ESD commissioners are the keepers of public tax money. As a result, commissioners have an ethical and fiduciary duty to properly handle the funds they receive. It is best practice to use an electronic accounting system (i.e. Quickbooks or something similar) to keep the district’s books. Hiring a bookkeeper or accountant who is familiar with public accounting is also highly advised.
ESDs are required under Texas law to conduct an annual audit. The population of the county where the district is located governs where the audit is filed.
- For counties with a population less than 3 million (currently every county except Harris County), ESDs must file their audit with the commissioners court of each county that contains part of the district no later than June 1.
- As an alternative, ESDs in less populous counties who do not have outstanding bonds, do not have more than $250,000 in gross receipts, and did not have more than $250,000 in cash the prior year may file compiled financial statements in lieu of a formal audit.
- For Harris County ESDs, the district must conduct an annual audit and file it with the clerk of the Harris County commissioners court no later than July 1.
ESDs may have three types of revenue:
- Property Taxes (Ad Valorem)
- Sales Taxes
- Fees for Service
ESDs may impose property (or ad valorem) taxes at a rate up to $0.10 per $100 of property valuation. However, voters determine the maximum rate an ESD may impose. For example, if an ESD (or former Rural Fire Prevention District) was formed with a maximum $0.03 per $100 valuation tax cap, the ESD must conduct a general vote to raise the maximum rate. Then, the commissioners vote to approve a tax rate on an annual basis.
ESDs may also impose a sales tax within its jurisdiction. However, collection of sales tax can be a complicated process. The maximum sales tax in Texas is 8.25%. The State takes the first 6.25%. The remaining 2% is often divided up among various political subdivisions of Texas who are granted sales and use tax authority. If any of these jurisdictions overlap an ESD and currently have a sales and use tax, the ESD may need to carve out those areas from its sales tax. Further, voters must approve the levy of any sales tax the ESD proposes.
Depending on the ESDs management model, ESDs may receive various fees for service. These could include medical responses for emergency medical services, fees for fire inspections or for responding to a false alarm.
The following are several areas with recommendations as to how to approach each one:
Pledged Securities – ESDs must keep a constant eye on the amount of money that will be added to their financial accounts. The Federal Insurance Deposit Corporation has a limit of $100,000 on the account. The Public Funds Investment Act requires that funds are secured. Reviewing the account with the financial institution and an accountant before the limit is exceeded is crucial in following federal guidelines. ESDs are recommended to contact county accounting officials for their help in discussing and securing of funds.
Budgets and Reports – Budgeting is an important part of managing and running an ESD. A Quarterly Investment Report should be prepared and reviewed every quarter, and are very helpful during tax rate setting and in knowing if surplus funds may be available.
Budgets and reports formats will vary depending on the software and procedures used, but by following a standardized format ESDs will become familiar in working with these reports in no time.
Effective Tax Rate – The effective tax rate is the rate needed to collect the same tax dollars as the prior year based on the new certified value. This value is normally obtained from the county tax appraiser.