New Local Optional Revenue, Implications and Recommendation Marshall ISD #413 School Board Work Session 1 August 4, 2014

What is Local Optional Revenue? 2013 Legislature approved Location Equity Revenue (LER), effective with taxes payable in 2014, fiscal year –$424 per pupil unit for districts with any property in 7-county metro area –$212 per pupil unit for out-state districts with more than 2,000 students –Reduced existing referendum allowances by the same amount –Equalized at the same levels as the 2 nd tier of referendum revenue 2014 Legislature approved new Local Optional Revenue (LOR) as a replacement for LER; included in the Tax Bill, which was signed by the Governor in April 2

What is Local Optional Revenue? All districts will now qualify for $424 per pupil unit of Local Optional Revenue (LOR), which will reduce their operating referendum revenue LOR is equalized like LER (2 nd tier of operating referendum) No provision for “opting out” by School Board (as there was with LER), but Board can choose to not collect the revenue by not levying the local share (district would then lose any state aid, also) “Stacking” of LOR with the $300 is included in the K-12 Finance Bills – so all districts can receive $724 per pupil unit of referendum and LOR without voter approval 3

Referendum Allowance Initial allowance is original allowance, converted for changes in pupil counts in FY –Initial allowance will continue to be recomputed based on pupil count for FY , until that pupil count is finalized $424 LOR is subtracted from initial allowance If result of subtraction is less than $300 in authority, Board may approve additional allowance to get to $300 –Board approved amounts previously created by board action are not subject to the subtraction, but voter approved amounts converted by board action are subject to the subtraction 4

Implications Vary By School District Some districts will be eligible to receive increased revenue –Districts which don’t qualify for any LER and have current referendum allowances less than $724 –Outstate districts that qualify for $212 of LER and have current referendum allowances less than $512 For all other districts, LOR doesn’t result in additional revenue, but it could cause property taxes to either increase or decrease If Board enacted a board-approved allowance in 2013, and that allowance is reduced due to LOR, they can enact a new board-approved allowance in

Implications Vary by School District Districts may experience higher taxes if they have between $300 and $424 of converted allowance –$424 subtraction eliminates $300 of first tier revenue –New LOR revenue is equalized same as 2 nd tier of referendum, with lower percentage of state aid (and higher tax levy) for most districts –Board could add $300 AFTER, and then underlevy in LOR, moving the $300 back into the first tier and eliminating a tax increase Districts may experience lower taxes if they have more than $760 of converted allowance –Part or all of the $424 subtraction would eliminate revenue in 3 rd tier or the unequalized portion of referendum equalization formula –New LOR revenue is equalized same as 2 nd tier of referendum equalization formula, with a higher percentage of state aid (and lower tax levies) for many districts 6

Implications of LOR for Marshall ISD #413 No change for fiscal year –District qualified for $212 LER –Referendum allowance was reduced by LER No additional revenue for fiscal year New category of Local Optional Revenue (LOR) for – $424/PU, not subject to voter approval Converted Referendum Allowance reduced by LOR –Estimated Converted Allowance for = $691/PU –Estimated Allowance (Net of LER) for = $479/PU –Estimated Allowance (Net of LOR) for = $267/PU Remaining voter-approved authority is in effect through taxes payable in 2017 (fiscal year ) 7

Implications of LOR for Marshall ISD #413 If School Board does nothing, Legislative changes would result in property tax increase for taxes payable in 2015 (fiscal year ) –$424 of LOR is equalized at 2 nd tier of Referendum (21% aid) –Only $267 would remain in 1 st Tier instead of existing voter approved $300 amount (54% aid) 8

Recommendation for Marshall ISD #413 Maintain $300 of authority in Tier 1 –Add $33 of Board approved authority, effective with taxes payable in 2015 ($267 of voter approved authority will remain in effect) Board approved authority is maximum of 5 years Adopt resolution prior to September 30, 2014 –Ideally, by early September so that accurate information is included on proposed levy report prepared by MDE –Total revenue would increase to $724 (with $424 of LOR) Could underlevy in LOR to offset tax increase 9

(651) Jodie Zesbaugh Financial Advisor (651) Joel Sutter Senior Financial Advisor/Principal 10 Greg Crowe Financial Advisor (651)