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Property Taxes: E-12 Property Taxes in Context

Table of Contents. Constitution, Trends, Basic Terms. Education Budget: Aid. Property Taxes: E-12 Property Taxes in Context. “The Big Plan”: A Brief Look Back. E-12 Levy Trends and Components Over Time. What About the Operating Referendum?. Percent of Districts That Have One.

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Property Taxes: E-12 Property Taxes in Context

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  1. Table of Contents • Constitution, Trends, Basic Terms • Education Budget: Aid • Property Taxes: E-12 Property Taxes in Context • “The Big Plan”: A Brief Look Back • E-12 Levy Trends and Components Over Time • What About the Operating Referendum? • Percent of Districts That Have One • Ballot Question Trends Over Time • Approval Percentages Over Time • Shifts • Where to Get More Info/Questions

  2. Education Finance: Constitution “The stability of a republican form of government depending mainly upon the intelligence of the people, it is the duty of the legislature to establish a general and uniform system of public schools. The legislature shall make such provisions by taxation or otherwise as will secure a thorough and efficient system of public schools throughout the state.” -- MN State Constitution, Article 13, section 1

  3. Basic Terms: Revenue/Levy/Aid • Revenue • Funds available for school districts to spend • Levy • Revenue raised from taxation on property in a school district • Aid • Aid provided by state legislature to school districts • Rule of Thumb • REVENUE = AID + LEVY

  4. Basic Terms • ANTC • Adjusted Net Tax Capacity = The tax base used in many K-12 formulas to measure the relative wealth of property in each district. • RMKV • Referendum Market Value = The market value of all taxable property in a district excluding seasonal rec and agricultural lands. • Fiscal Year • 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. • Equalization • The 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. • Equalizing Factor • 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.

  5. Education Finance: Trends SCRFA, ELNauman

  6. Education Finance: Trends SCRFA, ELNauman Minnesota Department of Education Data

  7. Education Finance: Trends SCRFA, ELNauman Minnesota Department of Education Data

  8. Education Finance: Trends SCRFA, ELNauman Minnesota Department of Education Data

  9. Education Finance: Trends SCRFA, ELNauman

  10. Education Finance: Trends

  11. Education Finance: Aid/Levy Split Policy • The 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 of state aid/the wealthier district will receive lesser amounts of state aid • Formula Examples: Operating Referendum, Operating Capital, Equity, Transition, Qcomp, Debt Service Example: SCRFA, ELNauman

  12. Education Finance: Aid Source: Department of Management and Budget, Nov ‘11 Fcst

  13. Education Finance: Aid Source: Department of Management and Budget, Nov ‘11 Fcst

  14. Education Budget Source: Department of Management and Budget, Nov ‘11 Fcst

  15. Education Finance: Property Taxes Total = $8,118.7 million SCRFA, ELNauman & JPaulson

  16. Education Budget: Property Tax Tracking By Fund, FYs 12-15 MN State Senate Fiscal Staff Based on Nov 11 Forecast

  17. “The Big Plan”: A Look Back • 2001 Education Reform • General Education Property Tax Replaced with State Aid • Levy = $1.3 billion; Total State Cost $880 million after “netting” • credits from education homestead credit. • Supplemental & Transition Revenue programs “rolled” into Referendum Authority. • $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.

  18. Education Finance: Property Taxes Data based on Based on Nov 11 forecast . Levies for FY 13 and later are projections. SCRFA, ELNauman

  19. Education Finance: Property Taxes Data based on Based on Nov 11 forecast . Levies for FY 13 and later are projections. SCRFA, ELNauman

  20. Education Finance: Property Taxes SCRFA, ELNauman Data based on Based on Nov 11 forecast . Levies for FY 13 and later are projections.

  21. Education Finance: Operating Referendum SCRFA, ELNauman Minnesota Department of Education Data

  22. Education Finance: Operating Referendum The Bauerly amendment SCRFA, ELNauman

  23. Education Finance: Operating Referendum SCRFA, ELNauman Minnesota Department of Education Data

  24. Education Finance: Operating Referendum SCRFA, ELNauman Minnesota Department of Education Data

  25. Education Finance: Operating Referendum SCRFA, ELNauman *Includes Tax Base Replacement Aid. Projections for FY 2012 and FY 2013. Minnesota Department of Education Data

  26. Education Shifts 60/40 Auto-Buyback 90/10 Entitlement Recognition Current Payment Final Payment

  27. Basic Terms • Aid Entitlement • 100 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 Payment • The percentage of an entitlement that is paid in the fiscal year in which the state aid is generated. • Final Payment • 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). • Payment Schedule • A 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%. • Appropriation (Education Context) • 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.

  28. Basic Terms • Payment Shift • 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. • 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.

  29. E-12 Programs on Payment Schedule • 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

  30. E-12 Approps on Payment Schedule • 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

  31. School Payment Shift • Mechanics of Payment Schedule (Without Shift) • 2013 • 2009 • 2010 • 2011 • 2012 • Fiscal Year • $100 • $100 • $100 • $100 • Entitlements • (amounts generated by formula) • $100 • Payment • Schedule • 90%/ • 10% • 90%/ • 10% • 90%/ • 10% • 90%/ • 10% • 90%/ • 10% From FY 2008 • Current Payment • $90 • $90 • $90 • $90 • $90 • Final Payment • + $10 • + $10 • + $10 • + $10 • + $10 • Appropriations • $100 • $100 • $100 • $100 • $100 SCRFA, ELNauman

  32. School Payment Shift • Mechanics of Aid Payment Shift (2010-11 biennium & Feb 2011 Fcst law) • 2013 • 2009 • 2010 • 2011 • 2012 • Fiscal Year • $100 • $100 • $100 • $100 • Entitlements • (amounts generated by formula) • $100 • Payment • Schedule • 70%/ • 30% • 90%/ • 10% • 90%/ • 10% • 73%/ • 27% • 90%/ • 10% From FY 2008 • Current Payment • $90 • $73 • $70 • $90 • $90 • Final Payment • + $10 • + $10 • + $27 • + $10 • + $30 • Appropriations • $100 • $ 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, ELNauman

  33. School Payment Shift • Where We’re At Today (2011 E-12 Education Bill) • FY 2010-11 Biennium • FY 2012-13 Biennium • 2013 • 2009 • 2010 • 2011 • 2012 • Fiscal Year • $100 • $100 • $100 • $100 • Entitlements • (amounts generated by formula) • $100 • Payment • Schedule • 70%/ • 30% • 60%/ • 40% • 90%/ • 10% • 73%/ • 27% • 60%/ • 40% From FY 2008 • Current Payment • $90 • $73 • $70 • $60 • $60 • Final Payment • + $10 • + $10 • + $27 • + $40 • + $30 • Appropriations • $100 • $ 83 • $97 • $90 • $100 • 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. SCRFA, ELNauman

  34. Basic Terms • 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.

  35. Property Tax Recognition Shift Calendar Year 2011 • Prior to Change FY 2011 FY 2012 May July 1 Oct Dec Jan ‘11 Property taxes paid Property taxes paid Property tax revenue recognized by districts Property tax revenue recognized by 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. • Rules governing recognition dates based on statute and UFARS. SCRFA, ELNauman

  36. Property Tax Recognition Shift Calendar Year 2011 • Prior to Change • Legislative Change – Creating a Shift FY 2011 FY 2012 May July 1 Oct Dec Jan ‘11 Property taxes paid Step #1 –Change Levy Recognition Property taxes paid Property tax revenue recognized by districts Property tax revenue recognized by districts Increase Levy Revenue by $515 million * in FY 11 Aid cut in FY 11 by $515 million* Step #2 – GenEd Appropriation Reduction SCRFA, ELNauman • *Based on Nov 11 Fcst

  37. Contingent Shift Buy-Back • Because shifts have historically been used as a defacto “budget reserve” a system was created in 2004 to pay them back automatically. This law remains in effect today. • Shifts are paid back when the Commissioner of MMB “determines that there will be a positive unrestricted budgetary general fund balance at the close of the biennium.” • In order of precedence: (1) Cash flow account, (2) budget reserve, (3) payment shift,(4) property tax recognition shift and two other small payments. • This process used once already. Shifts from 2002 & 2003 sessions were paid back in two years. The Nov ‘11 forecast repaid the cash flow account and nearly restored the budget reserve.

  38. Contingent Shift Buy-Back MS.16A.152 Budget Reserve and Cash Flow Accounts 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 unrestricted budgetary general fund balance at the close of the biennium, the commissioner of management and budget must allocate money to the following accounts and purposes in priority order: (1) the cash flow account established in subdivision 1 until that account reaches $350,000,000; (2) the budget reserve account established in subdivision 1a until that account reaches $653,000,000; (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 to the nearest tenth of a percent without exceeding the amount available and with any remaining funds deposited n the budget reserve; (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 123B.75, subdivision 5, by the same amount………..

  39. Contingent Shift Buy-Back FY 2012 Contingent Spending If Paid Back in FY 2012 Based on End-of-Session Estimates (dollars in millions)

  40. Education Finance • Education Shift Savings – A History of Legislative Changes • Year Paid • Back • Amount When Enacted (if known) • Fiscal Year • Type • Level • 1983 PTRS 32% ($240.7 M) Partially in ’85, ’96-’99 • 1985 PTRS 24% shift reduced • 1988 PTRS 27% shift expanded 1996-1999 • 1990 PTRS 31% shift expanded 1996-1999 • 1992 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 • 2003 Payment 83/17 ( $437.5 M) Nov. 2005 Fcst • 2004** Payment 80/20 ($185.3 M) Nov. 2005 Fcst • 2004** PTRS 48.6 ( $230.3 M ) Feb. 2006 Fcst • *Previous shift high point in FY 1993, $688 million owed to schools. SCRFA, ELNauman • **2004 the Legislature passed the contingent shift buyback language.

  41. Education Finance • Education Shift Changes – A History of Legislative Changes • Year Paid • Back • Amount When Enacted • (if known) • Fiscal Year • Type • Level • 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 • 2010* Payment 73%/27% ( $1,160.4M) Based on pos fcst • 2011* PTRS 48.6% ($561.5M ) Based on pos fcst • 2011 Payment 70%30% ($207.7M) Based on pos fcst • 2012 Payment 60%/40% ($739.2M ) Based on pos fcst * Shifts initially created by Gubernatorial unallotment process and subsequently codified into law. SCRFA, ELNauman

  42. Questions/Discussion?

  43. Where to Get More Information Senate Counsel, Research and Fiscal Analysis http://www.senate.leg.state.mn.us/departments/office_bio.php?Is=85&office_id=1007 Department of Education; Division of Program Finance http://education.state.mn.us 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

  44. Where to Get More Information Continued… “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

  45. Minnesota Senate Education Staff Caucus Staff Ed Cook, Majority Research 651/296-0129 Danna Elling, DFL Research 651/296-7089 Greg Marcus, Education Committee Administrator 651/296-5312 Nonpartisan Staff Ann Marie Butler, Counsel 651/296-5301 Kent Hranicka, Research Analyst 651/296-0558 Eric Nauman, Fiscal Analyst 651/296-5539

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