Property Tax and School Funding in...
Transcript of Property Tax and School Funding in...
Property Tax and School Funding in Utah
Prepared by the Office of Legislative Research and General Counsel for:
Bagels and Briefings
September 17, 2008
Presentation Outline
• Property tax background• Education funding and property tax
– Basic indicators of school funding needs– School funding sources– School property taxes
• Tax base• Tax rates• Tax revenues
Presentation Outline
• Property tax background• Education funding and property tax
– Basic indicators of school funding needs– School funding sources– School property taxes
• Tax base• Tax rates• Tax revenues
Why Discuss Property Taxes Today?
• Property tax is on the mind of many taxpayers– Preliminary property tax statements mailed in July– Truth in taxation hearings in August– Final 2008 property tax rates set by taxing entities after truth in taxation
hearings, then verified and finalized by Tax Commission– Property tax bills mailed to property owners
• Property tax is a major school funding source– Majority of all property tax statewide goes to fund schools– General implications for overall education funding, including state budget
implications– Implications when a new school district is created
• Taxable values have increased rapidly in recent years– Rapid value increases in existing property– Significant value growth from new property development
Three Major State & Local Revenue SourcesIncome, Property, and Sales Tax
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
1982
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Bill
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Property TaxIndividual Income TaxSales and Use Tax (State and Local)
FY 1982 to FY 2007
Data Source: Utah State Tax Commission, Property Tax Division & Economic and Statistical Unit
Property TaxA Major Component of
Utah’s State and Local Government Tax System
State individual income tax
State, local, and county sales and use tax
Local property tax
Other state taxes (severance, insurance,
cigarette, etc.)
Other local taxes (excise, franchise, and earmarked sales tax)
State corporate taxes (franchise/income, gross receipts)
State transportation taxes
Data Source: Utah State Tax Commission Annual Report, FY 2007
Presentation Outline
• Property tax background• Education funding and property tax
– Basic indicators of school funding needs– School funding sources– School property taxes
• Tax base• Tax rates• Tax revenues
Presentation Outline
• Property tax background• Education funding and property tax
– Basic indicators of school funding needs– School funding sources– School property taxes
• Tax base• Tax rates• Tax revenues
Why Do School Districts Impose Property Taxes?
• To understand property taxes, it is helpful to initially consider why school districts impose the property tax
• Basic answer is to provide revenue to meet school funding needs– However, different definitions of funding “needs”
exist– What are some basic measures of funding needs?
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Basic Measures of School Funding NeedsTotal Enrollment
Data Source: Utah State Office of Education, Jordan School District
Basic Measures of School Funding NeedsEnrollment Growth
Data Source: Utah State Office of Education, Jordan School District
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(500)
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1 Year Change in Enrollment3-year-average Change in Enrollment
Other Potential Measures of School Funding Needs
• Different types of students– Special education– English language learner– Gifted and talented– Low income
• Transportation / travel distance to school• Capital infrastructure
– Buildings (age, size, functionality, etc.)– Technology
• Other
Distribution of Needs and Tax Bases
• School needs, however defined, are very unlikely to perfectly match up with the tax base of any revenue source on a geographic basis (school-by-school or district-by-district)
• Examples:– Some states allow a local income tax. The distribution of
Utah’s income tax base does not align with the distribution of the student population (one basic measure of school need).
– Utah allows school districts to impose property tax. The distribution of the property tax base is not identical to the distribution of the student population (or of the income tax base).
Presentation Outline
• Property tax background• Education funding and property tax
– Basic indicators of school funding needs– School funding sources– School property taxes
• Tax base• Tax rates• Tax revenues
Funding Source ComparisonsUtah Relies Less on Local Funding Than Many States
Data Source: National Center for Education Statistics
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Local State Federal
National ComparisonsMajor Education Revenue Sources by Region
Data Source: National Center for Education Statistics
Major Revenue Sources:– Income Taxes ($2.7 billion)– Property Taxes ($1.2 billion)– Federal Funds ($0.3 billion)– Dedicated Credits and Other ($0.06 billion)
Fiscal year 2008-09 estimates
Data source: Office of the Legislative Fiscal Analyst, Utah State Tax Commission
How is Utah Public Education Funded?
Property TaxA Major Component of Utah Public Education Funding
Data Source: Office of the Legislative Fiscal Analyst, State Office of Education
Income Tax
Other
Federal Funds
Property Tax Capital outlay,
debt service, other
Basic levy, voted leeway, board leeway
School Property Taxas a Percent of Total Property Tax
Special Districts 11%
Municipalities 15%
Counties18%
Schools 56%
Data Source: Utah State Tax Commission
School Property Tax Typesas a Percent of Total Property Tax
Special Districts
11%
Schools – Basic Levy (M&O)
12%
Schools – Other M&O
18%
Municipalities15%
Counties18% Schools – Capital Outlay /
Debt Service
24%Schools – Other
2%
Data Source: Utah State Tax Commission, State Office of Education
Property Tax Rates Vary by Location
Data Source: Utah State Tax Commission
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0.002000
0.004000
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0.010000
0.012000
0.014000
0.016000
0.018000
Kanab (Kane)
Woodruff(Rich)
Park City(Park City)
Circleville(Piute)
Salt Lake(Salt Lake)
Huntsville(Weber)
St. George(Washington)
Smithfield(Cache)
Bountiful(Davis)
Springville(Nebo)
Ogden(Ogden)
Tooele(Tooele)
Prop
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Tax
Rat
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School District City County Special Districts
City (School District)
School Property Taxes as a Percent of Total Property Taxes
Data Source: Utah State Tax Commission
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Kanab (Kane)
Woodruff(Rich)
Park City(Park City)
Circleville(Piute)
Salt Lake(Salt Lake)
Huntsville(Weber)
St. George(Washington)
Smithfield(Cache)
Bountiful(Davis)
Springville(Nebo)
Ogden(Ogden)
Tooele(Tooele)
Scho
ol P
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Tax
as %
of T
otal
Pro
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x
School District City County Special Districts
City (School District)
Major Revenue Sources by District
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Federal StateLocal Property Tax Other Local
Note: Data for Tintic School District unavailableData Source: Office of the Legislative Fiscal Analyst
Presentation Outline
• Property tax background• Education funding and property tax
– Basic indicators of school funding needs– School funding sources– School property taxes
• Tax base• Tax rates• Tax revenues
• Some school districts have greater ability than others to generate revenue through property tax – Measures of school funding needs (such as student populations)
and property values do not align geographically • Why do school district property tax bases vary?
– Overall fair market value differences in different areas– Different mix of property types (commercial, residential, agricultural,
etc.)– Exemption / valuation differences among property types
• Primary residences receive 45% exemption, so 55% of value taxable• Greenbelt agricultural properties valued based on agricultural
production, not parcel fair market value
• Charter schools have no property tax base and cannot impose a property tax
Property Tax Bases Vary
School District Property Tax Base Composition
Data Source: Utah State Tax Commission
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Primary Residential Secondary Residential Commercial / Industrial (includes centrally assessed) Agricultural Vacant Land (non-FAA) Motor Vehicle
District A District B District CTax Base $1,000,000,000 $2,000,000,000 $5,000,000,000
Needed Revenue $1,000,000 $1,000,000 $1,000,000Rate Required to Generate Revenue 0.001000 0.000500 0.000200
Tax impact on $250,000 primary residence $138 $69 $28
Total Enrollment 8,000 4,000 2,000 Tax Base per Enrolled Student $125,000 $500,000 $2,500,000
Suppose 3 school districts each need to raise $1 million per year. The districts each have a different tax base from which to generate the $1 million. To generate the same amount of total revenue, a taxpayer with an identically valued home in District A will pay five times the amount of tax the taxpayer in District C pays, because District C is able to generate the same revenue at a lower tax rate due to its larger tax base.
Because school districts have different sized tax bases and varying numbers of students to serve, it can be difficult to directly compare taxing capacity among school districts. One method of comparison is to compute the tax base per enrolled student.
Impact of Property Tax Baseon Property Tax Revenues
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$1,750,000
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$2,500,000
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Bas
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Taxable Property Tax Base per Student
Data Source: Utah State Office of Education
• Operations Levies– Basic levy– Voted leeway– Board leeway– K-3 reading
• 10% of basic levy– 10% of basic levy can be
used both for certain operations purposes (textbooks and supplies) and for capital outlay / certain debt service purposes
• Capital Outlay & Debt Service Levies– Debt service– Capital outlay– Voted capital outlay (not
currently imposed)
• Other Levies– Special transportation– Recreation– Judgment– Tort Liability– Public Law 874 - Federal
impact aid / Title VII (not currently imposed)
School District Property Tax Levies
0.000000
0.001000
0.002000
0.003000
0.004000
0.005000
0.006000
0.007000
0.008000
0.009000
0.010000
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Total Other Tax RatesTotal Capital Outlay & Debt Service Tax RatesTotal Maintenance & Operations Tax Rates
Utah School District Property Tax RatesTax Year 2007
Data Source: Utah State Office of Education
Current School Funding Equalization
• Basic Program – Utah’s basic program (WPU) in the operations portion of the public education
budget is often seen nationally as a model of an equitable education funding system
– Similar students meeting qualifying characteristics are funded similarly• Districts with different property tax base receive same funding level
– Different student characteristics yield different funding amounts• Kindergarten student generates less funding than other grades (0.55 WPU)• Special education student generates more funding
– Each school district imposes the basic levy – an identical tax rate statewide– Because of the equalized basic program, a large portion of the maintenance and
operations budget for schools is equalized• Other Funding
– Schools can generate additional revenue by imposing certain property tax levies authorized by statute
• Some state funding minimally equalizes certain other property tax levies (voted leeway / board leeway guarantee) but not equalized near the extent of the basic program equalization
– School Building Program• Foundation Program• Enrollment Growth Program
– Non-WPU driven programs (“below-the-line”) funded with income taxes collected on an equal basis statewide
Basic Program (WPUs),
$1,840,119,735
Voted and Board Leeway,
$359,913,204
Related to Basic Program,
$857,278,121
One-time programs and Other,
$62,820,000
Components of the Minimum School Program
Data source: Office of the Legislative Fiscal Analyst, Public Education Budget Guide
Basic Levy History
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
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0.000000
0.000500
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0.001500
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Basi
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Basic Levy RevenueBasic Levy Rate
Data source: Utah State Office of Education
The Weighted Pupil Unit (WPU)
• The WPU is not total per-pupil spending• The WPU is used to determine the cost of the basic
school program on a uniform basis for each student– 1 WPU = 1 student in average daily membership (ADM)– Students in Kindergarten receive 0.55 WPUs– Specific programs generate additional WPUs, generally based
on student qualifications (special education, technology education, etc.)
• The Legislature establishes the WPU value annually– FY 2009 WPU Value = $2,577– Districts and charter schools receive basic program funding
based on their total number of WPUs• Hypothetical example:
1,000 WPUs x $2,577 = $2,577,000 (total basic program funding)
How is the Basic Program Equalized?
Hypothetical District 1,000 WPUs x $2,500 per WPU = $2,500,000 basic program amount Property tax base = $1,500,000,000 x basic levy (.001500) = $2,250,000 property tax revenue $250,000 Income Tax (Uniform School Fund)
$250,000
$2,250,000 $2,500,000
Property Tax
Income Tax $250,000
Basic ProgramTwo Hypothetical School Districts
District A District BValue of WPU $2,500 $2,500WPUs 1,000 1,000 Basic program statutory entitlement $2,500,000 $2,500,000
Net Taxable Value (Property Tax Base) $1,500,000,000 $500,000,000Basic levy (Tax Rate) 0.001500 0.001500 Basic Levy Yield (Property Tax Revenue) $2,250,000 $750,000
Allocation from Uniform School Fund $250,000 $1,750,000
Income Tax
Income Tax
Property Tax
Property Tax
Basic Levy (Property Tax)
$260 Million
Statewide Basic Program Funding Sources
Uniform School Fund (Income Tax)
$1.580 Billion
Data source: Office of the Legislative Fiscal Analyst, Public Education Budget Guide
Basic Program Amounts
Data source: Utah State Office of Education
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Estim
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Bas
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mou
nt Uniform School FundProperty Tax
Property Tax
$484M
Capital Outlay Foundation Program
$24.4M ongoing
Capital Outlay Enrollment
Growth Program
$2.9M ongoing
FY 2007-08
Statewide School District Capital Outlay Funding Sources
Data source: Utah State Office of Education
School Funding SystemRelies on Accurate Property Valuation
• Failure to accurately and uniformly assess properties at fair market value distorts the allocation of school funds– With the truth-in-taxation certified rate process,
undervaluation of properties in one area causes higher taxes statewide through an increase in the certified rate for the basic levy
– In addition to basic program funding, other state funds are also tied to property tax values per student, including voted/board leeway guarantees and capital outlay foundation program
• So assessment practices by the Tax Commission and assessors in each county impact taxpayers statewide
2008 General Session School Property Tax Equalization Bills
• HB 1 – Basic Program– Establishes the tax year 2008 basic levy rate (estimated)
• SB 2 – Basic Program and Property Tax Allocations for Charter Schools– Increases the value of the WPU to $2,577– Requires school districts to provide a portion of revenue from certain
property tax levies for charter school students residing within the district boundaries
• SB 48 – School District Capital Outlay – Requires a partial equalization of the capital outlay property tax levy
within Salt Lake County
Theoretical Equalization Continuum
User Fee
Only parents of children in
schools
Secondary school fees
Impact Fee
Owners of new homes
and new businesses
Currently prohibited by
statute
District-wide Equalization
All property owners within school district
Discretionary school property tax levies
(voted leeway, board leeway, debt service levy, capital outlay
levy, etc.)
County-wide Equalization
All property owners within a county
(same as district in all but 7 counties)
Partial capital outlay equalization in county of
the first class
Statewide Equalization
Taxpayers statewide
Basic levy / basic program, educator salary adjustments, state pupil
transportation funds
Who should pay for school costs?