Joint Task Force on Local Effort Assistance September 25, 2002 Bill Freund, Consultant To The Task Force

2 Purposes of the Joint Task Force pursuant to Engrossed House Bill Changes in state and federal funding since the levy equalization program began in 1989 make it necessary to examine the levy equalization formula and to determine whether the purpose is fulfilled. 2.Complete a thorough analysis of the program, its impacts, and revenues included in the levy base. 3.Determine whether the statutory purpose of the program is being met under the current allocation formula. 4.Present the findings and recommendations of the task force to the legislature by December 1, 2002.

3 Levy Equalization Eligibility and Costs

4 210 districts are receiving levy equalization in CY percent of the students are in districts receiving levy equalization funding. Of the 86 districts that do not receive levy equalization, 18 are eligible but do not qualify because they did not pass a levy. Over 70% of school districts are receiving levy equalization funding in calendar year 2002.

5 Since the start of full implementation of the levy equalization program in 1989, the number of school districts with levies has grown substantially. Source: “School District Property Tax Levies, 2002 collections”, published by the Office of the Superintendent of Public Instruction.

6 Since 1995, the percent of levy authority used by school districts has increased. In 2002, 10.4% or $127.3 million of levy capacity was unused.

7 Of districts with levies, 216 districts were under their maximum levy authority. Of this group 179 districts (83%) had above average property tax rates for a 12% levy. * 14% actual levy divided by 24% levy authority = 58% of maximum levy authority.

8 Levy equalization program costs increased 69% from 1999 to The forecasted increase from 2002 to 2005 is an estimated 31%.

9 While changes in the levy base are still the major factor in the growth of the levy equalization program, changes in assessed value per student are becoming more of a factor.

10 In 2002, 59% of LEA funds went to districts with enrollment over 5,000 students. Districts of less than 1,000 students received the largest amount per student.

11 Levy Equalization Purpose and Mechanics

12 “ The purpose of these funds is to mitigate the effect that above average property tax rates might have on the ability of a school district to raise local revenues to supplement the state’s basic program of education. These funds serve to equalize the property tax rates that individual taxpayers would pay for such levies and to provide tax relief to tax payers in high tax rate school districts. These funds are not part of the district’s basic education allocation.” RCW 28A Note: The language up to the last sentence was added to the levy equalization statute in Purpose of the levy equalization program – as added to the law in 1999.

13 The levy equalization formula equalizes the property tax rate necessary to raise 12 percent of a district’s state and federal revenues. State Average Tax Rate For A 12% Levy

14 Assessed Value Aspects in Levy Equalization

15 Assessed value per student differences can cause districts with similar levy bases per student to receive very different levy equalization per student.

16 The primary characteristic of districts eligible for levy equalization is below average assessed value per student.

17 Assessed value differences among districts affect the cost of levy equalization to a greater degree than levy base differences.

18 From , AV growth was above average in 4 counties and below average in the other 35 counties.

19 Had King County assessed values grown at the average of the other 38 counties, fewer districts would be eligible for LEA and the cost would be lower.

20 Since 1998, the levy rate per $1,000 of Assessed Value for a 12 percent levy has been dropping. Estimated

21 Levy Base Aspects in Levy Equalization

22 Differences in state and federal revenues per student can cause districts with similar assessed value per student to receive very different levy equalization per student.

23 Levy base differences can be attributed primarily to a few state and federal programs. There is greater variation among districts in federal revenues than state revenues.

24 The influence of federal programs in explaining levy base per student differences among districts has been growing.

25 Federal funds as a percent of total funds in the levy base have increased since Since there is greater variation in distribution of federal funds among districts, this increases the cost of levy equalization.

26 Increases in federal funds impact levy equalization costs to a greater extent than evenly distributed state fund increases.

27 Legislative Levy and Levy Equalization Policy Changes

28 After enacting various increases in the levy authority of school districts, the 1987 legislature enacted a levy equalization program. Subsequent increases in levy authority led to further legislative increases in levy equalization.

29 The cost of the legislature’s recent increase in levy equalization from 10% to 12% is $24.2 million in The increase from 10% to 12% levy equalization, first effective in calendar year 2000, has the following effect in 2002: 2002 LEA Cost With 12% levy equalization = $148.8 million. With 10% levy equalization = $124.6 million. Difference = $ 24.2 million The $24.2 million is 16.3% of the 2002 calendar year LEA cost.

30 DRAFT Potential Findings

31 DRAFT Summary Of Potential Findings 1.In 2002, 70% of Washington’s school districts receive levy equalization, (210 out of 296). These districts have almost 68% of the state’s K-12 enrollment. Another 18 districts are eligible but do not have a voter approved levy. 2.The number of districts eligible for levy equalization is expected to increase from 228 to 234 districts in calendar year Of the 234 districts, 216 are expected to receive levy equalization. 3.From fiscal year 1999 to 2002, levy equalization costs increased 69%, (from $83.2 to $140.9 million). The forecasted increase from 2002 to 2005 is an estimated 31%,from $140.9 million to $184.2 million). 4.The main reasons for the increasing costs of levy equalization are changes in the levy base, assessed value and legislative policy.

32 5.In 2002, 59% of the levy equalization funds were allocated to districts with enrollment over 5,000 students. Districts of less than 1,000 students received the largest amount per student. 6.From 1995 to 2002, the number of districts with levies rose from 245 to 274 and levies as a percent of total levy authority grew from 78.3% to 89.6%. The rise in voter approved levies accounts for 23% of the increased cost of levy equalization for this time period. 7.Of the 274 districts with voter approved levies in 2002, 216 districts or 79% had levies that were below their maximum levy authority. Of these 216 districts, 179 or 83% had above average property tax rates and receive levy equalization. 8.Of the 228 districts eligible for levy equalization, 199 districts (87%) have below average assessed value per student. The remaining 29 districts had above average assessed value per student but were eligible for levy equalization due to above average state and federal revenues per student. DRAFT Summary Of Potential Findings Continued

33 9.In 2002, differences in district assessed values per student are the primary driving force in the cost of levy equalization. 10.Assessed values have been growing faster in King County than the state’s other 38 counties. This lowers the state average levy rate for a 12% levy which increases the number of districts eligible for levy equalization and the state’s cost of the program. 11.Since 1998, the property tax rate per $1000 of assessed value for a 12% levy has been dropping, (from $1.54 per $1000 AV in 1998 to $1.33/$1000 AV in 2002). The primary reason is that assessed value has increased faster than the levy base. 12.Since 1995, the influence of federal funds in the levy base has increased. This resulted in increased levy equalization costs because the distribution of federal funds among districts is uneven. DRAFT Summary Of Potential Findings Continued

34 13.With respect to federal funds, Title I and Special Purpose programs cause the greatest variation in per student revenues in the levy base. 14.The amount of federal special purpose grants included in each district’s levy base is based on district estimates. Some districts are using high estimates which not only increases these district’s levy amount but also may increase their eligibility for levy equalization. 15.Some districts that are fiscal agents for federal grants can receive levy equalization funds by including all the federal grant in their levy base, not just their share. (A district is a fiscal agent if federal grant funds are funneled through the district for the use of other districts or public entities.) DRAFT Summary Of Potential Findings Continued