AASBO Bi-Monthly Meeting Preparing for More Property Tax Increases May 9, 2012 Presented by: Judy Richardson

Page 1 FY 2013 Property Tax Increases  Property tax rates in most school districts will increase again for FY 2013  Primary causes QTR increase Decreases in primary and secondary assessed valuations (PAV and SAV)  A few districts will not be affected : If no state aid and no PAV or SAV decrease If federal impact aid is used to control tax rates  How can you prepare your Governing Board?

Page 2 Step 1. Estimate Your FY 2013 Tax Rates  Various methods can be used  One option is to use the formula from the County and plug in your FY 2013 estimated amounts

Page 3 Step 2. Analyze the Change from FY 2012  Calculate the % change in tax rates from FY 2012  Identify the amounts that show major changes from FY 2012  Determine the reasons for the major changes For most districts, this will include the QTR increase

Page 4 The QTR Increase  Statewide Primary Assessed Valuation (PAV) decreased again for FY % decline for existing property Caused primarily by continued decreases in several counties  Qualifying Tax Rate (QTR) increased by 10.8% To keep the total amount “raised” from existing property about the same To prevent the cost of state aid from increasing  QTR increase = $ (USD) or $ (ESD/UHSD) (less than the FY 2012 increase)

Page 5 The QTR Increase  Note that PAV percentage decrease (9.7) and offsetting QTR percentage increase (10.8) don’t match The % increase is always larger than the % decrease The larger the percentages, the larger the differential  5.0% decrease requires 5.3% increase to offset  30% decrease requires 43% increase  50% decrease requires 100% increase

Page 6 The QTR Increase  Legislative action was not required Rate determined by “Truth in Taxation” formula Normally, the formula causes the rate to decrease when property values increase  QTR is not an actual tax rate A theoretical rate used to calculate your equalization assistance A QTR increase reduces equalization assistance, which causes an increase in the primary property tax rate (in a state aid district)

Page 7 Other Reasons for Tax Rate Changes  Changes in adjacent ways levy (primary rate)  An unusually low or high tax rate last year  Unusually large or negative cash balance State aid withholding or repayment Tax judgments or delinquent taxes  Changes in district wide PAV For state aid districts, affects the tax rate for items outside the RCL, such as desegregation For non-state aid districts, district PAV decreases cause tax rate increases

Page 8 Other Reasons for Tax Rate Changes  Changes in secondary levy Override increased or decreased You issued new bonds or your payments on existing bonds went up or down  Budget increases caused by reductions in formula cuts for FY 2013 (increased spending over FY 2012 levels), the transportation adjustment or increases in enrollment Increase primary tax rates in non state-aid districts Do NOT impact primary tax rates in state aid districts (paid by increases in equalization assistance)

Page 9 Explaining Tax Rate Changes  Some of the changes can be offsetting For example, the increase in QTR can be offset by repayment of state aid withheld in a prior year  Remember any one-time payment will increase the tax rate next year when it is no longer available  The changes in the homeowner’s rebate formula impacted last year’s tax bills and should not cause any additional tax increases in FY 2013

Page 10 Step 3. Summarize Your Tax Rate Changes Primary Tax Rate Secondary Tax Rate FY FY Difference % Change10.6%19.1% Main reasons for change  The Legislature increased the QTR by 0.38  Our cash balance was lower than last year because of low tax collections  Our SAV decreased by 19%  Our override was about the same but our bond payment was 5% lower so the total levy was lower

Page 11 Step 4. Anticipate the Reaction to Tax Rate Increases  Even if property values are declining in your district, some tax bills will increase when tax rates increase Property values do not change uniformly with in a district The value of some properties will not have declined or not declined enough to offset the rate increase You can calculate the % decline needed to offset your tax rate increase

Page 12 Anticipate the Reaction to Tax Rate Increases  Formula to calculate the % decline needed to offset your tax rate increase D = I/(1+I) D = % decrease needed to offset the increase I = percentage increase in the tax rate  Example Tax rate increase is 10.8% D =.108/1.108 =.975 or 9.75% If the property value decreases by at least 9.75%, the 10.8% rate increase will not cause a tax bill increase

Page 13 Table to Estimate Offsetting Decreases Offsetting Percentage Tax RateValuationTax RateValuationTax RateValuation IncreaseDecreaseIncreaseDecreaseIncreaseDecrease 5.0%4.8%16.0%13.8%27.0%21.3% 6.0%5.7%17.0%14.5%28.0%21.9% 7.0%6.5%18.0%15.3%29.0%22.5% 8.0%7.4%19.0%16.0%30.0%23.1% 9.0%8.3%20.0%16.7%31.0%23.7% 10.0%9.1%21.0%17.4%32.0%24.2% 11.0%9.9%22.0%18.0%33.0%24.8% 12.0%10.7%23.0%18.7%34.0%25.4% 13.0%11.5%24.0%19.4%35.0%25.9% 14.0%12.3%25.0%20.0%36.0%26.5% 15.0%13.0%26.0%20.6%37.0%27.0%

Page 14 Anticipate the Reaction to Tax Rate Increases  Review the information available on tax bills in your county  Prior year valuation information is not usually on the tax bill Taxpayers who call to complain about tax bills usually do not know how their property value changed To explain why their bill changed, you need to know the % change in their valuation This can be calculated from the prior year tax bill  (The valuation notice they got this past February covers the wrong years)

Page 15 Explaining Tax Bill Increases  If you don’t know how a specific property value changed, you can: Explain why the district’s rates changed Provide the offsetting percentage valuation decreases needed to prevent a tax bill increase  You can also explain If their school district taxes increased because of the QTR increase (or district PAV or SAV decreases) Those additional taxes are used to offset tax cuts for owners of property which had a greater decrease in value

Page 16 Explaining Tax Bill Increases  Increases in the total tax bill may also be caused by Increases by other jurisdictions Increase in the county equalization tax rate (State Equalization Tax Rate) of  Also caused by “Truth in Taxation”  To offset statewide PAV decrease  Educating your Governing Board about these issues can start now, with a follow-up when the tax rates are actually set in August

Page 17 Questions It’s all perfectly clear, right?