Property Taxes: E-12 Property Taxes in Context

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EducationFinance

Eric L. Nauman,Fiscal Analyst

[email protected]

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Property Taxes: E-12 Property Taxes in Context

Education Budget: Aid

E-12 Levy Trends and Components Over Time

Constitution, Trends, Basic Terms

“The Big Plan”: A Brief Look Back

Table of ContentsTable of Contents

What About the Operating Referendum?

Where to Get More Info/Questions

Percent of Districts That Have OneBallot Question Trends Over TimeApproval Percentages Over Time

Shifts

Education Finance: ConstitutionEducation Finance: Constitution

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““The stability of a republican form of government The stability of a republican form of government depending mainly upon the intelligence of the depending mainly upon the intelligence of the people, it is the duty of the legislature to establish people, it is the duty of the legislature to establish a general and uniform system of public schools. a general and uniform system of public schools. The legislature shall make such provisions by The legislature shall make such provisions by taxation or otherwise as will secure a thorough taxation or otherwise as will secure a thorough and efficient system of public schools throughout and efficient system of public schools throughout the state.”the state.”

-- MN State Constitution, Article 13, -- MN State Constitution, Article 13, section 1section 1

Basic Terms: Revenue/Levy/AidBasic Terms: Revenue/Levy/Aid

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RevenueFunds available for school districts to spend

Revenue raised from taxation on property in a school district

Aid provided by state legislature to school districts

Aid

Levy

Rule of Thumb

REVENUE = AID + LEVY

Basic TermsBasic Terms

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Fiscal Year

A statutorily determined amount of tax capacity per pupil that determines the amount of aid and levy in a given district. Districts with tax base above the equalizing factor receive no aid.

Equalizing Factor

EqualizationThe process of reducing the impact of property wealth to

generate revenue for school districts by appropriating state aid. State aid is appropriated in higher amounts for districts with relatively less property wealth.

ANTCAdjusted Net Tax Capacity = The tax base used in

many K-12 formulas to measure the relative wealth of property in each district.

RMKVReferendum Market Value = The market value of all

taxable property in a district excluding seasonal rec and agricultural lands.

A 12 month budgeting period. For school finance & the state of MN, a fiscal year begins July 1 and ends June 30. School year 2011-12 is the same as FY 2012.

Education Finance: TrendsEducation Finance: Trends

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Education Finance: Aid/Levy Split Education Finance: Aid/Levy Split PolicyPolicy

The higher a district’s property value, the more revenue is raised through levyThe higher a district’s property value, the more revenue is raised through levy For a given amount of revenue the poorer district will receive a greater percentage For a given amount of revenue the poorer district will receive a greater percentage

of state aid/the wealthier district will receive lesser amounts of state aidof state aid/the wealthier district will receive lesser amounts of state aid Formula Examples: Operating Referendum, Operating Capital, Equity, Formula Examples: Operating Referendum, Operating Capital, Equity,

Transition, Qcomp, Debt ServiceTransition, Qcomp, Debt Service

ExampleExample::

0100200300400500600700800900

1000

Dist#1

Dist#2

Dist#3

Dist#4

Dist#5

Dist#6

Increasing Property Value Per Pupil

Rev

Val

ue P

er P

upil

State Aid

Property TaxLevy

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Source: Department of Management and Budget, Nov ‘11

Fcst

Education Finance: AidEducation Finance: Aid

14


Fcst

Education Finance: AidEducation Finance: Aid

15


Fcst

Education BudgetEducation Budget

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Education Finance: Property Education Finance: Property TaxesTaxes

Total = $8,118.7 million

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JPaulson

17MN State Senate Fiscal Staff

Education Budget: Property Tax Education Budget: Property Tax TrackingTracking By Fund, FYs 12-15 By Fund, FYs 12-15

Based on Nov 11 Forecast

E-12 Property TaxesE-12 Property Taxes

(in millions)FY 2012FY 2012 FY 2013FY 2013 FY 2014FY 2014 FY 2015FY 2015

General FundGeneral Fund 1,308.71,308.7 1,347.91,347.9 1,389.61,389.6 1,414.41,414.4

Community Service Community Service FundFund

75.175.1 75.675.6 75.775.7 77.277.2

Debt Service FundDebt Service Fund 804.3804.3 813.0813.0 831.9831.9 854.0854.0

OPEB/Pension Debt SvceOPEB/Pension Debt Svce 59.859.8 65.865.8 68.568.5 69.569.5

Total Schl Dist LeviesTotal Schl Dist Levies 2,248.02,248.0 2,302.32,302.3 2,365.72,365.7 2,415.12,415.1

Credits & AdjCredits & Adj (72.9)(72.9) (15.1)(15.1) (14.3)(14.3) (14.3)(14.3)

Total Certified LeviesTotal Certified Levies 2,175.22,175.2 2,287.22,287.2 2,351.42,351.4 2,400.82,400.8

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““The Big Plan”: A Look BackThe Big Plan”: A Look Back2001 Education Reform

Supplemental & Transition Revenue programs “rolled” into Referendum Authority.

General Education Property Tax Replaced with State Aid

Levy = $1.3 billion; Total State Cost $880 million after “netting”

credits from education homestead credit.

$415 per pupil of referendum authority transferred to GenEd formula allowance.

$120 million of Referendum, Supplemental, & Transition Levy Replaced with State Aid.

Based on Nov 11 Fcst.

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Data based on Based on Nov 11 forecast . Levies for FY 13 and later are projections. Data based on Based on Nov 11 forecast . Levies for FY 13 and later are projections.

Education Finance: Property TaxesEducation Finance: Property Taxes

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Education Finance: Operating Education Finance: Operating ReferendumReferendum

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The Bauerly

amendment

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Minnesota Department of Education Data

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ELNauman*Includes Tax Base Replacement Aid. Projections for FY 2012 and FY 2013.Minnesota Department of Education Data

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Education Shifts Education Shifts

Current Payment

60/40

Auto-

Buyba

ck

Final Payment

Entitlem

ent

90/10

Recognition

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The percentage of an entitlement that is paid in the fiscal year after the state aid is generated. Difference between prior year’s entitlement and that year’s current payment (MS127A.45, subd. 9).

The amount of state aid that the state pays to districts and charter schools in a given year. In most cases, an appropriation consists of a portion of an aid entitlement from the “current” fiscal year and a “final” payment from an aid entitlement from the prior fiscal year.

Appropriation (Education Context)

Final Payment

Aid Entitlement100 percent of the state aid a district or a charter

school is eligible to receive in a given fiscal year. Aid may actually be paid in a separate fiscal year

Current PaymentThe percentage of an entitlement that is paid in

the fiscal year in which the state aid is generated.

Payment ScheduleA schedule which expresses the amount of education

aid entitlements that are paid as a “current” payment and the amount that is paid as a “final” payment. Must add to 100%.

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An adjustment to the balance of current and final payment percentages which constitute the state aid appropriation made to schools.

In an “unshifted” environment, school aid payments are comprised of a combination of 90% of the current year’s entitlement added to 10% of the prior year’s entitlement.

Payment Shift

The appropriation is metered to schools in 23 payments throughout the year – roughly every two weeks

Beginning in FY 12, the aid payment shift percentage is 60/40.

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E-12 Programs on Payment E-12 Programs on Payment ScheduleSchedule

• General Education• Abatement Aid• Consolidation Transition Revenue• Nonpublic Pupil Aid• Nonpublic Pupil Transportation Aid• Compensatory Formula Aid• Charter School Building Lease Aid• Charter School Start-Up Aid• Integration Aid• Literacy Incentive Aid• Success for the Future• Tribal Contract Schools• Special Education – Regular• Special Education – Excess Cost• Travel for Home-Based Services• Transition Programs – Students with

Disabilities• Health and Safety Aid

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E-12 Approps on Payment E-12 Approps on Payment ScheduleSchedule

• Debt Service Equalization Aid• Alternative Facilities Bonding Aid• Deferred Maintenance• Basic Support Grants for Libraries• Multicounty, Multitype Library Systems• Regional Library Telecommunications Aid• School Readiness• Early Childhood Family Education Aid• Health and Developmental Screening Aid• Community Education• Adults with Disabilities Program Aid• School Age Care Aid• Adult Basic Education Aid

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SchoolSchool Payment Shift Payment Shift

Entitlements(amounts generated

by formula)

2010 2011 20122009$100

Current Payment$90

$100Appropriations

2013

Mechanics of Payment Schedule (Without Shift)

$100$100$100$100Fiscal Year

Payment Schedule

90%/10%

90%/10%

90%/10%

90%/10%

90%/10%

$90 $90$90$90

Final Payment+ $10

FromFY

2008

+ $10 + $10+ $10 + $10

$100 $100 $100 $100

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by formula)

2010 2011 20122009$100

Current Payment$90

$100Appropriations

2013

Mechanics of Aid Payment Shift (2010-11 biennium & Feb 2011 Fcst law)

$100$100$100$100Fiscal Year

Payment Schedule

90%/10%

73%/27%

70%/30%

90%/10%

90%/10%

$73 $90$90$70

Final Payment+ $10

FromFY

2008

+ $10 + $30+ $27 + $10

$ 83 $97 $120 $100

Entitlements: Under a payment shift, there is not adjustment to entitlements. A payment shift creates a delay of WHEN schools receive aid. It does not reduce the amount. SCRFA,

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by formula)

2010 2011 20122009$100

Current Payment$90

$100Appropriations

2013

Where We’re At Today (2011 E-12 Education Bill)

$100$100$100$100Fiscal Year

Payment Schedule

90%/10%

73%/27%

70%/30%

60%/40%

60%/40%

$73 $60$60$70

Final Payment+ $10

FromFY

2008

+ $10 + $30+ $27 + $40

$ 83 $97 $90 $100

FY 2010-11 Biennium

FY 2012-13 Biennium

Confusing Comparison: The shift percentage in FY 2012 is 10 percentage points lower than the prior year, BUT is 30 percentage points lower than the Feb Fcst for FY 2012.

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Property Tax Recognition Shift

(PTRS)A PTRS is an accounting entry that takes a

portion of a district’s property tax revenue and moves it back one year. (ie. PT revenue that would otherwise be revenue in FY 2012 is shifted into FY 2011)

The second step is to reduce state aid in an amount equal to the property taxes shifted forward. This generates one-time savings.

The current PTRS was enacted by the legislature in 2010. The amount shifted will grow over time as property taxes grow.

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Property Tax Recognition ShiftCalendar Year 2011

Oct Jan ‘11 May July 1

Property taxes paid

FY 2011

FY 2012

Dec

Property taxes paid

Property tax revenue recognized by

districts


districts

School property taxes currently paid in two separate years, BUT prior to FY 2011 both May and October payments were “recognized” by districts as revenue in the later fiscal year.

Prior to Change

Rules governing recognition dates based on statute and UFARS.

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Property Tax Recognition ShiftCalendar Year 2011

Oct Jan ‘11 May July 1

Property taxes paid

FY 2011

FY 2012

Dec

Property taxes paid


districts


districts

Prior to ChangeLegislative Change – Creating a Shift

Step #1 –Change

Levy Recognition

Step #2 – GenEd

Appropriation Reduction

Aid cut in FY 11 by $515 million*

Increase Levy Revenue by $515 million * in FY 11

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ContingentContingent Shift Buy-Back Shift Buy-Back

Because shifts have historically been used as a defacto Because shifts have historically been used as a defacto “budget reserve” a system was created in 2004 to pay “budget reserve” a system was created in 2004 to pay them back automatically. This law remains in effect them back automatically. This law remains in effect today.today.

Shifts are paid back when the Commissioner of MMB Shifts are paid back when the Commissioner of MMB “determines that there will be a positive unrestricted “determines that there will be a positive unrestricted budgetary general fund balance at the close of the budgetary general fund balance at the close of the biennium.”biennium.”

In order of precedence: (1) Cash flow account, (2) In order of precedence: (1) Cash flow account, (2) budget reserve, (3) payment shift,(4) property tax budget reserve, (3) payment shift,(4) property tax recognition shift and two other small payments.recognition shift and two other small payments.

This process used once already. Shifts from 2002 & This process used once already. Shifts from 2002 & 2003 sessions were paid back in two years. The Nov 2003 sessions were paid back in two years. The Nov ‘11 forecast repaid the cash flow account and nearly ‘11 forecast repaid the cash flow account and nearly restored the budget reserve. restored the budget reserve.

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Contingent Shift Buy-BackContingent Shift Buy-BackMS.16A.152 Budget Reserve and Cash Flow AccountsMS.16A.152 Budget Reserve and Cash Flow AccountsIf on the basis of a forecast of general fund revenues and expenditures, the If on the basis of a forecast of general fund revenues and expenditures, the

commissioner of management and budget determines that there will be a positive commissioner of management and budget determines that there will be a positive unrestricted budgetary general fund balance at the close of the biennium, the unrestricted budgetary general fund balance at the close of the biennium, the commissioner of management and budget must allocate money to the following commissioner of management and budget must allocate money to the following accounts and purposes in priority order:accounts and purposes in priority order:

(1) the cash flow account established in subdivision 1 until that account reaches (1) the cash flow account established in subdivision 1 until that account reaches $350,000,000;$350,000,000;

(2) the budget reserve account established in subdivision 1a until that account (2) the budget reserve account established in subdivision 1a until that account reaches $653,000,000;reaches $653,000,000;

(3) the amount necessary to increase the aid payment schedule for school district (3) the amount necessary to increase the aid payment schedule for school district aids and credits payments in section 127A.45 to not more than 90 percent rounded aids and credits payments in section 127A.45 to not more than 90 percent rounded to the nearest tenth of a percent without exceeding the amount available and with to the nearest tenth of a percent without exceeding the amount available and with any remaining funds deposited n the budget reserve;any remaining funds deposited n the budget reserve;

(4) the amount necessary to restore all or a portion of the net aid reductions under (4) the amount necessary to restore all or a portion of the net aid reductions under section 127A.441 and to reduce the property tax revenue recognition shift under section 127A.441 and to reduce the property tax revenue recognition shift under section 123B.75, subdivision 5, by the same amount………..section 123B.75, subdivision 5, by the same amount………..

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Contingent Shift Buy-BackContingent Shift Buy-Back

Cash Flow Account *Cash Flow Account * 255255

Budget Reserve*Budget Reserve* 653653

E-12 Aid Payment E-12 Aid Payment ShiftShift

2,1252,125

Property Tax Property Tax Recognition ShiftRecognition Shift

565565

State Airports FundState Airports Fund 1515

Fire Safety AccountFire Safety Account 1111

Total Contingent Total Contingent SpendingSpending

$3,624$3,624

* Nov ‘11 forecast allocated $255M to * Nov ‘11 forecast allocated $255M to cash flow account & $648 M to cash flow account & $648 M to budget reserve.budget reserve.

FY 2012 Contingent Spending If PaidFY 2012 Contingent Spending If PaidBack in FY 2012 Based on End-of-Session EstimatesBack in FY 2012 Based on End-of-Session Estimates

(dollars in millions)(dollars in millions)

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Education FinanceEducation FinanceEducation Shift Savings – A History of

Legislative Changes

Fiscal Year

2003 Payment 83/17 ( $437.5 M) Nov. 2005 Fcst

Type Level Amount

When Enacted (if known)

Year PaidBack

2004** Payment 80/20 ($185.3 M) Nov. 2005 Fcst2004** PTRS 48.6 ( $230.3 M ) Feb. 2006 Fcst

1983 PTRS 32% ($240.7 M) Partially in ’85, ’96-’991985 PTRS 24% shift reduced1988 PTRS 27% shift expanded 1996-1999 1990 PTRS 31% shift expanded 1996-19991992 PTRS 37% shift expanded 1996-1999 1993* PTRS 50% shift expanded Partially in ‘94

1994 PTRS 37.4% shift

reduced 1996 PTRS 18.1% shift reduced 1997 PTRS 7% shift reduced 1997 Payment 90/10 shift reduced 1999 PTRS 0% PTRS eliminated

*Previous shift high point in FY 1993, $688 million owed to schools.

**2004 the Legislature passed the contingent shift buyback language. SCRFA,

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Education FinanceEducation FinanceEducation Shift Changes – A History of

Legislative Changes

Fiscal Year Type Level

Amount When Enacted

(if known)

Year PaidBack

2005 Payment 81.9/18.1 $116.3 M Nov. 2004 Fcst

2005 Payment 84.3/15.7 $143.7 M Feb. 2005 Fcst

2006 Payment 84.3/15.7 $355.0 M Nov. 2005 Fcst

2006 PTRS 10.8% $265.9 M Nov. 2005 Fcst

2006 PTRS 0% $72.9M Feb. 2006 Fcst

2011* PTRS 48.6% ($561.5M ) Based on pos fcst

2010* Payment 73%/27% ( $1,160.4M) Based on pos fcst

* Shifts initially created by Gubernatorial unallotment process and subsequently codified into law.

2011 Payment 70%30% ($207.7M) Based on pos fcst

2012 Payment 60%/40% ($739.2M ) Based on pos fcst

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Questions/Questions/Discussion?Discussion?

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Department of Education; Division of Program Finance

http://education.state.mn.us

Senate Counsel, Research and Fiscal Analysishttp://www.senate.leg.state.mn.us/departments/office_bio.php?

Is=85&office_id=1007

Legislative Reference Library, K-12 Education Links to the World

http://www.leg.state.mn.us/lrl/links/educat.asp

Department of Finance, Budget Information http://www.budget.state.mn.us

Where to Get More InformationWhere to Get More Information

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Where to Get More InformationWhere to Get More Information

“Financing Education in Minnesota” is published annually by the Minnesota House of Representatives Fiscal Analyst Department

http://www.house.leg.state.mn.us/fiscal/files/06fined.pdf“Minnesota School Finance: A Guide for Legislators” is

published by the Minnesota House of Representatives Research Department

http://www.house.leg.state.mn.us/hrd/pubs/mnschfin.pdf

“E-12 Budget -- Education Finance Overview” is published every biennium by the Minnesota Senate Counsel, Research and Fiscal Analysis Office

http://www.senate.leg.state.mn.us/departments/scr/presentations/index.php#header

Continued…

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Minnesota Senate Education Minnesota Senate Education StaffStaff

Nonpartisan Staff

Ann Marie Butler, Counsel 651/296-5301

Kent Hranicka, Research Analyst 651/296-0558

Eric Nauman, Fiscal Analyst 651/296-5539

Caucus Staff

Ed Cook, Majority Research 651/296-0129

Danna Elling, DFL Research 651/296-7089

Greg Marcus, Education Committee

Administrator 651/296-5312

Documents

Property Taxes: E-12 Property Taxes in Context