AASBO Bi-Monthly Meeting

TAX RATES AND TAX BILLS

Questions You Never Thought You’d Have to Answer

November 9, 2011

Prepared by:Judy Richardson, Vice President602.794.4012jrichardson@syllc.com

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Current Property Tax Issues In recent years, large changes in property

values have made tax bills less consistent From year to year Within a district – some taxpayers see

increases while others see decreases The same principles were at work in the

past, but were not as noticeable The changes in property values were not as

great The addition of new property in many districts

tended to reduce tax rates and tax bills

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Current Property Tax Issues Even if property values have been stable in your

area, your district’s primary property taxes are affected by statewide changes in property values

The reasons for changes in school district tax bills can be complex

Most reporters don’t understand the system well enough to explain it

County assessors and treasurers often don’t explain the changes correctly

When taxpayers call their school district, they often start with false assumptions and misinformation

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Typical Questions Asked This Year

Why did my taxes go up when my neighbor’s taxes went down?

Why did my school taxes go up? What are you doing with all the extra money?

Why did my taxes go up when the tax rate went down?

Why did the state aid subtraction (homeowner’s rebate) go down? Why is it a different % than last year?

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What Changed This Year?

Statewide Primary Assessed Valuation (PAV) decreased Caused by large decreases in Maricopa and Pinal

Counties State Equalization (County) Tax Rate (SETR) and

Qualifying Tax Rate (QTR) both increased To keep the total amount raised from existing property

about the same To prevent the cost of state aid from increasing

QTR increase = $0.5770 (USD) / $0.2885 (ESD/UHSD) Combined SETR/QTR increase = $0.6465 (USD) 19.5% rate increase Calculated to offset a 14.8% decline in statewide

PAV

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Increases and Decreases Note that PAV percentage decrease (14.8) and

offsetting tax rate percentage increase (19.5) don’t match The % increase is always larger than the %

decrease Same principle with stocks:

If stock falls from $100 to $50, that is a 50% decline But $50 requires 100% increase to get back to $100

The bigger the percentages, the bigger the differential

5.0% decrease requires 5.3% increase 30% decrease requires 43% increase 50% decrease requires 100% increase

Bigger drops in valuation cause bigger tax impacts

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Increases and Decreases Statewide calculations only “work” at local

level if local or individual PAV change matches statewide PAV change

This year, residential PAV changes were inconsistent within districts and across the state Some were up Some were about the same or down a little Some were down a lot

These differences created differences in tax bills

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Examples of School DistrictPrimary Property Tax Changes

Assume a state aid school district with a tax rate close to the QTR

Assume the primary tax rate increased by the amount of the QTR increase (no other factors changed)

USD example: FY 2011 = $3.00 QTR Increase = +$0.58 FY 2012 tax rate = $3.58 Percentage increase = 19.3%

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Example #1 If an individual property PAV declined by about

15% (the same as the statewide decrease) The tax rate increase offset the PAV

decrease and kept district primary property taxes about the same

These taxpayers called the school district because the newspaper (or their intuition) told them their taxes would go down if their property value dropped

Your explanation: Their decrease in value was offset by the tax

rate increase which was caused by the QTR increase

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Example #2 If the individual property PAV dropped 25%

(more than the statewide decrease) The primary property taxes went down

because the tax rate increase was not enough to offset the PAV decrease

These taxpayers felt they got what they deserved and didn’t call the school district

Their tax cut did not reduce your total revenues because it was offset by

Increased taxes on property whose value didn’t drop (or didn’t drop as much)

Increased state aid if your total District PAV dropped by more than the statewide average

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Example #3 If the individual property PAV increased, stayed

the same, or only declined a little Their district primary property tax bill went up These taxpayers called the school district because they

think you increased your spending Your explanation:

The district tax rate increased because of the QTR increase

Their value did not drop (enough) to offset the rate increase

The amount you can spend did not change – Their increased tax was used to offset:

a reduction in state aid (if the statewide PAV decrease was greater than the district’s PAV decrease)

tax cuts for other tax payers whose value dropped

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Other Factors Affecting Primary Tax Rates

In the previous examples, the district primary tax rate was close to the QTR

The percentages are different if the district tax rate is not close to the QTR - for example: If the previous district primary tax rate was

$6.00, then a $0.58 increase to $6.58 is only 9.7% increase

A homeowner’s PAV would only need to decline by 8.9% to offset that increase

The critical number is the % increase in the district tax rate caused by the QTR, not the % increase in the QTR itself

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Other Factors Affecting Primary Tax Rates

Other district-specific factors compounded or mitigated the effect of the QTR increase on the tax rate: An unusually low or high tax rate last

year Unusually large or negative cash balance

State aid withholding or repaymentTax judgments or delinquent taxes

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

for items outside the RCL

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Other Factors Affecting Primary Tax Rates

Non-state aid districts are not affected by QTR increase – Their primary tax rates are calculated like

secondary tax rates The tax rate will increase if the district

PAV decreases Partial state aid districts are a hybrid

- their primary tax rates are affected by both: The QTR Changes in their district total PAV

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Homeowners Rebate Changes Homeowners rebate is a property tax

reduction (also called additional state aid) Changes enacted in 2010 took effect this year Formula changes reduced the amount of the

rebate (for state aid districts) Items no longer included in rebate calculation:

Desegregation TRCL/TSL difference Small school adjustment Interest on registered warrants or TANs Excessive property tax valuation judgments Career ladder QTR

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Homeowners Rebate Changes Smaller subtraction increased the total bill

(or total primary property tax), not the line for school district primary taxes

Some taxpayers might have lost the rebate because it is now limited to primary residences (no second homes)

Not a law change, but some taxpayers might be at the $600 limit If their primary taxes increased, $600 would be

a smaller % of their primary tax bill Homes valued at $425,000 or more are affected

by the $600 limit

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Secondary Property Taxes Changes in secondary property taxes are

easier to explain because they are not affected by Changes in statewide SAV The homeowners rebate

The tax rate is determined by the amount of your overrides and bond debt service and your SAV

If the bond and override amounts are about the same but your SAV decreases, then the rate must increase

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Examples of School DistrictSecondary Property Tax

Changes Assume that the amount levied for bond

debt service and overrides was about the same as the previous year

Assume the district’s total SAV decreased

The district secondary tax rate was increased to offset the SAV decrease

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Secondary Property Tax Example #1

If a taxpayer’s SAV decrease was about the same amount as the district-wide SAV decrease Their secondary property tax bill was about

the same as last year They call the school district because they

expected a decrease Your explanation:

The amount levied is about the same as last year

The tax rate had to be increased to account for the district-wide SAV decrease, so it also offset their decrease

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Secondary Property Tax Example #2

If a taxpayer’s SAV decrease was more than the district-wide decrease Their secondary property tax bill

decreased They did not call the district because they

thought that was what they deserved Their tax cut did not reduce your total

levy because it was offset by tax increases for taxpayers whose value didn’t drop (or didn’t drop as much)

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Secondary Property Tax Example #3

If a taxpayer’s SAV increased, stayed about the same, or decreased less than the district-wide SAV decrease Their secondary property tax bill increased They called the district to find out what you are

doing with the extra money Your explanation:

The total amount levied is about the same as last year

The tax rate had to be increased to account for the district-wide SAV decrease, so the higher rate caused higher taxes

Their increase offsets decreased revenues from taxpayers whose values dropped

The good news is their property held its value!

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Summary Don’t worry about trying to explain decreases in

tax bills – no one will ask Figuring out what caused an individual’s tax bill

to increase (or not decrease) is a combination of The factors that caused the tax rate to change (or

not) The change in the value of the taxpayer’s property The relationship between tax rate change and value

change Explaining this to the taxpayer is a challenge 2012 could be similar to 2011 (except for the

change in homeowners rebate calculation) Good Luck!