Understanding Referendum Levies and Their Impact on Taxpayers · Example #1 – Possible Options for Renewal, Increases • Create $300 board approved, let $27.72 expire • Create

Understanding Referendum Levies and

Their Impact on Taxpayers

MASBO 2017 Annual Conference

Gold Mine Session

1

May 10, 2017

What is an Operating Referendum?

• An election ballot question that allows districts to generate additional general education revenue

• No debt is issued

• Revenue is provided through a combination of annual local property tax levies, and for most districts, state aid

• Referendum revenue may be used for any operating or capital expenses (same as basic general education revenue)

2

Current Referendum Provisions

• Revenue is authorized by voters as a specified dollar amount per pupil

– Can be a fixed amount per pupil throughout term

– Can be subject to annual inflationary adjustments

• Term, or number of years, is specified

– Maximum of 10 years

• Revenue is capped at $1,975 per adjusted pupil unit for fiscal year 2018-19

– Amount is adjusted annually for inflation

– Districts which qualify for sparsity revenue have no limit

– Some may qualify for a higher “grandfathered” limit

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• Districts can conduct only one operating referendum election per year

– Exception for districts in Statutory Operating Debt (SOD)

• Vote can only occur on November general election day, unless held by mail ballot, or unless district is in SOD

• Election can be held either one year or two years prior to initial tax year

• Notices must be sent to all taxpayers

– By first class mail

– Content is specified by law

4


• Operating referendum property tax levies are spread on Referendum Market Value (RMV)

– Referendum property taxes are not levied on

• Agricultural land and buildings (only levied on house, garage and 1 acre)

• Seasonal recreational property (cabins)

– Almost all other property in a district pays same tax per dollar of market value

• Operating referendum revenue amounts can qualify for state equalization aid

• State aid portion of referendum revenue is dependent on district’s RMV per pupil

5

2013 Legislative Changes

2013 Legislature made significant changes to Referendum Revenue, effective for Fiscal Year 2014-15

• New pupil count for referendum - Adjusted Pupil Units (APU)

– APU is based on pupils served, with new grade weightings and no declining enrollment factor

• Fiscal Year 2014-15 existing referendum authority was converted (recalculated) based on change in pupil units

– Maintains same level of revenue, including alternative attendance

– Changes in estimated pupil units caused referendum authority to be adjusted through pay 2016, but it is final for pay 2017

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• Previous 2 tier equalization state aid system is now a 3 tier system

• Districts can convert up to $300 per pupil of voter approved referendum authority to board approved authority, or add board approved authority up to $300 per pupil

– Authorize for up to 5 years

– Same equalizing factor as voter approved authority

7


• All districts may receive Local Optional Revenue (LOR) of up to $424 per Adjusted Pupil Unit (APU)

– Approved by School Board as part of annual levy process (no separate resolution or voter approval required)

– Combined with $300 board approved operating referendum allowance, allows each district to access $724 per APU without voter approval

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• For referendum authorities approved before 2014, LOR allowance is subtracted from referendum authority

– Taking action to “convert” existing voter approved authority to board approved authority can result in loss of board approved authority

• Taxes spread on RMV

• Equalized formula – equalized at same level as 2nd

tier of referendum revenue

9

Referendum Authority Conversion – Example #1

10

• Amount voters approved in 2011: $700.00– Effective for taxes payable in 2012 (Fiscal Year 2012-13) for 6 years

– Expires after taxes payable in 2017 (Fiscal Year 2017-18)

• Fiscal Year 2017-18 allowance: $327.72

• How did we get this?

– Original voter-approved amount: $700.00

– After 2013 pupil unit Legislative changes: $751.72

– District LOR: $424.00

– Net adjusted referendum allowance: $327.72• ($751.72 - $424.00 = $327.72)

• No action taken by School Board to convert authority to board approved to date; School Board has authority to “create” $300 per pupil of operating referendum authority

Example #1 – Possible Options for Renewal, Increases

• Create $300 board approved, let $27.72 expire

• Create $300 board approved, propose renewal of $27.72 through referendum election

• Propose renewal of entire $372.72 through referendum election

• Create $300 board approved and propose an increase in voter approved authority through referendum election

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Estimated Tax Impact – Possible Options

12

OptionsNo Election Renewal

$100 Voter

Approved

$200 Voter

Approved

-$27.72 $0.00 $72.28 $172.28

-$57,786 -$18,025 $85,654 $229,094

-0.00484% 0.00060% 0.01477% 0.03438%

Estimated

Type of Property Market Value

$50,000 -$2 $0 $7 $17

75,000 -4 0 11 26

100,000 -5 1 15 34

125,000 -6 1 18 43

150,000 -7 1 22 52

175,000 -8 1 26 60

200,000 -10 1 30 69

Residential 225,000 -11 1 33 77

Homesteads, 250,000 -12 2 37 86

Apartments, 275,000 -13 2 41 95

and Commercial- 300,000 -15 2 44 103

Industrial Property 325,000 -16 2 48 112

350,000 -17 2 52 120

375,000 -18 2 55 129

400,000 -19 2 59 138

425,000 -21 3 63 146

450,000 -22 3 66 155

475,000 -23 3 70 163

500,000 -24 3 74 172

Taxes Payable in 2018

Estimated Taxes for Referendum Only*

Change in Revenue per Pupil Unit

Estimated Change in Revenue

Estimated Market Value Tax Rate

Referendum Authority Conversion – Example #2

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• Amount voters approved in 2007: $1,070.00– Effective for taxes payable in 2008 (Fiscal Year 2008-09), for 10 years

– Expires after taxes payable in 2017 (Fiscal Year 2017-18)

• Estimated Fiscal Year 2017-18 allowance: $774.26

• How did we get this?

– Original voter-approved amount : $1,070.00

– Converted allowance: $1,198.26

– District LOR: $424.00

– Net adjusted referendum allowance: $774.26• ($1,198.26 - $424.00 = $774.26)

• School Board approved resolution in August 2013 to convert $300 of voter approved authority to board approved authority

Impact of Board Converted vs. Board Created

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Converted Created Converted Created

Voter-approved allowance 898.26$ -$ -$

Board Converted 300.00$ 300.00$ -$

1,198.26$ 300.00$ -$

LOR subtraction 424.00$ 424.00$ 424.00$

Net referendum allowance 774.26$ - -

Board Created - 300.00

Total 1,198.26$ 424.00$ 724.00

FY 2019 AuthorityFY 2018 Authority

LOR eliminates a board “converted” allowance, but does not eliminate a board “created” allowance

To maintain $300 of board approved authority, board will need to rescind previous resolution that “converted” authority and adopt a resolution to “create” authority

Example #2 – Possible Options

• Rescind previous resolution to maintain $300 per pupil of board approved authority

• Adopt a resolution to “create” $300 per pupil of board approved authority

– District would still have $474.26 of voter approved authority expiring and could propose renewal of $474.26 through referendum election

• Without action to rescind previous resolution

– Only LOR authority at $424 per pupil remains

– District would lose equalization aid (LOR is equalized at 2nd tier)

– To maintain same revenue, would need to propose renewal of entire $774.26 through referendum election

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Equalization

• Equalization aid – three tiers

– First tier equalized at highest level

• Up to $300 per pupil

• Most districts qualify for significant first tier aid

– Second tier equalized at a lesser degree

• From $300 to $760 per pupil

• Most districts qualify for some second tier aid

– Third tier equalized to an even lesser degree

• Above $760 per pupil and up to 25% of the basic formula allowance ($1,516.75 for FY 2016-17), with no limit for districts that qualify for sparsity revenue

• Most districts do not qualify for third tier aid

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Equalization Example

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Simple Example of Equalized Aid and Levy Formula

First Tier of Referendum Revenue

District A District B District C

1. Allowance per Pupil $300 $300 $300

2. Resident and Adjusted Pupil Units 1,000 1,000 1,000

3. Total Revenue (#1 x #2) $300,000 $300,000 $300,000

4. Referendum Market Value (RMV) $300,000,000 $600,000,000 $950,000,000

5. RMV per Pupil Unit (#4/#2) $300,000 $600,000 $950,000

6. Statewide Equalizing Factor $880,000 $880,000 $880,000

7. Levy Ratio (#5/#6) 34.1% 68.2% 100.0%

8. Levy (#3 x #7) $102,273 $204,545 $300,000

9. Aid (#3 - #8) $197,727 $95,455 $0

10. Tax Rate (#8/#4) 0.03409% 0.03409% 0.03158%

11. Tax per $100,000 of Value $34 $34 $32

Example - Impact of RMV vs. NTC Levies

• Can’t always offset an increase in operating referendum with decrease in other levies

• Most other levies are spread on Net Tax Capacity (NTC)

• Cabin owners frequently are not eligible to vote in district

• Cabin properties are excluded from paying on operating referendum levies

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Example of RMV vs. NTC Levies – Lake Area District

19

Market ValuePercent of

Total

Referendum

Market Value

Percent of

TotalNet Tax Capacity*

Percent of

Total

Total 987,294,539 467,804,260 9,820,360

Residential Homestead 357,961,342 36.3% 350,580,785 74.9% 3,296,696 33.6%

Other Residential 39,921,840 4.0% 39,921,840 8.5% 426,359 4.3%

Commercial / Industrial 37,596,715 3.8% 37,596,715 8.0% 625,074 6.4%

Agricultural 129,826,162 13.1% 16,244,100 3.5% 1,028,536 10.5%

Seasonal Recreational 421,988,480 42.7% - 0.0% 4,443,695 45.2%

Values by Property Type

Example of RMV vs. NTC Levies – Lake Area District

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Description Operating Refer- Proposed Net

endum: $300 Reduction to Change

per Pupil Unit Other Levies

Estimated Levy $163,135 -$163,135

Estimated RMV $446,462,515

Estimated NTC $9,285,064

Estimated Tax Rates for:

Proposed Reductions NTC Tax Rate: -1.76% -1.76%

Proposed Operating Referendum RMV Tax Rate: 0.03654% 0.03654%

Estimated


$75,000 $27 -$8 $19

Residential 125,000 46 -17 29

Homestead 150,000 55 -22 33

250,000 91 -41 50

$200,000 $73 -$57 $16

Commercial/ 300,000 110 -92 18

Industrial 500,000 183 -163 20

1,000,000 365 -338 27

Agricultural 300,000 37 -30 7

Homestead 400,000 37 -39 -2

Agricultural $2,000 $0.00 -$0.35 -$0.35

Non-Homestead 2,500 0.00 -0.44 -0.44

(dollars per acre) 3,000 0.00 -0.53 -0.53

50,000 $0 -$9 -$9

Seasonal 100,000 0 -18 -18

Recreational 200,000 0 -35 -35

Residential 300,000 0 -53 -53

600,000 0 -110 -110

Estimated Change in Taxes

Example of RMV vs. NTC Levies – Rural/Regional Center School District

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Values by Property Type

Market ValuePercent of

Total

Referendum

Market Value

Percent of

TotalNet Tax Capacity*

Percent of

Total

Total 1,234,101,143 664,854,627 11,043,248

Residential Homestead 426,251,159 34.5% 422,789,008 63.6% 3,480,294 31.5%

Other Residential 88,430,327 7.2% 86,818,260 13.1% 947,413 8.6%

Commercial / Industrial 118,075,417 9.6% 117,709,484 17.7% 2,197,941 19.9%

Agricultural 597,645,260 48.4% 36,297,795 5.5% 4,383,351 39.7%

Seasonal Recreational 3,698,980 0.3% - 0.0% 34,249 0.3%

Example of RMV vs. NTC Levies – Rural/Regional Center District

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Reduction in Taxes Increase in Taxes

Payable in 2018 Payable in 2018 Total

Description Operating Referendum Other Post

(Decrease of Employment

$45 per Pupil Unit Benefits

in Referendum (OPEB) Levy

Allowance)

Estimated Change in Revenue -$86,000 $111,000 $25,000

Estimated Change in State Aid -$32,000 $0 -$32,000

Estimated Change in Levy -$54,000 $111,000 $57,000

Est. Tax Rate Changes RMV Tax Rate: -0.00770% -0.00770%

NTC Tax Rate: 0.98563% 0.98563%

Estimated


$50,000 -$4 $3 -$1

Residential 100,000 -8 7 -1

Homestead 125,000 -10 10 0

250,000 -19 23 4

500,000 -38 49 11

Commercial/ 100,000 -8 15 7

Industrial 250,000 -19 42 23

Apartments 250,000 -19 31 12

Agricultural 500,000 -8 27 19

Homestead ** 750,000 -8 39 31

1,000,000 -8 51 43

Agricultural $3,000 $0.00 $0.30 $0.30

Non-Homestead 4,000 0.00 0.39 0.39

(dollars per acre) 5,000 0.00 0.49 0.49

Estimated Change for Taxes Payable in 2018

Timing of Board Action for Operating Referendums

• Board approved authority for Fiscal Year 2018-19 (taxes payable in 2018) can be created through resolution at any upcoming School Board meetings

– MDE prefers adoption so that it can be included on the initial proposed levy report that they prepare in early September

– Levy cannot be increased for board approved authority after proposed levy is certified by School Board at end of September

• Resolution for operating referendum election would need to be approved prior to August 25, 2017

• General Election Date: Tuesday, November 7, 2017

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Referendum Trends

Number of districts relying on operating referendum revenue is increasing

• In 1993, only 65% of districts had referendum authority

• For FY 2016-17, more than 99% of districts receive referendum revenue

– Only 4 districts currently do not have referendum authority in place

– Only 26 districts currently do not accept any local optional revenue

• 15 districts are accepting a portion of local optional revenue, averaging approximately $258 per pupil

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Referendum Trends

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Minnesota School Districts

Statewide Trends in Referendum Revenue 1992-93 to 2016-17

Receiving Total % Receiv- Total Refer- Total Average

Fiscal Referendum No. of ing Ref. endum Rev- Pupil Revenue/ Percent

Year Revenue Districts Revenue enue ($000s)* Units *** Pupil Unit Change

1992-93 269 414 65.0% $283,103 853,076 $332

1993-94 273 395 69.1% 308,026 881,996 349 5.2%

1994-95** 269 382 70.4% 292,564 911,790 321 -8.1%

1995-96 272 365 74.5% 308,069 929,955 331 3.2%

1996-97 278 358 77.7% 351,686 944,187 372 12.4%

1997-98 281 353 79.6% 375,172 953,383 394 5.6%

1998-99 280 350 80.0% 407,776 961,776 424 7.7%

1999-00 284 347 81.8% 448,556 977,038 459 8.3%

2000-01 299 345 86.7% 490,899 981,370 500 9.0%

2001-02 306 343 89.2% 544,106 979,629 555 11.0%

2002-03** 268 343 78.1% 291,707 975,235 299 -46.1%

2003-04 285 343 83.1% 426,337 956,409 446 49.0%

2004-05 299 343 87.2% 504,721 952,281 530 18.9%

2005-06 301 343 87.8% 534,315 952,296 561 5.9%

2006-07 299 340 87.9% 598,966 952,429 629 12.1%

2007-08 300 340 88.2% 644,192 952,260 676 7.6%

2008-09 306 340 90.0% 720,567 947,476 761 12.4%

2009-10 303 337 89.9% 781,675 946,292 826 8.6%

2010-11 302 337 89.6% 803,506 946,955 849 2.7%

2011-12 302 337 89.6% 828,223 951,401 871 2.6%

2012-13 296 336 88.1% 859,035 956,834 898 3.1%

2012-13 300 336 89.3% 856,326 962,379 890 -0.9%

2013-14 296 332 89.2% 886,019 968,199 915 2.8%

2014-15 *** 316 332 95.2% 984,013 914,637 1,076 17.6%

2015-16 330 332 99.4% 1,037,552 921,288 1,126 23.1%

2016-17 328 332 98.8% 1,100,424 926,919 1,187 10.3%

* Revenue shown is based on maximum authority. Some districts may choose to underlevy.

** For 1994-95, all district's referendum and/or supplemental allowances were reduced by $100, and

the general education formula allowance was increased by the same amount. For 2002-03, refer-

endum allowances were reduced by $415 and the general education formula allowance was

increased by the same amount.

Source: Minnesota Department of Education

Number of Districts Trends in Referendum Revenue

Ehlers provides public finance materials for convenience and information only. Additionally, this material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy Ehlers’ products or services.

*** For 2014-15 and later, Total Revenue includes both Referendum and Location Equity/Local Optional

Revenue. In addition, significant changes were made to the way pupils are counted, reducing the total

number of pupils in FY 14-15.

Referendum Trends

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formula

65.0%

69.1%70.4%

74.5%

77.7%

79.6%80.0%

81.8%

86.7%89.2%

78.1%

83.1%

87.2%87.8%87.9%88.2%

90.0%89.9%89.6%89.6%

88.1%89.3%89.2%

95.2%

99.4%98.8%

60.0%

70.0%

80.0%

90.0%

100.0%

Percentage of Minnesota School Districts Receiving Referendum Revenue

Notes: ** Referendum revenue in 1994-95 and 2002-03 was affected by the state "takeover" of a portion of existing referendum authorities ($100/pupil unit in 94-95 and $415/pupil unit in 02-03).

*** Referendum revenue in 2014-15 and later includes a board-approved allowance of up to $300 per pupil if a district had less than $300 per pupil previously.

Referendum Trends

Average referendum authority per pupil is increasing

• In 1993, average referendum authority was $332 per pupil

• For 2016-17, average referendum plus local optional revenue authority is $1,187 per pupil – 10.3% of general education formula allowance

– Of this amount, $800 is board approved and voter approved operating referendum, and $387 is Local Optional Revenue

27

Referendum Trends

28

$332$349$321 $331

$372$394

$424$459

$500

$555

$299

$446

$530$561

$629$676

$761

$826 $849$871

$898 $890$915

$1,076

$1,126

$1,187

$200

$400

$600

$800

$1,000

$1,200

Average Referendum and Local Optional Revenue per Pupil Unit,All Minnesota School Districts

Operating Referendum

Location Equity / Local Optional Revenue

Notes:

** Referendum revenue in 1994-95 and 2002-03 was affected by the state "takeover" of a portion of existing referendum authorities ($100/pupil unit in 94-95 and

$415/pupil unit in 02-03).

*** Referendum revenue in 2014-15 included an allowed board approved amount of $300 if a district did not have referendum authority previously.

Notes:

** Referendum revenue in 1994-95 and 2002-03 was affected by the state "takeover" of a portion of existing referendum authorities ($100/pupil unit in 94-95 and

$415/pupil unit in 02-03).

*** Referendum revenue in 2014-15 included an allowed board approved amount of $300 if a district did not have referendum authority previously.

Growing Reliance on Referendums

• Since 2004-05, General Education Revenue formula has not kept pace with inflation

• For FY 2015-16 and FY 2016-17, Legislature approved an increase of 2% per year

– $117 per pupil unit in FY 2015-16

– An additional $119 for FY 2016-17

• Per-pupil allowance for Fiscal Year 2016 would need to increase by another $626 (10.3%) to have kept pace with inflation

29


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Source: MDE General Education Formula Allowance, 2003 - 2017

General Education Formula Allowance, 2003-2017Adjusted for Pupil Weight Change and Inflation (CPI)

2015 End of Session

$4,966 $4,966

$5,368

$5,530 $5,530

$5,638

$5,831

$6,067

$4,966

$5,228

$5,566

$5,854

$6,029

$6,310

$6,447

$6,693

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

2003 2005 2007 2009 2011 2013 2015 2017

Formula Allowance Adjusted for Pupil Weight Change Adjusted for Pupil Weight Change and Inflation (CPI)

* Had the allowance increased by the rate of inflation each year since

2003 the 2017 allowance per ADM would be $6,693.

* The difference between the FY 17 formula allowance per ADM and

the inflation adjusted formula allowance is $626 or 10.3%


• Other funding sources (e.g., special education, capital funds) also have not kept pace with inflation

– MDE reports cost of providing special education programs was 40% underfunded on average, requiring a use of $679 per pupil from regular program resources to support a program mandated by state and federal law

– 2015 Legislature increased special education funding for 16-17 Biennium by approximately $180 million, reducing need to subsidize special education with regular program resources from $679 to $507 per pupil

• Only options for districts to bridge funding gap are to cut budgets or increase referendum revenue; most districts have done both

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Election Trends

• Approval rates are typically higher in odd-numbered years (no statewide elections) and lowest in presidential election years

• In total, over past 24 years, voters have approved 68% of elections

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Election Trends

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71.1%

50.9%

82.4%

62.3%

88.3%

43.8%

87.2%

63.2%

77.4%

65.7%68.5%

60.2%

70.3%

55.6%

75.3%

42.7%

67.0%

50.9%

71.2%

54.4%

78.6%73.2%

86.7%

76.3%

90.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Percentage of Referendums Approved by Voters, by Calendar Year

Presidential election years

Gubernatorial election years

Years with no statewide elections

651-697-8513

[email protected]

Gary Olsen

Senior Municipal Advisor, Ehlers

Jodie Zesbaugh

Senior Municipal Advisor, Ehlers

34

651-697-8526

[email protected]

Documents

Understanding Referendum Levies and Their Impact on Taxpayers · Example #1 – Possible Options for Renewal, Increases • Create $300 board approved, let $27.72 expire • Create