Property Tax Changes in the “Jobs Bill” Judy Richardson Vice President

The “Jobs Bill” (Laws 2011, 2 nd Special Session, Chapter 1) This omnibus bill reduces business taxes and is intended to facilitate economic growth and encourage the creation of quality jobs It contains two components directly affecting school districts: –Assessment ratio reductions (again) –Additional state aid (homeowner’s rebate) changes (again)

Assessment Ratio Reductions Class 1 (commercial and industrial property) is currently assessed at 21% and will reduce to 20% in FY 2012 as required by prior legislation. The Jobs Bill further reduces the Class 1 assessment ratio as follows: –FY 2013 – 20% –FY 2014 – 19.5% –FY 2015 – 19% –FY 2016 – 18.5% –FY 2017 and thereafter – 18%

Assessment Ratio Reductions It also reduces the assessment ratio for Class 2 (agricultural property and vacant land) from 16% to 15%, beginning in FY 2017 Lower assessment ratios mean lower assessed valuation (Property value x assessment ratio = assessed value) Total district assessed valuation determines bond limits and tax rates

Impact on School Districts Assessed valuation has already declined because of decreasing property values Although ratio reductions are delayed, the Jobs Bill makes a bad situation worse There may be offsetting increases in assessed valuation due to an improved economy, which may or may not be caused by the bill

Impact on Bond Limits Districts with larger proportions of Class 1 and Class 2 property will see a greater impact When fully phased in, maximum SAV and bond limit impact is about 10% decrease over what it otherwise would have been (Other factors will also affect the final assessed valuation in FY 2017) This decrease can be a problem for districts that are close to or over their bond limit

Impact on Bond Limits (Using FY 2012 Values)

Impact on Secondary Tax Rates (Using FY 2012 values)

Impact on Secondary Property Tax Rates Secondary tax rates will be higher than they otherwise would have been The tax impact will be gradual as the new ratios phase in Class 1 properties will pay lower taxes because their lower assessed value will more than offset the tax rate increases Other classes of property will pay higher taxes because of higher tax rates

Impact on Secondary Property Tax Rates Class 2 properties will pay higher taxes until 2017 when their ratio reduction becomes effective Thus, the bill shifts the tax burden from Class 1 and eventually Class 2 to other classes of property (primarily residential property).

Impact on Primary Property Tax Rates Primary property tax rates will be affected the same as secondary tax rates To counteract this, the bill: –increases the homeowner’s rebate for FY 2014 through FY 2017 –by the amount needed to offset the effect of assessment ratio changes –on primary property tax rates –on a statewide basis (calculated by DOR)

Impact on Primary Property Tax Rates The increased rebate will then continue at the FY 2017 level. Because school districts vary a lot, the statewide homeowner’s rebate increase – will be more than enough to offset the primary tax impact for districts with low proportions of Class 1 and Class 2 property –and not enough for those with high proportions of these property classes

Impact on Primary Property Tax Rates The homeowner’s rebate does not reduce the school district’s taxes on the tax bill – it is shown as a subtraction at the end –so your district will still get blamed for any tax increases

Other Rebate Changes The bill also: –Beginning in FY 2012, limits Class 3 (owner- occupied residential) property to primary residences (eliminates second homes from the homeowner’s rebate) –Reclassifies all other residential property as Class 4 –Beginning in 2012, requires homeowners to submit affidavits every other year to qualify for the rebate These changes are expected to partially cover the cost of the increased rebate

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