex post facto law, retroactive law, or
any law impairing the obligation of contracts, shall be made." TEX. CONST. art. I, § 16. A
retroactive law is one that "acts on things 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 of a 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
3 See 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 Brief from 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 - Page 3 (KP-0072)
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 of challenges
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. It further recognized that "[n]o bright-line test
for unconstitutional retroactivity is possible." Id. at 145. In lieu of the "impairs vested rights"
analysis, the court said that "courts must consider three factors in light of the prohibition's dual
objectives: the nature and strength of the public interest served by the statute as evidenced by the
Legislature's factual findings; the nature of the prior right impaired by the statute; and the extent
of the impairment." Id. The court advised that "[t]he perceived public advantage of a retroactive
law is not simply to be balanced against its relatively small impact on private interests . . . . There
must be a compelling public interest to overcome the heavy presumption against retroactive laws."
Id. at 145-46. The analysis also "encompasses the notion that statutes are not to be set aside
lightly." Tenet Hasps. 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 limitation on school district property taxes that may be imposed on the homestead
of an elderly or disabled person. See SENATE RESEARCH CTR., BILL ANALYSIS, Tex. S.B. 1, 84th
Leg., R.S. (2015) at 1, HOUSE RESEARCH 0RG., BILL ANALYSIS, Tex. S.B. 1, 84th Leg., 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 drives job growth. See
HOUSE RESEARCH ORG., BILL ANALYSIS, Tex. S.B. 1, 84th Leg., R.S. (2015) at 3. "Increasing the
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 of being 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
5
The 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 Brief at 2-3 (stating that "[f]or any school district that repealed or reduced 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. l 3(n- l )) (citing
Corpus Christi People's Church, Inc. v. Nueces Cty. Appraisal Dist., 904 S.W.2d 621, 626 (Tex. 1995)).
The Honorable Jane Nelson - Page 4 (KP-0072)
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 of Texas'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 that legislation addressing property tax relief for Texas citizens to improve the state's economy
is a strong public purpose and serves a compelling public interest.
A court would next consider the nature of the prior right impaired by the statute. See
Robinson, 335 S.W.3d at 145. Here, the right purportedly affected is that of local taxing entities
such as school districts, municipalities, and counties to receive additional tax revenues prior to the
effective date of a law that prohibited them from doing so by reducing or repealing the 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 of exercising 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 or reduce a local option exemption and advising school boards to consult with attorney prior
to making any changes). Furthermore, given that S.B. 1 was passed by the Legislature on May 29,
2015, local taxing entities were on notice at thatpoint that 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 of the inquiry, the taxing 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 of the
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. § 3 l.02(a) (providing
generally that taxes are delinquent "if not paid before February 1 of the 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 prior right 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 court would consider the extent of the impairment. See Robinson, 335 S.W.3d at
145. Provisions of the Education Code were added by S.B. 1 to 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 ·of additional funds from the
state to minimize the loss of revenue to the school districts, the extent of the expected impairment,
at least with respect to school districts, is slight. See FISCAL NOTE, Tex. S.B. 1, 84th Leg., R.S.
(2015) at 3 (stating that "[n]o fiscal impact to units of local government is anticipated"); FISCAL
6Available at www.tasb.org/Services/Legal-Services/TASB-School-Law-eSource/Business/documents/local
_option_homestead_exemptionJune 15.pdf.
The Honorable Jane Nelson - Page 5 (KP-0072)
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's provision for making up the shortfall to the school districts mitigates against a finding
of any abuse of legislative 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 1l.13(n-1) of the Tax Code prohibits a school district,
municipality, or county from repealing or reducing the local option homestead exemption from the
amount that was adopted for the 2014 tax year through the 2019 tax year.
The Honorable Jane Nelson - Page 6 (KP-0072)
SUMMARY
Subsection l 1.13(n-1) of the Tax Code prohibits a school
district, municipality, or county from repealing or reducing the local
option homestead exemption from the amount that was adopted for
the 2014 tax year through the 2019 tax year.
Very truly yours,
~?~ KEN PAXTON
Attorney General of Texas
JEFFREY C. MATEER
First Assistant Attorney General
BRANTLEY STARR
Deputy Attorney General for Legal Counsel
VIRGINIA K. HOELSCHER
Chair, Opinion Committee
CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee