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Idaho School Funding Changes

Idaho School Funding Changes. Fiscal Consequences and Effects of a New Paradigm Alan S. Dornfest , AAS August 26, 2013. Changing Pattern of Idaho Property Tax Use. City 27.1% $ 388.6 Million. City 22% $270.0 Million. School 29.4% $ 421.1 Million. Other 10.5% $ 150.7 Million.

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Idaho School Funding Changes

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  1. Idaho School Funding Changes Fiscal Consequences and Effects of a New Paradigm Alan S. Dornfest, AAS August 26, 2013

  2. Changing Pattern of Idaho Property Tax Use City 27.1% $ 388.6 Million City 22% $270.0 Million School 29.4% $ 421.1 Million Other 10.5% $ 150.7 Million County 26.6% $ 381.0 Million Highway 6.4% $ 91.7 Million Calendar Year 2012 Calendar Year 2005

  3. The Big Change! – Fiscal Year 2007 • One day special session – August 25, 2006 • Called by Governor Risch, the former lieutenant governor who was serving out a seven month term of office resulting from the appointment of the previous governor as Secretary of the Interior. Gov. Risch was not running for Governor in the Fall and would have no chance to present plan to any general legislative session. • Unique in that no other special session considered tax issues (and special sessions rare in Idaho).

  4. Components of the Change • Eliminated 0.3% general school property tax ($253 million or 19% of total property tax after adjusting for five school districts continuing to levy) • Increased sales tax from 5% to 6% (eff. October 1, 2006) • $210 million per year predicted • $140 million during first fiscal year given Oct. 1 effective date • Appropriated $251 million from state general fund for property tax replacement • Appropriated $100 million for budget stabilization fund • $75 million in replacement monies for earlier (1995) elimination of ¼ of general levy rolled into overall state appropriation

  5. Background and Perspective • All property taxes are levied for local governments in Idaho – state precluded from levying by statute once sales tax enacted in 1965. • Pressure to reduce school property taxes dates to at least late 1970s. • In Fiscal Year (FY) 1980, school districts received: • State sales tax for replacement of property tax on business inventory eliminated in 1971 • $12.6 million directly to school districts • $2.4 million to County School Fund • $6.0 million in property tax levied under the “county school fund” • $61.5 million in general school district property taxes (note: “general” used to denote maintenance and operation funds, which are used for various purposes, including salaries and general school operations, but not building repairs, new buildings, and special programs) • After FY 80, County School Fund and direct shares of sales tax eliminated.

  6. Post 1980 Period • Remaining state and local funds equalized • Formula took into account numbers of students in each school district • Formula subtracted property tax (locally raised) component in determining state share – used uniform rate applied to prior year’s taxable value beginning in 1993 • FY 96 – ¼ school general levy removed • Initiative of new governor • State replaced using property value formula allowing for equalization • Intended to begin phase out of school property tax • Insufficient state funds to achieve goal for several years • Grows from $40 until capped at $75 million in FY 2005. Would have been over $97 million in FY 2007.

  7. And, by the way, were Property Taxes High in Idaho? • In Fiscal Year 2006 (predating education funding change): • Average overall property tax rate = 1.387% of value • Effective rate on homes much less given 50% up to $50,000 exemption on primary residence Based on Census data as reported in author’s tax burden study – available at www.tax.idaho.gov

  8. What about each major tax in 2005? Estimates for families of three in Boise, ID, compared to average of largest U.S. cities in each state and the District of Columbia Based on data from Tax Rates and Tax Burdens in the District of Columbia – A Nationwide Comparison. 2005 edition; Issued August, 2006

  9. School Funding Equalization Prior to 2006 Changes • Taxable value equalized to market value to account for assessment discrepancies • State and local funds to schools (sum of following): • State appropriation (general) • State appropriation for 1996 replacement of ¼ of school general property tax --$75 million • Local property tax – 0.003 X equalized market value statewide • Total amount of state plus property tax shares divided up on per pupil basis • Property rich districts – more from property tax; less from state • Property poor districts – less from property tax; more from state

  10. Example of Equalization System in Place in FY 1999 • State determined adjusted market value for prior year • Adjusted to reflect market value net of exemptions (eg: homeowner’s exemption) or statutory constraints (ie: farm and timber valuation) • Adjusted to reflect market value as indicated by annual ratio study – this accounted for assessment practice variations • Value multiplied by uniform rate (0.004) • Total for all school districts added to state appropriation to establish amount to be equalized by dividing by number of students in each school district • Individual school district share of state portion determined by subtracting that school district’s amount to be raised by local property tax. • 0.001 of this to be provided by state as property tax replacement

  11. Property Tax: $ Millions General M&O -------- 197.5 Overrides -------------- 52.2 Bonds ------------------ 60.9 Plant Facility ---------- 26.1 Other ------------------- 9.9 Subtotal ---------------- 346.6 : 29% Total of State and Local Funds - FY 1999 • State Appropriation $ Millions • General Account --------- 741.7 • Property Tax Replace. --- 54.7 • Other Accounts ----------- 54.0 • Subtotal -------------------- 850.4 : 71% State and Local Total: $1,197.0 Million Equalized portion of property tax: $164.1 Million (Excess property taxes for Boise School District not equalized – operates under charter)

  12. FY 1999 Equalization (continued) • State Share: $850.4 million • Local Equalized Property Taxes: $164.1 million Total: $1,014.5 million • 12,600 support units (1 unit = about 20 students) • $1,014.5 / 12,600 = $80,516 per unit (~$4,000 per student)

  13. Uniform Property Tax Rates?(adding to the confusion) School general levy rates were uniform only with respect to prior year’s adjusted values – these differed from current year’s taxable values, which were not adjusted using ratio studies and reflected a different year’s assessments.

  14. Struggling Against Rapidly Rising Property Values – FY 2001 - 2006 • Idaho assesses property at current market value annually • Homes and farmland sheltered somewhat through 50% up to $50,000 homeowner’s exemption and partial exemption for farmland (similar to use value) • FY 2001 – 2006 • Property values grow rapidly • 7.4% per year 1996 – 2006 • 7.7% per year 2001 - 2006 • School taxes increase accordingly using the rate based levy system (with a one year lag).

  15. Growth in Idaho Taxable Values Rate of value growth topped out at 13.4% per year from 06 – 09! Funding change implemented

  16. Without the Change, School Property Tax would have Grown Dramatically after 2006, then lost some of the growth

  17. Oddities of 2006 “Elimination” of School General Property Tax • Boise School District • Operates under pre-statehood charter that limits enforcement of legislated constraints on property tax powers • Still levies property tax of $53.7 million (FY 2012), but lowered amount levied to participate in state appropriation • Four “Property Rich” School Districts • Generated more money from property tax than state per pupil formula would replace • Retained authority for “budget stabilization fund” • Continue to levy about $35 million per year for general purposes

  18. Initial Property Tax Effects • Reduced school property taxes - represented 19% of total property taxes in 2006 (FY 2007) • Overall property taxes decreased 11.4% from prior year • Reflects increases in other taxing districts and increases in unaffected school funds • Change coupled with increase in homeowner’s exemption maximum from $50,000 to $75,000 (and tied to Housing Price Index) – so most homeowners saw more significant decreases, although only partially due to school funding changes

  19. Effects of School Funding Changes • Schools retained authority for voter approved “supplemental” levies (and other voter approved and misc. levies) • State appropriations increased for two years, then decreased significantly • Supplemental levies increased significantly to fill gaps resulting from lower state appropriations • Because of dependence on voter approval and independence from state funding share, per pupil funding uniformity has been reduced

  20. Major Components of Idaho School Property Taxes Note: All General School Property Tax Amounts have been adjusted downward for amounts continuing to be levied by five school districts. *Hypothetical amounts shown beginning in FY 07 based on no change in prior system of school property tax. **Estimated based on elections through May, 2013 – addl elections in August will determine final amounts

  21. The Most Significant Change – School Supplemental Levies • Voter approved for 1 – 2 years (may be longer for charter school districts and permanent for some school districts) FY 14 est. The rate of increase in $ raised by supplemental levies goes from 32% over the five years before the change in FY07 to 114.7% in the six years following the change in school funding (through FY 2013).

  22. Where did the Additional Sales Tax Beginning in October, 2006 go? Appropriations stayed up due to stabilization fund

  23. Changing State Appropriations Compared to Changing Actual or Hypothetical Property Tax Property tax effects lag economic effects • * Hypothetical amounts shown beginning in FY 07 based on no change in prior system of school property tax.

  24. Economic Recovery • Idaho state tax collections and miscellaneous revenue in FY 2013 • Exceeded January 2013 revenue projection by 3.5% • Increased Year to Year since FY 2011: State funding for schools lagged overall growth in state revenue

  25. One School District’s Story • Nampa School District • Nampa is 2nd largest Idaho City (2012 pop. Est 83,930) • 3rd largest school district (2012-13 enrollment 15,135) Despite Supplemental Voter Approved Levies: FY 2009: $1.50 million FY 2010: $1.50 million FY 2011: $1.63 million FY 2012: $1.63 million FY 2013: $1.60 million Revenue $68.8 Million Expenditure $66.1 Million The Idaho Statesman, May 25, 2013

  26. General Pattern Over Time

  27. Cumulative Changes in Funding Options Compared It appears schools would have been ahead with previous property tax system, but not without some increase in voter approved supplementals – may have been less palatable

  28. What have total property taxes done since FY 2007 (through FY 2013)? • Overall property taxes grew 4.6% per year after falling 11.4% in the year the school funding change occurred • FY 07 – 09: +9.5% per year • FY 09 – 12: +1.6% per year • FY 12 – 13: +3.8% • FY 02 – 06: +6.9% per year • Total now stands at $1,433.6 million • Was $1,239.1 in FY 06 (prior to the change) • Was $1,097.7 in FY 07 (the first year of the change) Note: Property tax growth capped at 3% per year (except for voter approved levies), plus allowance for new construction – dropped sharply after FY09, but has now leveled.

  29. Calendar Year 29

  30. School general fund levies not included Calendar Year 30

  31. 32

  32. And What Happened to Idaho’s Property Tax Burden after the change in School Funding?

  33. Idaho Property Taxper $1,000 Personal Income Calendar Year 31st prior to change FY 10 National ranking 38th based on income 26.4% below U.S. average 10th lowest of 11 Western states

  34. 38th prior to change FY 10 National ranking 41st per capita 41.7% below U.S. average 9th lowest of 11 Western states

  35. Public Perspective:What do people think of Education Funding in Idaho? Survey in Late 2010 and early 2011

  36. What do People Think of Local Government in Idaho? Boise State University Public Policy Center 20th Public Policy Survey – November 2010 – January 2011

  37. And, What do They Think of Property Tax? 2009 Public Policy Survey conducted by Public Policy Center at Boise State University – Property tax rated least fair since 2001, although negative opinions less pronounced in 2007. Payroll tax added to survey in 2004 – may mean that longer term percentage comparisons not as valid.

  38. And What About School Performance? From National Assessment of Educational Progress (NAEP) – Idaho NAEP Notes Volume 2011 Number 2 (ISAT is the Idaho Standards Achievement Test)

  39. Performance (continued) From National Assessment of Educational Progress (NAEP) – Idaho NAEP Notes Volume 2011 Number 2

  40. Conclusions • School general property taxes under the pre-2006 system would not have decreased as much as overall funding did in the absence of the general property tax component • Despite economic recovery, state general fund revenue gains have outstripped school funding increases • Schools have commandeered small shares of state revenue increases • Schools have increasingly viewed state appropriations as inadequate and have filled gaps through record levels of voter-approved supplemental levies • There is increased funding disparity between rich and poor school districts due to local selection of voter-approved amounts • Overall performance indicators reviewed appear unaffected

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