Megan Navarro
DRIPPING SPRINGS — The Dripping Springs ISD Board of Trustees approved the fiscal year 2025-26 tax rate at its Sept. 22 meeting.
The total tax rate was approved at $1.1052 on $100 valuation, which consists of the maintenance and operations (M&O) rate of $0.7552 and the interest and sinking (I&S) at $0.3500. Neither of which changed from the previous rate, according to the presentation.
Because there is an expected increase in the homestead exemption — from $100,000 to $140,000 — come the November 2025 election, there is little to no compression on the M&O rate and it stayed the same as last year, according to chief financial officer Randy Rau’s presentation.
“There is a worksheet from the comptroller that calculates a rate called the no-new-revenue tax rate and you’ll notice that this rate is higher than the proposed tax rate, but that’s because it’s comparing prior year certified values under $100,000 homestead exemption to current year values under $140,000 homestead exemption,” Rau said. “It’s essentially comparing two different tax bases. So, overall, the property values rose just under 1% right at 0.88%.”
M&O
The M&O rate funds daily operations, payroll, programs and maintenance, while being subject to recapture. It also has two parts — Tier 1, which is the Maximum Compressed Rate (MCR) that is set by the state, and Tier 2, which is approved by voters.
In 2019, House Bill 3 indexed the MCR to a district’s property value growth. Rising property values compress this rate. Since 2019, the district’s Tier 1 rate has decreased from $1.00 to $.6169.
“If a district does not levy the Tier 1 state rate, state funding can be reduced by a percentage of your basic allotment and so, if that goes down, then your recapture goes up,” Rau said.
DSISD voters authorized the board to adopt $0.1700 additional Tier 2 pennies in 2016. Additionally, in 2019, HB 3 also compressed Tier 2 pennies; since that time, the rate has decreased from $0.1700 to $0.1383.
“This is the seventh year of compression,” Rau said. “But, since House Bill 3 has come along this year, the exemption changes have offset any changes this year, so, essentially, the [M&O] rate has stayed flat.”
I&S
The I&S rate is strictly levied for debt service, Rau stated. There are some hold-harmless — protects a school district’s funding even if attendance declines — provisions built in for lost tax revenue due to the increase in homestead exemption.
“Our rate is set at $0.35 and it’s to cover our existing bonds, plus, in July of this year, we had bond sales for the remaining 2023 bond issuance and the first part of the 2025 bond sale. So, in calculating our debt service for next year, we are looking at about $38.4 million,” Rau explained. “That $0.35 is expected to bring in about $34.7 million, plus an additional $2 million in hold-harmless, leaving us about a $1.7 million shortfall, but we expect with penalties and interest in investment income to make up most of that shortfall. So, we will be monitoring those collections throughout the year.”
Tax rate history and impact
Since tax year 2018, the overall tax rate has decreased by $0.4148, due to the state-driven compression. This trend in a steady decrease in the rate has helped offset rising property values for taxpayers, while the district continues to be “responsible for managing both the operating and debt service needs,” Rau said.
For the average homeowner, the new homestead exemption provides some meaningful relief, Rau said; even with growth and debt needs, the average taxpayer will see lower M&O taxes this year compared to last year.
As calculated under Tax Code Section 26.04, the total appraised and taxable value compared from last year to this year are:
Average market value of residences: $752,017 last year; $759,532 this year
Average taxable value of residences: $652,017 last year; $619,532 this year
Last year’s rate versus proposed rate per $100 value: $1.1052 last year; $1.1052 this year
Taxes on average residence: $7,206.09 last year; $6,847.07 this year
There is a $359.02 decrease in overall taxes, due to the increase in homestead exemption, Rau said.
Board discussion
Trustee Mary Jane Hetrick said that after multiple legislative sessions, they have heard that school districts will be held harmless. She asked for clarification on if DSISD will not be held completely harmless to the tune of $1.7 million.
“The hold-harmless that we’ve calculated so far, based on preliminary estimates, comes in at about $2 million. So, there is a possible gap there of $1.7 million, but when we went back and looked, there are certain things that you don’t include in the tax calculation when you’re going over there,” Rau responded. “The interest revenue, for example, you don’t include; penalties on delinquent taxes you don’t include. But, looking at last year, we’ve collected just … a little over $1.7 million in interest from investments and so forth. We feel confident that we will be able to cover that gap.”
Another trustee, Rob McClelland, said that the board has been consistent in trying to maintain the $0.3500 I&S rate, even though the school district is growing and having to build infrastructure. He asked if this would become a problem in the future.
Rau responded, stating that he “wouldn’t go so far to say that” because this is the first year that the state is comparing the $100,000 and $140,000 homestead exemption, so, essentially, a new base year has been created. Going forward, they should see the property values increase like they are used to in the past to be around 5%.
The DSISD Board of Trustees meets next at 2 p.m. Oct. 20 for its agenda review meeting. To watch the livestream and recordings of meetings, visit www.dsisdtx.us/page/board-meeting-livestream.
