AASBO Bi-Monthly Meeting

Preparing for More Property Tax Increases

May 9, 2012

Presented by: Judy Richardson602-794-4012

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FY 2013 Property Tax Increases

Property tax rates in most school districts will increase again for FY 2013

Primary causes QTR increase Decreases in primary and secondary assessed

valuations (PAV and SAV)

A few districts will not be affected: If no state aid and no PAV or SAV decrease If federal impact aid is used to control tax rates

How can you prepare your Governing Board?

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Step 1. Estimate Your FY 2013 Tax Rates

Various methods can be used One option is to use the formula from

the County and plug in your FY 2013 estimated amounts

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Step 2. Analyze the Change from FY 2012

Calculate the % change in tax rates from FY 2012

Identify the amounts that show major changes from FY 2012

Determine the reasons for the major changes For most districts, this will include the

QTR increase

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The QTR Increase

Statewide Primary Assessed Valuation (PAV) decreased again for FY 2013 9.7% decline for existing property Caused primarily by continued decreases in several

counties Qualifying Tax Rate (QTR) increased by 10.8%

To keep the total amount “raised” from existing property about the same

To prevent the cost of state aid from increasing QTR increase = $0.3804 (USD) or $0.1902

(ESD/UHSD) (less than the FY 2012 increase)

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The QTR Increase Note that PAV percentage decrease (9.7)

and offsetting QTR percentage increase (10.8) don’t match The % increase is always larger than the %

decrease The larger the percentages, the larger the

differential 5.0% decrease requires 5.3% increase to

offset 30% decrease requires 43% increase 50% decrease requires 100% increase

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The QTR Increase

Legislative action was not required Rate determined by “Truth in Taxation”

formula Normally, the formula causes the rate to

decrease when property values increase QTR is not an actual tax rate

A theoretical rate used to calculate your equalization assistance

A QTR increase reduces equalization assistance, which causes an increase in the primary property tax rate (in a state aid district)

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Other Reasons for Tax Rate Changes

Changes in adjacent ways levy (primary rate)

An unusually low or high tax rate last year Unusually large or negative cash balance

State aid withholding or repayment Tax judgments or delinquent taxes

Changes in district wide PAV For state aid districts, affects the tax rate for

items outside the RCL, such as desegregation For non-state aid districts, district PAV

decreases cause tax rate increases

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Other Reasons for Tax Rate Changes

Changes in secondary levy Override increased or decreased You issued new bonds or your payments on existing

bonds went up or down Budget increases caused by reductions in

formula cuts for FY 2013 (increased spending over FY 2012 levels), the transportation adjustment or increases in enrollment Increase primary tax rates in non state-aid districts Do NOT impact primary tax rates in state aid

districts (paid by increases in equalization assistance)

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Explaining Tax Rate Changes Some of the changes can be offsetting

For example, the increase in QTR can be offset by repayment of state aid withheld in a prior year

Remember any one-time payment will increase the tax rate next year when it is no longer available

The changes in the homeowner’s rebate formula impacted last year’s tax bills and should not cause any additional tax increases in FY 2013

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Step 3. Summarize Your Tax Rate Changes

Primary Tax Rate

Secondary Tax Rate

FY 2012 3.7288 1.6604FY 2013 4.1250 1.9770Difference 0.3962 0.3166% Change 10.6% 19.1%Main reasons for change

The Legislature increased the QTR by 0.38

Our cash balance was lower than last year because of low tax collections

Our SAV decreased by 19%

Our override was about the same but our bond payment was 5% lower so the total levy was lower

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Step 4. Anticipate the Reaction to Tax Rate Increases

Even if property values are declining in your district, some tax bills will increase when tax rates increase Property values do not change uniformly

with in a district The value of some properties will not

have declined or not declined enough to offset the rate increase

You can calculate the % decline needed to offset your tax rate increase

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Anticipate the Reaction to Tax Rate Increases

Formula to calculate the % decline needed to offset your tax rate increase D = I/(1+I) D = % decrease needed to offset the increase I = percentage increase in the tax rate

Example Tax rate increase is 10.8% D = .108/1.108 = .975 or 9.75% If the property value decreases by at least

9.75%, the 10.8% rate increase will not cause a tax bill increase

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Table to Estimate Offsetting Decreases

Offsetting   Offsetting   Offsetting

Percentage Percentage Percentage Percentage Percentage Percentage

Tax Rate Valuation Tax Rate Valuation Tax Rate Valuation

 Increase Decrease Increase Decrease Increase Decrease

5.0% 4.8% 16.0% 13.8% 27.0% 21.3%

6.0% 5.7% 17.0% 14.5% 28.0% 21.9%

7.0% 6.5% 18.0% 15.3% 29.0% 22.5%

8.0% 7.4% 19.0% 16.0% 30.0% 23.1%

9.0% 8.3% 20.0% 16.7% 31.0% 23.7%

10.0% 9.1% 21.0% 17.4% 32.0% 24.2%

11.0% 9.9% 22.0% 18.0% 33.0% 24.8%

12.0% 10.7% 23.0% 18.7% 34.0% 25.4%

13.0% 11.5% 24.0% 19.4% 35.0% 25.9%

14.0% 12.3% 25.0% 20.0% 36.0% 26.5%

15.0% 13.0% 26.0% 20.6% 37.0% 27.0%

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Anticipate the Reaction to Tax Rate Increases

Review the information available on tax bills in your county

Prior year valuation information is not usually on the tax bill

Taxpayers who call to complain about tax bills usually do not know how their property value changed

To explain why their bill changed, you need to know the % change in their valuation

This can be calculated from the prior year tax bill

(The valuation notice they got this past February covers the wrong years)

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Explaining Tax Bill Increases

If you don’t know how a specific property value changed, you can: Explain why the district’s rates changed Provide the offsetting percentage valuation

decreases needed to prevent a tax bill increase You can also explain

If their school district taxes increased because of the QTR increase (or district PAV or SAV decreases)

Those additional taxes are used to offset tax cuts for owners of property which had a greater decrease in value

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Explaining Tax Bill Increases

Increases in the total tax bill may also be caused by Increases by other jurisdictions Increase in the county equalization tax rate

(State Equalization Tax Rate) of 0.0458 Also caused by “Truth in Taxation” To offset statewide PAV decrease

Educating your Governing Board about these issues can start now, with a follow-up when the tax rates are actually set in August

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Questions

It’s all perfectly clear, right?