Property Tax Equity and Relief Fund Update

1. Property Tax Equity and Relief Fund Update From the January 14, 2011 ISFIS Situation Report Weekly Webinar

2. Property Tax Equity and Relief (PTER) Fund Update • PTER Fund was created in the 2008 Session as part of state penny for school infrastructure. Iowa Code 257.16(a) • 1 penny of sales tax from in-state purchases goes into the SAVE fund for school infrastructure. • 1 penny of consumer use tax (out-of-sate purchases) goes into the PTER Fund.

3. Property Tax Equity and Relief (PTER) Fund Update • A state general fund appropriation was scaled up over three years from $6 million to $24 million annually. 257.15(4)(a) • This $24 million remains a standing appropriation, which means it exists in perpetuity, unless a future legislature amends or deletes the statute. • FY11 PTER fund balance reduced property taxes by just over $50 million ($24 million standing appropriation + $25 million deposit of accumulated use tax)

4. How does it work? • Average additional levy is defined (FY2011 was set at $3.26060 per $1,000 ) • First money goes to the property poorest to buy down their additional levy closer to the state average. • $24 million appropriation provided relief for 79 districts. • As more and more money goes into the PTER fund, more districts get relief and al those previously receiving relief also get a lower property tax rate. 143 districts received some in FY 2011, although the additional district levy impacts were under $1 per $1,000 where the initial districts received upwards to $3 per $1,000. • Creates a mechanism for tax relief in perpetuity – could be a vehicle for a future legislature to deliver property tax relief and equity simultaneously. Number of districts 143 79 Property Tax Equity and Relief Fund Update:

5. Property Tax Equity and Relief (PTER) Fund Impact History • School districts can confirm the FY 2011 impact of property tax savings by referring to the Aid and Levy worksheet: • Line 8.22 sets the property tax levy rate reduction • Line 8.24 calculates the dollars of property tax savings for the district’s taxpayers. • LSA estimates for FY 2011- verify what districts received in the current year. http://staffweb.legis.state.ia.us/lfb/docs/k-12_ed/SchlAidPropTaxRelief_FY11.xls

6. Property Tax Equity and Relief Fund Update – what’s up now? • DOR estimates: changes in how they are applying definitions of use tax lowers the use tax deposit into the PTER fund from $25 million in FY 2011 to $7 million deposit for FY 2012 (a reduction of $18 million) • This means less tax relief for all recipient school districts, many of the 143 won’t get any. All of the property poorest will get less. • Guestimate – something in the neighborhood of between 40-50 cents per thousand additional levy rate increase in those 143 districts will be automatic, absent an appropriation from the legislature.

7. Property Tax Equity and Relief Fund Policy Options • The legislature could increase the standing appropriation from $24 million to $42 million to avoid any significant consequences for property tax payers in property poor districts helped with FY 2011 PTER fund assistance. • The legislature could define another surplus revenue source to deposit into the PTER fund. • Additional benefit – once all districts otherwise above the state average additional levy are bought down to the average, any remaining balance in the PTER fund provides funding to raise the foundation level and deliver property tax relief to all Iowa property tax payers.

8. Larry Sigel larry.sigel@isfis.net (515) 490-9951 cell Margaret Buckton margaret.buckton@isfis.net (515) 201-3755 cell Traci Giles traci.giles@isfis.net Iowa School Finance Information Services 515-251-5970