Summary

After two regular sessions and three special sessions of struggling to 'solve' the school finance problem in Texas, Gov. Perry and the Republican leadership proposed a package of bills to shift the tax burden away from property taxes. These bills were produced from a report referred to as the Sharp Plan - named for the man commissioned by Gov. Perry to study the issue, former Lt. Governor, John Sharp.

In order to pay for the proposed property tax reductions, HB2 dedicates all of the revenue from the increases in the cigarrette tax, the used car sales tax and the business tax to property tax relief.

Background

The Robin Hood system of school finance was created in the early 1990s after the Texas Supreme Court found that the system for funding schools left large disparities in funding between school districts. School districts with higher property values were able to raise more revenue than those districts with lower property values.

As a result of these court cases, the Robin Hood system was created to equlaize the system by requiring wealthier school districts to redistribute their excess funds to the rest of the system.

Over the last fifteen years, the state's share of the finance system has dropped to nearly 35%, resulting in higher school property taxes at a local level. Many school districts are taxing at or near the cap of $1.50 (per $100 of property valuation) and thus are unable to access additional funds to match increasing costs. As a result, school districts challenged the school finance system in state court, from which the Texas Supreme Court ruled the system unconsitutional.

Description of the Bill

HB 2 creates a property tax relief fund to which all of the revenue from the cigarrette tax, the used car sales tax and the business tax is used for buying down local property taxes.

Critics of the Bill

Critics of the legislation claimed that dedicating all of the revenue from new taxes to property tax relief is fiscally irresponsible and doesn't take into account the increasing cost of property tax reductions.

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