If you’re keeping up with the news, then you would’ve heard about the cap or rollback rate on property taxes. Just this year, the state of Texas and its property tax committee passed the 2.5 percent rollback rate bill, meaning that local governments like school districts and cities are limited to what they’re allowed to spend without the voters stepping in.

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While it may sound like a good thing for those who pay their taxes, it might have its repercussions in the long run. Lowering the cap can mean that you might not be getting the same quality of services that you’re used to getting from your local government establishments. It has been a concern that was raised since the proposition of the bill – let’s take a deeper look as to why this bill has been so controversial and what it means for the state of Texas moving forward.

What’s a rollback rate?

By definition, the property tax rollback rate is a calculated amount that local governments can use by law without the approval of its voters. This allows local government establishments, except school districts, to spend for their day-to-day operations. It’s divided into two categories: M&O and debt service (often known as interest and sinking, respectively).

The new 2.5 percent cap limits these establishments in their spending since the cap limits the total revenue they can get without voter’s approval. Before the bill was passed, there was a disagreement between the Senate and the House because they couldn’t decide on how high the threshold should be. During that time, the rates proposed were higher than the now final 2.5 percent.

What it means for Texas

Many residents are voicing out their concerns ever since the bill was proposed. Some are worried that institutions like local hospitals and community colleges would suffer restrictions when it comes to providing support services. While school districts are not affected by the rollback rate, some residents are worried that they will be included in the legislation in the future.

The way that it works is that a local government would have to hold a special election for any increase on tax above the approved property tax rollback rate of 2.5 percent. The previous law says that local governments can increase their property tax revenue by 8 percent per year and would only have a special election once it goes beyond that number.

It’s not just the residents who are concerned – government officials are also worried about the negative impact this can bring to local state establishments. Most are concerned on the restraints or negative effects it will have on their city and county officials and that 2.5 percent is too low of a number.

The good thing about this is that while the bill has been passed, it looks as though the 2.5 percent won’t stay forever. There is a high chance that the number can increase over time.

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