The TPTRP - The Tier Structure and Rate Coverage
The Sales Tax Tier Structure of the Texas Property Tax Replacement Plan
How $203.55 billion in property and state taxes would be replaced across more than 6,000 Texas taxing entities — using a tiered sales tax structure that keeps rates low, protects taxpayers through constitutional caps, and gives every community a transparent, voter-controlled rate.
Why Five Tiers?
Texas has more than 6,000 taxing entities. A single flat rate cannot serve them all fairly.
Texas already lives inside a tiered tax system — you just may not think of it that way. Every time you make a purchase, the state charges its 6.25% base rate. Your city may add up to 2% on top. In some cases your county adds a portion too. The current combined cap is 8.25%. This multi-layer structure already reflects a fundamental reality: Texas government is organized in layers, and each layer has its own revenue needs, its own legal authority, and its own relationship with the taxpayers it serves. The Texas Property Tax Replacement Plan works within that same layered reality — but replaces all of it with a structured, capped, voter-controlled system that is more transparent than what exists today.
The five tiers of the TPTRP map directly onto the five types of Texas taxing entities that currently levy property taxes: Tier 1 is the State of Texas itself; Tier 2 is the 254 counties; Tier 3 is the 1,225 incorporated cities; Tier 4 is the 1,016 independent school districts (ISDs); and Tier 5 is the 500 statewide special districts that operate across multiple county lines. Every dollar of property tax collected in Texas today flows through one of these five categories. Every dollar the plan must replace is accounted for within one of these five tiers.
Each tier has its own revenue obligation — the specific amount of money it needs to replace its current property tax and state tax collections. Each tier also has its own portion of the statewide tax base, and its own rate cap. The rates do not stack randomly. They are designed so that every tier can fund its full replacement obligation while staying well below a constitutional ceiling of 6.00% combined — a ceiling that is lower than Texas’s current 8.25% combined sales tax cap, applied to a base that is far broader than today’s taxable retail purchases alone.
One piece of this picture deserves special mention: special districts. Most Texans know they pay property taxes to the state, their county, their city, and their school district. Far fewer realize they also pay property taxes to one or more special districts. Special districts are single-purpose government entities — water supply districts, municipal utility districts (MUDs), drainage districts, emergency services districts, and hundreds of other types. There are 4,648 of them in Texas, and they collectively levy billions in property taxes every year. Under the TPTRP, most of them are absorbed into their county or city tier — meaning the county’s or city’s rate covers the special district’s replacement needs within that tier’s cap. This simplifies the system dramatically, replacing hundreds of tiny separate tax bills with a single transparent rate per tier.
Every time you make a purchase in Texas, you already pay a tiered sales tax. The state charges 6.25%. Your city may add up to 2%. Your county may add a portion too. The current combined cap is 8.25%. TPTRP replaces all of this — and adds the replacement for property taxes — while setting a constitutional ceiling of 6.00% combined. That’s lower than the current cap, on a broader base of economic activity.
Key Terms Explained
The precise definitions behind the numbers in this article
The TPTRP analysis uses specific, carefully defined terms throughout. Understanding what each term means — and what it does not mean — is essential to reading the numbers correctly. Here are the key concepts, in plain English.
Final Tax Base (FTB)
The total value of all taxable economic transactions in Texas under the TPTRP definition. Not every dollar that changes hands — certain essential categories are exempted. These 12 exemptions are called the Texas Living Exemption Set (TLES): groceries, rent, home utilities, prescription drugs, medical care, education, gas at the pump, childcare, home purchases, residential property insurance, auto insurance, and life insurance. After those exemptions are removed, the Final Tax Base for FY 2025 is $7.128 trillion. This is the denominator against which every rate in the plan is calculated.
Total Replacement Obligation (TRO)
The total amount of money the plan must generate to replace all property taxes and state taxes currently collected. The TRO is $203.55 billion. It includes a 10% revenue buffer above each entity’s current collections — meaning the plan is designed to collect slightly more than today’s exact number to provide a cushion against economic fluctuation in the first years of transition. Without the buffer, the raw current-year revenue total is approximately $185.05 billion.
Required Floor Rate (RFR) / Aggregate Required Floor Rate (AFR)
The mathematically minimum rate that, applied to the Final Tax Base, generates exactly enough revenue to cover the Total Replacement Obligation. This is not a policy choice — it is what the algebra requires. The system-wide AFR is approximately 2.83% across all five tiers combined. Each tier has its own AFR, derived from that tier’s share of the TRO and its share of the tax base.
Starting Cap Rate (SCR)
The rate the legislation will set as the starting rate for each tier on Day 1 of the plan. No entity may exceed its tier’s SCR without a voter-approved increase by that jurisdiction’s residents. The combined SCR across all five tiers is 3.25% — above the AFR, which creates a surplus that funds the Year-1 Transition Fund. Each tier has its own SCR: State 1.00%, Counties 0.40%, Cities 0.60%, ISDs 1.20%, Statewide Special Districts 0.05%.
Constitutional Cap Rate (CCR)
The absolute ceiling written into the constitutional amendment. No tier may ever exceed its CCR, even with a voter-approved increase, without amending the constitution again. The CCR is where the constitutional amendment sets the outermost boundary of the entire system. The combined CCR is 6.00% — lower than Texas’s current 8.25% combined sales tax cap.
Tier
One of the five categories of taxing entities in the TPTRP structure. Each tier has its own rate, its own portion of the Final Tax Base, and its own replacement obligation. The five tiers are: Tier 1 (State), Tier 2 (Counties), Tier 3 (Cities), Tier 4 (School Districts), and Tier 5 (Statewide Special Districts).
Special District Absorption
The process by which the property tax obligations of most special districts are folded into the county or city tier that covers the same geography. Rather than having hundreds of tiny separate rates, the county or city rate covers the special district’s needs within its tier cap. This is how the plan reduces 4,648 special districts down to a manageable structure.
M&O Rate / I&S Rate
Within each tier’s cap, every entity that has outstanding bond debt must divide its rate into two parts: (1) the Interest & Sinking (I&S) rate, which covers annual bond debt payments and is legally required — it cannot be reduced without formal bond defeasance; and (2) the Maintenance & Operations (M&O) rate, which covers everything else. The constitutional rule is simple: M&O + I&S cannot exceed the tier cap.
Year-1 Transition Fund
The pool of money available to manage the transition from the property tax system to the TPTRP system. It has two sources: the 10% buffer built into the TRO ($18.5B), and the surplus generated when the SCR exceeds the AFR (approximately $28.1B). Total: approximately $46.6 billion. This fund covers shortfalls for flagged entities, manages implementation costs, and provides a cushion against any economic volatility in the first years of transition.
The Tier Structure and Rate Plan
How the five tiers divide $203.55 billion across the state — and what it costs at each rate level
The $203.55 billion Total Replacement Obligation cannot be collected all at once at a single rate. It must be divided — logically and legally — into portions assigned to each of the five tiers. Each tier then collects its portion from its share of the $7.128 trillion Final Tax Base. The "rate" for each tier is the percentage of all taxable economic activity in its geography that the tier needs to collect in order to cover its replacement obligation. Think of it like a slice of a very large pie: each tier gets the slice it is entitled to, at the percentage the math requires.
Three rate concepts apply to each tier. The AFR (Aggregate Required Floor Rate) is what the math requires — the algebraic minimum that covers the tier’s TRO exactly. It is not chosen; it is calculated. The SCR (Starting Cap Rate) is what the law actually sets on Day 1 — always above the AFR, creating a built-in surplus. No entity within a tier may exceed the SCR without a voter-approved increase. The CCR (Constitutional Cap Rate) is the absolute ceiling embedded in the constitutional amendment — the outermost limit no legislature can ever cross without asking Texans to amend their constitution. The plan does not “adopt” three rates; it establishes one legislative starting rate (SCR) per tier and one constitutional ceiling (CCR) per tier. The AFR is purely analytical — the reference point that proves the starting rate is sufficient.
The 10% TRO buffer is built into every entity’s replacement obligation. This is not extra government spending — it is a designed-in cushion so that if the economy dips slightly in the first year of transition, no entity faces a revenue cliff. The buffer transforms each entity’s current collections into its TRO: TRO = current revenue × 1.10. The $18.5 billion system-wide buffer, combined with the approximately $28.1 billion surplus from the SCR exceeding the AFR, creates the $46.6 billion Year-1 Transition Fund.
One important integration point: Texas cities already collect a local sales tax. Counties in some areas do too. Transit authorities, emergency services districts, and other entities also collect local option sales taxes. The TPTRP’s tier structure builds on this existing reality — the same collection infrastructure, the same Comptroller reporting systems, the same local-allocation mechanisms. What changes is what the money replaces: instead of supplementing a property tax, the tiered rate is the tax.
| Tier # | Tier Name | Tier Description | Total TRO — Core Entity | Total TRO — SDs Absorbed / Ed-Realloc Movement | Total Tier TRO | Primary AFR | Secondary RFR (variant) |
|---|---|---|---|---|---|---|---|
| 1 | State | State of Texas — single entity, statewide jurisdiction. FTB = full $7.128T Stage 3 (v9). | $66,632,390,026.50 | $0 | $66,632,390,026.50 | 0.9262% Full FTB — T1 AFR |
— single method |
| 2 | Counties | 254 counties + 1,284 absorbed SDs. Dual FTB: ZIP-spine primary; Establishment + Wellhead Blend secondary. | $19,446,837,566.16 | $5,101,372,629.60 1,284 SDs absorbed |
$24,548,210,195.76 | 0.3412% Blend — T2 AFR |
0.2483% ZIP-spine variant† |
| 3 | Cities | 1,225 cities + 2,864 absorbed SDs. Sales-tax-share primary; ZIP-spine cross-check secondary. | $28,380,844,868.52 | $9,888,801,183.18 2,864 SDs absorbed |
$38,269,646,051.70 | 0.5320% Sales-tax primary — T3 AFR |
0.2819% ZIP-spine variant† |
| 4 | ISDs | 1,016 ISDs + $25.99B ed-realloc movement from T1. ZIP-spine FTB, ADA-renormalized. Primary = current law; secondary = $10K/ADA cap. | $45,820,043,003.90 | $25,985,200,000.00 Ed-realloc from T1 |
$71,805,243,003.90 | 0.9981% Current-law TRO — T4 AFR |
0.6440% $10K/ADA cap TRO‡ |
| 5 | Statewide SDs | 500 multi-region special districts. ZIP-spine FTB (cross-jurisdictional). Single-method tier. | $2,299,114,108.84 | $0 | $2,299,114,108.84 | 0.0320% SD denom — T5 AFR |
0.0009% ZIP-spine variant† |
| Totals | All five tiers, full $7.128T FTB | $162,579,229,573.92 | $40,975,373,812.78 | $203,554,603,386.71 | 2.8295% Sum of Tier AFRs |
2.4753% w/ T4 cap and ZIP variants |
|
| Tier | FTB Basis | AFR | SCR | CCR | Notes |
|---|---|---|---|---|---|
| T1 — State | Full statewide FTB | 0.9262% | 1.0000% | 2.0000% | State (post ed-realloc absorption) |
| T2 — Counties + Absorbed SDs | Establishment + Wellhead Blend | 0.3412% | 0.4000% | 1.0000% | Counties carry 1,284 absorbed SDs |
| T3 — Cities + Absorbed SDs | Sales-tax-share primary | 0.5320% | 0.6000% | 1.0000% | Cities carry 2,864 absorbed SDs |
| T4 — ISDs + Ed Reallocation | ZIP-spine, ADA-renormalized | 0.9981% | 1.2000% | 1.5000% | Includes $25.99B FY25 ed-realloc transfer |
| T5 — Statewide SDs | SD-denominator basis | 0.0320% | 0.0500% | 0.5000% | 500 multi-region standalone SDs |
| Sum of Tiers (reference only) | 2.8295% | 3.2500% | 6.0000% | The constitutional cap is 6.00% — lower than today’s 8.25% | |
The tables below show exactly what each tier collects at each rate level — the floor (AFR), the Day-1 starting rate (SCR), and the constitutional ceiling (CCR). For every tier, the starting rate generates a surplus above the floor, and the constitutional ceiling provides substantial headroom above that. This headroom is not money to spend — it represents the outer boundary the constitutional amendment places on what any future legislature or voter approval could ever authorize.
| Component | Rate % | FTB | TRO Anchor | Revenue (rate × FTB) | Δ vs TRO |
|---|---|---|---|---|---|
| T1 State | 0.9262% | $7,128.0B | $66.63B | $66.63B | ≈ $0 |
| T2 Counties (combined) | 0.3412% | $7,128.0B | $24.55B | $24.55B | ≈ $0 |
| T3 Cities (combined) | 0.5320% | $7,128.0B | $38.27B | $38.27B | ≈ $0 |
| T4 ISDs | 0.9981% | $7,128.0B | $71.81B | $71.80B | −$1.5M |
| T5 SDs | 0.0320% | $7,128.0B | $2.30B | $2.30B | ≈ $0 |
| Σ All Tiers (AFR Sum) | 2.8295% | $7,128.0B | $203.55B | $203.55B | ≈ $0 |
| Rate | Rate % | FTB Used | Tier 1 TRO | Revenue | Surplus / (Shortfall) |
|---|---|---|---|---|---|
| AFR | 0.9262% | $7,128.0B | $66.63B | $66.63B | $0.00B OK (identity) |
| SCR | 1.0000% | $7,128.0B | $66.63B | $71.28B | +$4.65B OK |
| CCR | 2.0000% | $7,128.0B | $66.63B | $142.56B | +$75.93B OK |
| Scenario | Rate | Rate % | FTB Used | Tier 2 TRO | Revenue | Surplus / (Shortfall) |
|---|---|---|---|---|---|---|
| Core (counties only) | AFR (derived) | 0.2703% | $7,128.0B | $19.45B | $19.45B | $0.00B OK (identity) |
| Core (counties only) | SCR | 0.4000% | $7,128.0B | $19.45B | $28.51B | +$9.06B OK |
| Core (counties only) | CCR | 1.0000% | $7,128.0B | $19.45B | $71.28B | +$51.83B OK |
| Combined (cnty + abs. SDs) | AFR (locked) | 0.3412% | $7,128.0B | $24.55B | $24.55B | $0.00B OK (identity) |
| Combined (cnty + abs. SDs) | SCR | 0.4000% | $7,128.0B | $24.55B | $28.51B | +$3.96B OK |
| Combined (cnty + abs. SDs) | CCR | 1.0000% | $7,128.0B | $24.55B | $71.28B | +$46.73B OK |
| Scenario | Rate | Rate % | FTB Used | Tier 3 TRO | Revenue | Surplus / (Shortfall) |
|---|---|---|---|---|---|---|
| Core (cities only) | AFR (derived) | 0.3945% | $7,128.0B | $28.38B | $28.38B | $0.00B OK (identity) |
| Core (cities only) | SCR | 0.6000% | $7,128.0B | $28.38B | $42.77B | +$14.39B OK |
| Core (cities only) | CCR | 1.0000% | $7,128.0B | $28.38B | $71.28B | +$42.90B OK |
| Combined (city + abs. SDs) | AFR (locked) | 0.5320% | $7,128.0B | $38.27B | $38.27B | $0.00B OK (identity) |
| Combined (city + abs. SDs) | SCR | 0.6000% | $7,128.0B | $38.27B | +$4.50B | +$4.50B OK |
| Combined (city + abs. SDs) | CCR | 1.0000% | $7,128.0B | $38.27B | $71.28B | +$33.01B OK |
| Rate | Rate % | FTB Used | Tier 4 TRO | Revenue | Surplus / (Shortfall) |
|---|---|---|---|---|---|
| AFR | 0.9981% | $7,128.0B | $71.81B | $71.80B | $0.00B OK (identity, −$1.5M rounding) |
| SCR | 1.2000% | $7,128.0B | $71.81B | $85.54B | +$13.73B OK |
| CCR | 1.5000% | $7,128.0B | $71.81B | $106.92B | +$35.11B OK |
| Rate | Rate % | FTB Used | Tier 5 TRO | Revenue | Surplus / (Shortfall) |
|---|---|---|---|---|---|
| AFR | 0.0320% | $7,128.0B | $2.30B | $2.30B | $0.00B OK (identity) |
| SCR | 0.0500% | $7,128.0B | $2.30B | $3.56B | +$1.26B OK |
| CCR | 0.5000% | $7,128.0B | $2.30B | $35.64B | +$33.34B OK |
At the floor rate (AFR), every tier’s revenue exactly covers its replacement obligation — that’s what the floor rate means. At the starting rate (SCR), every tier generates a surplus. At the constitutional ceiling (CCR), every tier has enormous headroom. The flag concept described later in this article is different: it refers to individual entities within a tier whose local economic base is small relative to their local replacement obligation. Those entity-level flags do not affect the tier as a whole — the tier always closes.
Tier 1 — The State of Texas
One entity, one rate — replacing every state tax at 0.93%
Tier 1 covers every state-level tax that Texans currently pay — the 6.25% state sales tax you see on every receipt, the franchise tax that businesses pay, motor fuels taxes, oil and gas severance taxes, alcohol and tobacco taxes, and more. All of it gets replaced by a single 0.93% rate applied to the $7.128 trillion Final Tax Base. That’s the headline structural finding: the state’s entire tax system, including every levy it currently imposes, can be replaced by a rate less than one percent against the TPTRP’s broader base.
Texas currently charges 6.25% at the register on taxable retail purchases — that’s just the state’s portion, applied to a narrow base of consumer goods. Under TPTRP, the state’s portion drops to 1.00% at the starting rate (0.93% at the floor), applied to a base seven times broader. Every state tax — franchise, motor fuels, severance, alcohol, tobacco, and more — is covered by that single rate on the $7.128 trillion tax base. The TPTRP state rate is one-seventh of what you see on your receipt today, applied to a base seven times larger.
This 0.93% figure matters enormously because it sets the foundation for the entire system. Every city, county, school district, and special district tier is built on top of the state tier. If the state’s rate were too high, there would be no room for the other tiers to fit under the 6.00% constitutional cap. The fact that the state’s full replacement obligation — including the billions it sends to schools, roads, and every other state program — requires only 0.93% against the new base is the central structural validation of the plan. The state tier’s starting cap rate is 1.00%, its constitutional ceiling is 2.00%, and the total replacement need is 0.93% — leaving the state substantial cushion even at the starting rate.
The Education Reallocation Transfer
One of the most important features of the State tier is what it does not keep: $25,985,200,000 in state-funded Foundation School Program payments to ISDs (Texas Legislative Budget Board, 2024, p. 225, Figure 153). Under the current system, the state collects taxes at the state level and then sends a portion to school districts to help fund their operations. Under TPTRP, that flow doesn’t stop — it just gets restructured. Instead of the state collecting taxes and passing money to ISDs, each school district gets its own tier rate that covers its total funding need, including what the state used to send. The $25.99 billion transfers from the State tier’s obligation to the ISD tier’s obligation. Total money to education: unchanged. Source of funding: changed from a state-level pass-through to a dedicated ISD sales tax rate that each district controls directly.
This transfer is revenue-neutral at the all-entities level. The $25.99B that leaves the State tier appears dollar-for-dollar in Tier 4. The total $203.55B TRO is unaffected. The purpose of the transfer is to give each school district a complete, accurate picture of its own funding needs — not just the local property tax portion, but everything the district requires to operate, including what the state has historically subsidized through the Foundation School Program.
The $25.99B figure is drawn directly from the LBB Fiscal Size-Up (2024), p. 225, Figure 153, which documents the FY 2025 Methods of Financing for the Foundation School Program. The figure excludes lottery proceeds, Chapter 41 recapture receipts, and federal pass-through funding — isolating only the state General Revenue and State Highway Fund contributions that TPTRP is replacing. This is a policy decision requiring Transition Board validation before the final legislation is drafted.
Charter Funding — A Permanent State Obligation
Open-enrollment charter schools are state-funded because they have no property tax authority — the Texas Constitution grants ad valorem taxing authority only to ISDs as political subdivisions (Tex. Const. art. VII, § 3), and the Education Code confirms that charter schools receive state per-student funding without any local tax mechanism (Tex. Educ. Code § 12.106). Under TPTRP, that doesn’t change — charter school funding stays a State tier obligation. It’s already built into the 0.93% state floor rate. Charter school funding — approximately $2.075 billion annually — remains a permanent state obligation under TPTRP, just as it is today. This is not a transition artifact; it is a permanent feature of how Texas funds schools that do not levy property taxes.
Tier 2 — The 254 Counties
How county governments and their special districts fit into the tier structure
Texas’s 254 counties are the backbone of local government in most of the state (Texas Comptroller of Public Accounts, 2025). They operate courts, jails, roads, election administration, public health services, and countless other functions that most Texans rely on every day — and they fund those services largely through property taxes. The county’s collective TRO before special district absorption is $19,446,837,566.16, rising to $24,548,210,195.76 after absorbing the 1,284 special districts operating within county boundaries. The Tier 2 starting rate of 0.40% on its share of the $7.128 trillion tax base covers that entire obligation on Day 1 of the plan.
Along with their own obligations, counties absorb the replacement funding for 1,284 special districts operating within county boundaries — things like rural water supply districts, soil and water conservation districts, and drainage districts. Rather than each of these needing their own separate rate (which no one would ever understand or track), their replacement obligation rolls into the county rate. The county’s 0.40% starting rate covers both the county’s own needs and these absorbed districts. This simplification is one of the key structural improvements the TPTRP makes over the current system: instead of dozens of overlapping tax bills covering entities most residents have never heard of, there is one transparent county tier rate.
Two Independent Methods, One Answer
To make sure every county’s rate is calculated fairly, the plan uses two completely independent methods for allocating each county’s share of the $7.128 trillion tax base. Both methods start from the same total but allocate it differently. Method A (the primary method) uses the ZIP code-level economic activity footprint of each county. Method B (the cross-check method) uses a 50/50 blend of each county’s share of total Texas business establishments (U.S. Bureau of Labor Statistics, 2025) and its share of wellhead oil and gas production (Texas Railroad Commission, 2025). The Establishment + Wellhead Blend corrects for distortions that occur when counties with large oil and gas production (like Permian Basin counties) or low retail sales share (like state-government-heavy Travis County) would produce absurd results from a single-method approach.
Of Texas’s 254 counties, only 2 are flagged — meaning their local economic base, relative to their replacement obligation, requires a rate above the 0.40% county starting rate. Both Jeff Davis County (far West Texas) and Matagorda County (Gulf Coast) flag under both calculation methods independently. These are small, rural counties with limited economic activity relative to their government service costs. The Transition Board will determine the appropriate support mechanism for these communities.
| County | County-Only RFR (ZIP-Spine) | County-Only RFR (Blend) | Combined RFR (ZIP-Spine) | Flag Status (SCR shortfall) |
|---|---|---|---|---|
| Jeff Davis | 2.49% | 2.49% | 2.49% | ⚠ Flagged — both methods agree |
| Matagorda | 3.78% | 3.78% | 3.78% | ⚠ Flagged — both methods agree |
When two completely independent calculation methods both flag the same 2 counties out of 254, that agreement tells us something important: these counties face a genuine structural challenge that the plan’s transition mechanisms are designed to address. The flag is driven by structural economic reality in those counties — not by a methodology artifact or a data error. The Transition Board will work with Jeff Davis and Matagorda counties to find the right solution — whether that’s an adjusted implementation timeline, transition fund support, or a structural review of service delivery.
Tier 3 — The 1,225 Cities
City governments, absorbed special districts, and what the rates mean for urban and rural Texas
Texas’s 1,225 incorporated cities fund police and fire protection, parks, libraries, streets, and city courts through property taxes (Texas Comptroller of Public Accounts, 2025). Under TPTRP, all of that is replaced by the city’s 0.60% starting rate on its share of the $7.128 trillion tax base. The collective city TRO before special district absorption is $28,380,844,868.52, rising to $38,269,646,051.70 after absorbing the 2,864 special districts that fall within city geographies. The city tier carries the highest flag rate of any tier at 2.5% (31 of 1,225 cities flagged), but understanding why requires a closer look at what is actually driving those flags.
Cities absorb 2,864 special districts — things like Municipal Utility Districts (MUDs), Public Utility Districts (PUDs), Emergency Medical Services districts, and library districts within city boundaries. These don’t need separate rates; they roll into the city’s 0.60% starting rate. This simplification is dramatic: instead of thousands of overlapping tax bills covering entities most residents have never interacted with directly, there is one transparent city tier rate covering the city and everything it absorbs.
51 Texas cities have not yet adopted a local sales tax. They use a different allocation method for their share of the tax base. The Transition Board will determine whether these cities should adopt the new tier rate or be handled through the county tier — a decision that affects a small number of communities but needs to be made before legislation is finalized.
Three Rate Readings Per City — Finding the Source of Pressure
For each city, the plan tracks three separate rate readings: what the city alone requires, what the absorbed special districts alone require, and what the combined total requires. This breakdown lets policymakers see exactly where rate pressure comes from — the city’s own operations, or the special districts it’s absorbing. When 14 of the 31 city flags are driven entirely by the special districts being absorbed — not the city itself — the policy response is to review those district assignments, not to restructure the city’s own rate.
Of Texas’s 1,225 cities, 31 are flagged — their combined replacement rate exceeds the 0.60% city starting rate. Importantly, only 9 of those 31 flags are driven by the city’s own needs. The other 22 flags are driven partly or entirely by the special districts being absorbed into the city tier. This distinction matters: for cities flagged because of absorbed special districts, the solution may be to reroute those districts to a different tier rather than change the city’s own rate. The Transition Board will review each flagged city’s situation individually.
Tier 4 — The 1,016 School Districts
ISDs, the Foundation School Program, and why education is the largest tier
For most Texas homeowners, school district taxes are the largest single line on the property tax bill. That reality is reflected in the numbers: ISDs are the largest tier by dollar amount at $71.8 billion — 35% of the entire $203.55 billion replacement obligation. Under TPTRP, all of that comes from the ISD’s 1.20% starting rate on its share of the $7.128 trillion tax base. School districts do not lose their funding. They gain control of it directly — through a dedicated tier rate that reflects what it actually costs to run the district, rather than a patchwork of local property tax plus state Foundation School Program supplements.
From the school district’s perspective, the $25.99 billion the state currently sends each district through the Foundation School Program (Texas Legislative Budget Board, 2024, p. 225) becomes part of the district’s own tier obligation. School districts don’t lose this money — it’s just restructured so that each ISD’s rate reflects its total funding need, not just the local property tax portion. The state continues to ensure the money is there; the mechanism shifts from a state pass-through to a district-level tier rate.
How the $25.99B Is Distributed Among ISDs
The $25.99 billion is distributed to the 1,016 ISDs in proportion to each district’s student enrollment, measured as Average Daily Attendance (ADA) from the TEA ADA/WADA report for 2024–25 (Texas Education Agency, 2025). A district with 10% of Texas’s matched-ISD enrollment gets 10% of the $25.99 billion added to its replacement obligation. The renormalization is conducted over the 1,016 matched ISDs only (excluding charter schools, which are not in Tier 4 — see below), with a matched ISD ADA sum of 4,632,481.28 student-days. The result: the sum of all 1,016 per-district allocations equals exactly $25,985,200,000.00 — to the penny.
Charter School Exclusion
Open-enrollment charter schools are not in Tier 4 because they don’t levy property taxes. They operate under a state charter, receive state per-student funding under Tex. Educ. Code § 12.106, and have no TRO to replace. Their funding stays in Tier 1 as a permanent state obligation, exactly as it works today. Including charter ADA in the school district denominator would dilute each ISD’s education reallocation share without a corresponding TRO offset — which would understate each district’s actual funding need.
14 Flagged ISDs — Rate Pressure in Small Communities
Of 1,016 Texas school districts, 14 are flagged — their replacement funding requirement exceeds the 1.20% ISD starting rate. These are districts with relatively small local economies compared to their operating costs. For each flagged district, the analysis distinguishes between primary coverage (the district’s own TRO relative to its tax base share) and absorbed coverage (the combined total including any absorbed special districts). This distinction matters because for some districts, the flag is driven by the special districts being absorbed rather than the district’s own operations — and the policy response differs accordingly.
The ADA renormalization over 1,016 matched ISDs preserves the locked $25,985,200,000 education reallocation anchor to the penny. The sum of all per-district allocations equals $25,985,200,000.00 — with no rounding adjustment required. This means the state’s education commitment is fully preserved in the transition, with no ISD receiving a penny more or less than its proportional share of the total.
The $10,000 Per-Student Cap — Planning Reference
Today, Texas ISDs spend widely varying amounts per student. Some districts spend far more than others due to administrative overhead, inefficiencies, or structural imbalances in the current system. This analysis also models what the ISD tier would look like under a $10,000 per-student funding cap — a concept from the broader Freedom of Education framework being developed alongside TPTRP. At a $10,000 cap, the total ISD obligation drops by $25.5 billion (35.5%), and the number of flagged districts drops from 14 to 12. This is not the TPTRP rate — it is a planning reference showing how education reform and tax replacement could work together. TPTRP on its own replaces taxes at current spending levels; any cap requires separate legislative action.
| Measure | Primary RFR Set (Current Law) | Secondary RFR Set ($10K Cap) | Delta |
|---|---|---|---|
| Aggregate Tier 4 TRO | $71,805,243,003.90 | $46,324,812,840.00 | −$25,480,430,164 (−35.5%) |
| ISDs flagged (SCR shortfall) | 14 of 1,016 (1.4%) | 12 of 1,016 (1.2%) | −2 districts |
| FTB denominator | ZIP-spine (statewide FTB) | ZIP-spine (same) | — |
| Per-ADA basis | Current-law actual spend | $10,000 flat | Mechanical cap |
The 12 districts that remain flagged even under the cap face challenges driven by their local economic base — their communities simply have less taxable economic activity relative to their school costs. This indicates the rate pressure in those districts is driven by geography and economic structure, not by spending levels. The Transition Board will address each flagged district individually.
The $10K-cap RFR set is included for planning purposes. It is not the rate the legislature would adopt under TPTRP alone — TPTRP replaces taxes at current spending levels, and any cap requires separate legislative action under the Freedom of Education framework. The Transition Board should treat the cap rate as a comparative reference showing what Tier 4 rate pressure looks like under a reformed funding model, useful for sequencing TPTRP and Freedom of Education legislation but not embedded in the TPTRP rate itself.
Tier 5 — Statewide Special Districts
500 multi-region districts, zero flags — the cleanest structural outcome in the plan
Tier 5 contains the 500 special districts that span multiple county boundaries — entities like regional transit authorities, river authorities, port districts, and large-area utility districts that cannot be cleanly absorbed into a single county or city geography (Texas Comptroller of Public Accounts, 2025). Because they operate across county and city lines, they get their own tier. Their combined TRO is $2,299,114,108.84 — modest relative to the other tiers — and their Tier 5 starting rate is 0.05% with a constitutional ceiling of 0.50%.
All 500 Tier 5 districts have replacement rates below the 0.05% starting cap. This is the strongest result in the entire analysis — every multi-region special district in Texas can be funded under the plan’s starting rate without a single exception. The reason is structural: these districts cover large geographic areas, which means their share of the tax base is large relative to their relatively modest replacement obligations. A transit authority serving a metropolitan region has access to an enormous economic base; its TRO, while in absolute dollars may seem large, is small as a percentage of that base.
The 4,648 total special districts in the TPTRP registry are distributed as follows: 1,284 absorbed into county (Tier 2) geographies, 2,864 absorbed into city (Tier 3) geographies, and 500 remaining as statewide Tier 5 standalone entities. The Transition Board will review all 4,648 absorption assignments before they are written into statute, to confirm that each district is in the right tier given its actual geographic footprint.
All 500 statewide special districts in Tier 5 produce a 0.0% flag rate — the best structural outcome of any tier in the entire analysis. Every multi-region special district in Texas can be fully funded under the 0.05% Tier 5 starting cap, with no exceptions and no shortfalls. This confirms that the Tier 5 classification is the right structural home for these entities. The Tier 5 constitutional ceiling of 0.50% provides deliberate long-term headroom for any future statewide special districts the legislature may create, without requiring a constitutional amendment.
M&O and I&S: Bond Obligations Within the Cap
Every entity with outstanding bonds has two rate components — and the law protects both
If your school district, city, or county has voted to approve bonds — for a new high school, a road project, or a water system — those bonds are currently paid through the property tax I&S (Interest & Sinking) rate. Under TPTRP, the property tax that pays those bonds is replaced. But the bonds themselves are not. Every voter-approved bond obligation carries forward and gets paid through the sales tax rate instead. The money still flows to bondholders on the same schedule, honoring the commitments voters approved.
Within each tier’s starting cap, every entity that has outstanding bond debt divides its rate into two parts: (1) the I&S rate, which covers annual bond debt payments — this portion is legally required, set by the bond resolution, and cannot be reduced without formal bond defeasance; and (2) the M&O rate, which covers all other government operations — salaries, services, maintenance, everything else. The constitutional rule is simple: I&S + M&O cannot exceed the entity’s tier starting cap.
This means the legislature doesn’t decide how much of a city’s rate goes to bond payments. The bondholders set that. The bond resolution already specified the debt service schedule. TPTRP’s sales tax rate replaces the property tax as the funding stream, but the amount flowing to bondholders is fixed by law. The M&O portion is whatever is left under the cap.
This structure actually protects taxpayers twice. First, it guarantees that bond obligations approved by voters are honored — no bondholder faces default, no school district bond rating drops. Second, it ensures the M&O rate — the part that funds day-to-day operations — cannot crowd out bond payments, and bond payments cannot crowd out M&O beyond what the cap allows. Everything is transparent and constitutionally bounded. Texans know exactly what their government can charge, and they know their bonds will be paid.
| Tier | SCR Tier Cap (%) | Annual Bond DS FY26 ($) | I&S Rate (DS ÷ FTB) | M&O Rate (SCR − I&S) | Notes |
|---|---|---|---|---|---|
| T1 | 1.00% | $713,888,000 | 0.0100% | 0.9900% | State NSS only; I&S set by BRB schedule |
| T2 | 0.40% | $3,847,912,041 | 0.0540% | 0.3460% | Counties + co-area SDs |
| T3 | 0.60% | $5,276,789,434 | 0.0740% | 0.5260% | Cities + city-area SDs |
| T4 | 1.20% | $12,431,224,477 | 0.1744% | 1.0256% | ISDs; highest I&S burden |
| T5 | 0.05% | $0 | 0.0000% | 0.0500% | No separate bond DS tracked in T5 |
| SYS | 3.25% | $22,269,813,952 | 0.3124% | 2.9376% | I&S inside SCR cap |
School districts carry the highest bond load of any tier — $12.4 billion in annual debt service. That’s because Texas ISDs have historically funded construction through voter-approved bonds. At 0.1744% of the tax base, ISD bond payments consume about 14.5% of the ISD starting rate (1.20%). That leaves 1.0256% for day-to-day operations — more than enough for the vast majority of districts. The 14 flagged districts where total rate pressure is highest will receive the Transition Board’s closest attention, particularly because their I&S obligations are fixed and cannot be reduced.
What the Analysis Found
Eight findings that confirm the plan works — and identify where the Transition Board will focus first
This analysis covers more than 6,000 taxing entities, $7.128 trillion in economic activity, and every property tax dollar collected in Texas. The findings below represent the most significant conclusions — written both for everyday Texans who want to understand the plan, and for legislators and committee members who need to evaluate it.
All five tiers, every county, every city, every ISD, every special district — they all sum to the locked $203.55 billion replacement obligation. Not approximately. Not within rounding. Exactly. This confirms the plan’s architecture is sound before a single line of legislation is drafted.
- Finding 1 — The math closes exactly, to the penny, across all 6,148+ entities. All five tiers, every county, every city, every ISD, every special district — they all sum to the locked $203.55 billion replacement obligation. Not approximately. Not within rounding. Exactly. This confirms the plan’s architecture is sound before a single line of legislation is drafted.
- Finding 2 — Replacing every state-level tax requires a rate of just 0.93%. Texas currently charges 6.25% at the register on taxable retail sales — that’s just the state’s portion, applied to a narrow base. Under TPTRP, the state’s portion drops to 1.00% at the starting rate (0.93% at the floor), applied to a base seven times broader. Every state tax — franchise, motor fuels, severance, alcohol, tobacco, and more — is covered by that single rate on the $7.128 trillion tax base.
- Finding 3 — Two independent methods flag the exact same 2 counties. Two completely different mathematical approaches to allocating the county tax base both independently identify Jeff Davis and Matagorda counties as the only counties where the replacement rate exceeds the 0.40% county starting cap. When independent methods agree, the result is reliable — not a methodology artifact. These two counties face real structural challenges the Transition Board is designed to address.
- Finding 4 — City flags are mostly a special district problem, not a city problem. Of 31 flagged cities, 22 flags are driven partly or entirely by the special districts being absorbed into the city tier. Only 9 cities flag on their own operations alone. This finding is critical for legislative design: the solution for most flagged cities is likely to reroute those absorbed special districts — not to restructure the city’s own rate.
- Finding 5 — ADA-based education allocation is exact, to the penny. The $25.99 billion in state Foundation School Program funding is redistributed to the 1,016 ISDs in proportion to student enrollment. The renormalization across matched ISDs produces a sum of exactly $25,985,200,000.00 — to the penny. This means the state’s education commitment is fully preserved in the transition, with no ISD receiving a penny more or less than its proportional share.
- Finding 6 — Every one of the 500 statewide special districts is below the cap. Tier 5 has zero flagged districts — the best structural outcome of any tier. Multi-region special districts, which cover large geographic areas, have tax base shares large enough to comfortably fund their replacement obligations at rates well below the 0.05% Tier 5 starting cap.
- Finding 7 — The education reallocation is an accounting transfer, not a funding change. The $25.99 billion that moves from the State tier to the ISD tier is a structural reclassification — the money that used to flow from Austin to ISDs as Foundation School Program payments now comes directly from each district’s own tier rate. Total education funding: unchanged. Source of funding: changed from mixed state taxes to a dedicated ISD sales tax rate.
- Finding 8 — The three-rate architecture gives the plan a built-in cushion at every level. At the starting rate (SCR 3.25% combined), the plan generates approximately $28.1 billion more than the replacement obligation. That surplus — plus the $18.5 billion buffer already built into the TRO — creates a $46.6 billion Year-1 Transition Fund. At the constitutional ceiling (6.00% combined), the plan has $224 billion of headroom above the replacement obligation. The system is designed with multiple layers of protection at every tier.
The Transition Board’s Role
This analysis identifies the questions. The Transition Board provides the answers.
The Texas Property Tax Replacement Plan establishes a Transition Board — a body responsible for managing the conversion from the current property tax system to the TPTRP sales tax system. Think of it as the implementation team: armed with the analysis in this article, the Board works through the practical decisions that must be resolved before legislation can be drafted and passed. This isn’t a bureaucratic process — it’s a structured, transparent, publicly accountable review that ensures every Texas community is treated fairly in the transition.
The analysis presented in this article is not theoretical. It covers every one of Texas’s 6,148+ taxing entities by name, models three rate scenarios for each, identifies every flagged entity, and provides the data needed to make every decision described below. The Transition Board doesn’t start from scratch — it starts from a fully built, verified analysis that isolates exactly which decisions require human judgment and why. The analytical work is done. The policy work begins now.
Every finding in this article, every flagged entity, every rate calculation is derived from Texas government’s own published data — Comptroller rates and levies, TEA enrollment figures, LBB budget documents, BLS employment data, and Texas Railroad Commission production reports. The Transition Board’s decisions will be made in the open, with the full analysis available for public review. That’s not just good policy — it’s what Texans deserve.
- Flagged entities. The Board will review the flagged entities in each tier (2 counties, 31 cities, 14 ISDs) and determine the right support mechanism for each: transition fund support, an adjusted implementation timeline, a rerouting of absorbed special districts, or a structural consolidation review. The analysis already identifies which entities face rate pressure and why — the Board’s job is to apply judgment to the already-identified situations.
- County tax base methodology. The Board will decide whether the ZIP-spine method or the Establishment+Wellhead Blend method governs legislative drafting for county tax base allocation — or whether both serve different purposes simultaneously. The ZIP-spine reflects economic activity in place; the Blend reflects economic production regardless of where transactions are recorded. Both methods are fully built and available; both flag the same 2 counties.
- The 51 zero-sales-tax cities. The Board will determine how 51 cities that currently have no local sales tax should be handled: adopt the new tier rate, consolidate into county coverage, or continue with ZIP-spine allocation. This affects a small number of cities but the decision needs to be made before legislation is finalized.
- State tier validation. The Board will validate the 0.93% state floor rate against LBB revenue projections for 2027–2031, including recession sensitivity and any federal fund interaction risks. The 0.93% result is structurally sound; the Board confirms it holds across the legislative drafting timeline.
- Education reallocation scope. The Board will confirm the composition of the $25.99 billion FSP transfer — specifically which funding streams are within TPTRP scope (General Revenue and State Highway Fund contributions) and which are not (lottery proceeds, federal pass-through). This number governs every ISD’s rate, so the Board’s validation is foundational to the entire Tier 4 analysis.
- Special district absorption assignments. The Board will review the 4,648 special district assignments (which SDs go to county Tier 2, which to city Tier 3, which stay in Tier 5) and make any needed corrections before those assignments are written into statute. An SD that appears in the wrong tier affects the flag count and combined rate for that tier.
- The 10% transition buffer. The Board will validate that the $46.6 billion Year-1 Transition Fund — built from the 10% TRO buffer and the SCR surplus — is sufficient to manage the transition across all flagged entities. The analysis already shows the pool covers all flagged entity shortfalls; the Board confirms the adequacy against actual cash-flow projections for the first 24 months of transition.
- Starting rates and constitutional caps. The Board will review and ratify the per-tier Starting Cap Rates and Constitutional Cap Rates before they are written into legislation and the constitutional amendment. The current proposed values (T1: 1.00%/2.00%, T2: 0.40%/1.00%, T3: 0.60%/1.00%, T4: 1.20%/1.50%, T5: 0.05%/0.50%) produce a combined SCR of 3.25% and a combined CCR of 6.00%. The Board confirms these are appropriate for each tier’s revenue volatility profile and long-term growth needs.
References
Sources are organized by the sections of this article they principally inform. Citations follow APA 7th Edition format. All sources are primary or official government originals.
State Revenue & Tax Structure — Sections 1, 3, 4
Texas Comptroller of Public Accounts. (2025). Biennial Revenue Estimate 2024–25. State of Texas. https://comptroller.texas.gov/transparency/reports/biennial-revenue-estimate/
Source for the $66.63B State Tier 1 replacement obligation and all state-level tax components the plan replaces: sales tax, franchise tax, motor fuels, severance, alcohol, tobacco. The BRE is the official Comptroller estimate of state-level tax revenues for the biennium and the definitive source for the state-tax replacement obligation.
Texas Comptroller of Public Accounts. (2025). 2025 county, city, ISD, and special district rates and levies. State of Texas. https://comptroller.texas.gov/taxes/property-tax/rates/index.php
Source for all local entity property tax levies and entity counts (254 counties, 1,225 cities, 1,016 ISDs, 4,648 special districts). The definitive annual record of what every Texas taxing entity collects. Published by the Property Tax Assistance Division (PTAD) of the Comptroller’s office.
Texas Comptroller of Public Accounts. (2025b). Local sales and use tax allocations. State of Texas. https://comptroller.texas.gov/transparency/local/allocations/
Source for city sales-tax share allocations used in Tier 3 FTB allocation. Published monthly; 2025 annualized totals are operative. The 51 cities with $0 sales tax in this dataset are those that have not adopted the local-option city sales tax under Tex. Tax Code ch. 321.
Education Finance — Sections 4, 7
Texas Legislative Budget Board. (2024). Fiscal Size-Up 2024–25 (p. 225, Figure 153). State of Texas. https://www.lbb.texas.gov/Documents/Publications/Fiscal_SizeUp/Fiscal_SizeUp_2024-25.pdf
Source for the $25.99B Foundation School Program figure (p. 225, Figure 153). Documents which funding streams are General Revenue and State Highway Fund vs. lottery and federal pass-through. The TPTRP uses GR and SHF components only, excluding lottery and federal pass-through as outside TPTRP replacement scope.
Texas Education Agency. (2025). ADA and WADA 2024–25. TEA. https://tea.texas.gov/reports-and-data/financial-reports/school-finance-reports-and-data/ada-and-wada-25.xlsx
Source for the 1,016 ISD enrollment figures used to allocate the $25.99B education reallocation. Matched ISD ADA sum: 4,632,481.28 student-days. The renormalization over matched ISDs only (excluding charter schools) ensures the full $25.99B is allocated to the entities that have TROs to replace.
Texas Legislative Budget Board. (2024). Methods of Financing the Foundation School Program [Issue brief]. State of Texas. https://www.lbb.texas.gov/Documents/Publications/Issue_Briefs/1375_FSP_MOFs.pdf
Policy reference confirming the component structure of FSP funding streams and their TPTRP replacement scope. Used with Fiscal Size-Up Figure 153 to validate the $25.99B figure.
Texas Education Agency. (2025). Public Education State Funding Transparency Report (December 2025). TEA. https://tea.texas.gov/about-tea/government-relations-and-legal/government-relations/public-education-state-funding-transparency-dec-2025-final.pdf
Cross-reference for ISD-level funding allocations. Confirms that the 1,016 matched ISDs receive FSP payments in FY 2025, validating the per-district ADA shares against actual state funding flows.
Texas Legislative Budget Board. (2024). Agency 703 — TEA Recommendations, 89th Legislature. State of Texas. https://lbb.texas.gov/Documents/HAC_Summary_Recs/89R/Agency_703.pdf
Forward-looking validator for education funding levels through the 2027–2031 transition window. Used to assess whether the $25.99B FY 2025 reallocation anchor remains appropriate through the period when TPTRP would be implemented.
County Tax Base Methodology — Section 5
U.S. Bureau of Labor Statistics. (2025). Quarterly Census of Employment and Wages — Texas Counties. BLS. https://www.bls.gov/cew/
Source for the establishment-count component of the County Tier 2 cross-check method (Establishment + Wellhead Blend). QCEW provides covered employment and establishment counts at the county level, quarterly. The 2025 annual average is the operative figure for the 50% establishment-side component.
Texas Railroad Commission. (2025). Oil and Gas Production Data by County. TRC. https://www.rrc.texas.gov/resource-center/research/oil-gas-historical-production-data/
Source for the wellhead-production component of the County Tier 2 cross-check method. TRC production data is the definitive source for Texas oil and gas county-level output. The Establishment + Wellhead Blend corrects for the distortion caused by Permian Basin counties when oil and gas production alone is used for tax base allocation.
Bond Debt Service — Section 9
Texas Bond Review Board. (2025/2026). Annual Report 2025 + Data Center Issuance Pull (4/16/2026). State of Texas. https://www.brb.texas.gov/
Source for FY2026 annual bond debt service by tier: T1 $713.9M (state NSS), T2 $3.85B (counties), T3 $5.28B (cities), T4 $12.43B (ISDs), T5 $0. Total $22.27B absorbed inside the plan’s revenue structure. The definitive Texas record of outstanding bond obligations by entity type. BRB Annual Report provides state Net-Service-Supported (NSS) debt for T1; BRB Data Center issuance pull provides local issuances by entity type for T2–T4.
Statutes & Constitutional Provisions — Sections 4, 6, 7
Texas Constitution, art. VII, § 3 (Public Free Schools). State of Texas. https://statutes.capitol.texas.gov/Docs/CN/htm/CN.7.htm
Grants ad valorem taxing authority to ISDs as political subdivisions. Establishes why charter schools have no property tax authority and therefore no Tier 4 replacement obligation. Charter funding remains a permanent state obligation under TPTRP, as it does today.
Texas Education Code, ch. 12, § 12.106 (State Funding for Open-Enrollment Charter Schools). State of Texas. https://statutes.capitol.texas.gov/Docs/ED/htm/ED.12.htm
Establishes that charter schools receive state per-ADA FSP funding without local tax authority. Charter funding remains a permanent State tier obligation under TPTRP, exactly as it operates today. This statutory provision is the legal basis for excluding charter ADA from the Tier 4 ISD renormalization denominator.
Texas Tax Code, ch. 321 (Municipal Sales and Use Tax Act). State of Texas. https://statutes.capitol.texas.gov/Docs/TX/htm/TX.321.htm
Municipal Sales and Use Tax Act. Authority for the city local-option sales tax. Cities adopt the tax through a local-option election; not all incorporated cities have done so. Explains why 51 Texas cities have no current sales tax revenue and require alternative tax base allocation under TPTRP.