Department of Public Instruction 1. Property Value, Tax Levy, and Taxpayers – The Confusing...

SCHOOL FINANCE ESSENTIALS

WASDA NEW ADMINISTRATORS WORKSHOP

* Bruce Anderson

School Finance ConsultantCarey Bradley

School Finance Consultant

Department of Public Instruction

November 10, 2015

Department of Public Instruction 1

Property Value, Tax Levy, and Taxpayers –

The Confusing Questions

Equalization Aid

Summer School Fees


Agenda and Handouts

Handouts District-Specific Simplified Percentage Method District-Specific Formula Positioning (color grid) District-Specific Analysis of Equalization Aid Formula

Components

2 Focus Articles (10-31-06 – green and 06-18-06 – blue)

(used with permission from the Wisconsin Taxpayer’s Alliance)

School Property Tax Overview (goldenrod)

Extra Resource Referenced:

DOR 2015 Guide for Property Owners

Sample Wisconsin School District 2015-16 Preliminary Budget Projections – spreadsheet


https://www.revenue.wi.gov/pubs/slf/pb060.pdf

Property Value, Tax Levy, and

Taxpayers


4

Explaining the Tax LevyQuestions You’ll Likely Be Getting Soon

1. How can the school levy on one residential taxpayer’s bill go up by 15%, and the guy’s across the road from him go up by 25%?

2. How can a residential tax bill show an increase in the school district tax levy of 5.8% when the % year over year increase on the PI-401 was only 2.98%?


5

1. How can the school levy on one taxpayer’s bill go up by 15%, and the guy’s across the road from him go up by 25%?

A. They live in different municipalities in the school district. (the obvious answer, but may not be the only thing going on……)

Reasons (so far) That Answer Question #1


6

Explaining the Tax LevyWhat Really Matters

How your share of the total valuation is changing relative to other taxpayers.

1.) your property vs other properties within the same municipality

2.) your municipality vs other municipalities within the school district

The total tax levy is divided among individuals according to each individual’s share of total

municipal property value.


7

Equalized & Assessed ValuationWhy Both?

1.) Assessment practices differ across the state. Property can be assessed at different percentages of market (equalized) value.

2.) Not all property is re-assessed every year.

Only requirements are: 1.) the assessment is within 10% of market value; and 2.) there is equity between taxpayers within the municipality.

Each year, the Department of Revenue turns local assessed valuations into equalized valuations.

All school finance computations use equalized valuations.


8

Apportioning Taxes

Assessed Value

% of Total

$40,000Levy

Tax Using Assessed

Value

Muni #1 $2,100,000 29.6% $40,000 $11,831

Muni #2 $4,500,000 63.4% $40,000 $25,352

Muni #3 $500,000 7.0% $40,000 $ 2,817

School District $7,100,000 100.0%

$40,000

Assessment Ratio

(assessed ÷ equalized)

105%

90%

91%

EqualizedValue

% of Total

$40,000Levy

Tax Using Equalized

Value

Equalized MillRate

Muni #1 $2,000,000 26.5% $40,000 $10,596 5.298

Muni #2 $5,000,000 66.2% $40,000 $26,490 5.298

Muni #3 $550,000 7.3% $40,000 $2,914 5.298


$40,000


Muni A Muni B Muni C

Most School Districts Have Many Underlying Municipalities

…differing sizes, differing types of taxpayers (residential, forest, commercial, manufacturing, etc), differing concentrations of

taxpayers, and differing local assessment practices…


Change in Assessed Valuation2 Residential Taxpayers

Total Municipal Assessed Property Value = $200,000

$100,00050%

$2,000 $2,000

$100,00050%

Each shares in the total property value at 50%, so each pays 50% of the total levy.

Total Municipal Levy = $4,000


Change In Assessed Valuation2 Residential Taxpayers



$2,320 $1,680

$174,00058%

$126,00042%

Assessed rate = $4,000/$300,000 = 13.34 mils ($13.34 per $1,000 of assessed property

value).

$126,000 x .01334$174,000 x .01334


12

Explaining the Tax LevyMisconceptions

1. Higher assessments don’t necessarily mean higher taxes. Depends on how your assessment is changing in relation to the rest of the municipality.


13

How Assessed Valuation Works2 Residential Taxpayers



$2,900 $1,680

$174,00058%

$126,00042%

$126,000 x .01334$174,000 x .01334

Assessed rate = $4,000/$300,000 = 13.34 mils ($13.34 per $1,000 of assessed property value).


How Assessed Valuation Works2 Residential Taxpayers



$3,600 $2,400

$300,00060%

$200,00040%

$200,000 x .01200$300,000 x .01200

Assessed rate = $6,000/$500,000 = 12.00 mils($12.00 per $1,000 of assessed property value).


15

Explaining the Tax LevyMisconceptions

1. Higher assessments don’t necessarily mean high taxes. Depends on how your assessment is changing in relation to the rest if the municipality.

2. Lower tax rates don’t necessarily mean lower taxes. Depends on how the total levy and your assessment is changing.


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A. They live in different municipalities in the school district.

B. Individual property owner’s value increases as a percent of the municipality.

C. Municipal levy increases and/or individual property owner’s value increases as a percent of the municipality.

Reasons (so far) That Answer Question #1


Levy Apportionment and Tax Rates

The school district apportions the levy to the underlying municipalities

based on equalized values.

Then, each underlying municipality apportions its portion of the school

district levy to the underlying properties based on assessed values.


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Apportioning the Levy

Muni A Muni B

Muni C

School District Divides the Levy Over Municipalities Based on Equalized Value (PI-401)

Equalized Muni Value(equalized rate)



Apportions the dollar amount needed to be raised from this

municipality over the assessed value (assessed rate).





$ $ $


Municipal Re-Valuation

EqualizedValue

% of Total

$40,000Levy

Tax Using Equalized

Value

Muni #1 $2,000,000 25.0% $40,000 $10,000

Muni #2 $5,000,000 62.5% $40,000 $25,000

Muni #3 $1,000,000 12.5% $40,000 $5,000


$40,000

EqualizedValue

% of Total

$40,000Levy

Tax Using Equalized

Value

Muni #1 $2,000,000 26.5% $40,000 $10,596

Muni #2 $5,000,000 66.2% $40,000 $26,490

Muni #3 $550,000 7.3% $40,000 $2,914


$40,000


20


A. They live in different municipalities in the school district.

B. Individual property owner’s value increases as a percent of the municipality.

C. Municipal levy increases and/or individual property owner’s value increases as a percent of the municipality.

D. Municipality goes through a re-valuation.

Reasons That Answer Question #1


21

Muni AMuni B

Muni C

Most School Districts Have Many Underlying Municipalities

…differing sizes, differing types of taxpayers (residential, forest, commercial, manufacturing, etc), differing concentrations of

taxpayers, and differing local assessment practices…


22

Tax Base Composition Shifting(what happens within just 1 municipality)

One Final Thing to Consider

Brown Deer School District


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Item 2014-15 2015-16 % Change

Residential 63.66324% 64.55778% 1.41%

Commercial 30.79951% 29.52597% -4.13%

Manufacturing 2.41129% 2.65067% 9.93%

Agricultural .00019% .00019% 1.17%

Personal 3.12577% 3.26538% 4.47%

100.000% 100.000% 0.00%


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Brown Deer School DistrictTax Base Composition

Commercial

Residential

Brown Deer School DistrictTax Base Composition in 2014-15


Commercial

Residential

Shifting Value, Shifting Tax Burden

Even Without Considering Any Tax Levy Increases or Residential Property Value Changes!

Tax Base Composition in 2015-16


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Reasons That Answer Question #2

1. Tax base composition shifting.

2. The percentage the credits (School Levy, Lottery and Gaming, First Dollar) were of the total changed from 2014-15 to 2015-16.


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Conclusion

Tracking the details that cause property tax changes, given the many underlying municipalities

in a school district, is virtually impossible.

But, now you have a list of items

Equalization Aid


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Under Article 10 of WI State Constitution, the State Legislature is responsible for establishing school

districts which are to be:

“as uniform as practicable … ”

“free and without charge for tuition to all children”

“each town and city shall be required to raise by tax, annually, for the support of common schools therein……”

How does the Legislature achieve this?


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Why Equalization Aid?

Equalization Aid

The State provides financial assistance in the form of Equalization/General Aid to school districts in order to:

Reduce the reliance upon the local property tax as the sole source of revenue for educational programs.

Guarantee that a basic educational opportunity is available to all pupils regardless of the local fiscal capacity of the district in which they reside.

A student should not be unfairly disadvantaged

as a consequence of where he or she lives.


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Legislature and Funding Formula


Equalization Aid

Property Tax Base

Equalization Aid

Why do you need to know how to calculate aid when DPI calculates it for you?

Because you will be asked by your board members, constituents, and the media.

So you can figure out why your aid has changed AND explain why.

Because you may want to do estimates and run “what if” scenarios …


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State “shares” in district cost.

Aid is based on a district’s ability to pay, as measured by its property wealth per member.


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Basic premise: The more property wealth per member a district has, the lower the percent (proportion) of shared costs that will be aided by the state through the equalization aid formula.

Equalization Aid

District Factors

- shared cost

- equalized property value

- membership

State Factors

- cost ceilings

- guaranteed valuations per member

- total amount of funding available for distribution


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What determines where a district is in the formula?

Equalization Aid

State Factors Assumptions

(Shared) Cost CeilingPrimary $ 1,000Secondary $ 9,000

State says we will treat the first $1000 of cost a certain way, the next $8000 another way and anything above this an even different way.

Guarantees (value per member)Primary $ 2,000,000Secondary $ 800,000Tertiary $ 400,000


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SAMPLE INFORMATION

Equalization Aid

District #1 District #2

Shared Cost $12,000$12,000

Equalized Property $200,000$600,000


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Sample District Values Per Member

Equalization Aid

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

DIS

TR

ICT

SH

AR

ED

CO

ST

PE

R M

EM

BE

R

DISTRICT VALUE PER MEMBER

Positive Primary Aid

Positive Secondary

Aid

Positive

Tertiary Aid

Negative Tertiary Aid

No Aid

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Equalization Aid Formula Position for District #1

District Value per Member

Sample District #1 ResultsPer-Member Funding




39

$900 + $6,000 + $1,500 = $8,400 x 500 = $4,200,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

DIS

TR

ICT

SH

AR

ED

CO

ST

PE

R M

EM

BE

R



Positive Secondary

Aid

Positive

Tertiary Aid


o Aid

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District Value per Member

Equalization Aid Formula Position for District #2



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$700 + $2,000 - $1,500 = $1,200 X 500 = $600,000

District #1 District #2

Shared Cost $ 12,000 $ 12,000

Equalized Property $200,000 $600,000

Equalization Aid

Primary $ 900 $ 900

Secondary $ 6,000 $ 2,000

Tertiary $ 1,500 $ - 1,500

Total $ 8,400 $ 1,200

70% 10%


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Sample District Values Per Member

Equalization Aid

Percent of total shared cost – not each additional dollar of cost

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

DIS

TR

ICT

SH

AR

ED

CO

ST

PE

R M

EM

BE

R



Positive Secondary

Aid

Positive

Tertiary Aid


Negative Secondary Aid

No Aid

Sample Districts

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Equalization Aid - Longitudinal Data


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Property value is fairly consistent, but membership is really dropping, causing their value per member to increase over time. As value per member increases, the formula gives less aid.



4604-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

♦ District ■ State Ave

District Value per Member Compared to the State Average



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04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

General Aid(includes Equalization Aid)

Equalization Aid Resources on the School Financial Services Website

“October 15, 2015 Equalization Aid Computation – Percentage Method – Algebraic Format”

Location: SFS Homepage > Longitudinal Data > Equalization Aid

http://sfs.dpi.wi.gov/sfs_buddev_eq (This website address will be changing)

“2015-16 Equalization Aid Formula Position”

“Multi-Year Longitudinal Analysis of General and Equalization Aid Formula Components”


http://sfs.dpi.wi.gov/sfs_buddev_eq

http://sfs.dpi.wi.gov/sfs_buddev_eq

Suggested Monitoring Activities

(after the summer program)

Confirm fees collected

Confirm expenditures for eligible supplies

Compare fees collected with actual costs

If you have an excess of revenues over expenditures then refund the under spent portion of the fee

This is done on a course by course basis


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Summer School Fees

What will auditors ask for?

PI-1804W-2 (Worksheet)

Summer school list of classes and fees

Should not be a flat fee (difficult to link a flat fee to actual expenditures)

Expenditures (by course) for the classes that charge fees

Run a detailed report of the appropriate function and object and identify for auditor those used for summer school

May be asked to pull some invoicesDepartment of Public Instruction

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Summer School Fees

What will auditors test for? Fees are not charged as a flat fee across all

courses

Costs identified by course are eligible costs

Costs that are eligible do not exceed fees charged (by course)

For full presentation from WASBO Accounting Conference - March 18-20, 2014 go to:

http://sfs.dpi.wi.gov/sites/default/files/imce/sfs/ppt/Summer%20School_March%202014.pptx

This website address will be changing.Department of Public Instruction

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Summer School Fees



Please give us a call if you have questions(all 608 Area Code):

Robert Soldner, Director 266-6968

Debi Towns, Asst Director 267-9209

Bruce Anderson, Consultant 267-9707

Carey Bradley, Consultant 267-3752

Dan Bush, Consultant

267-9212Gene Fornecker, Auditor

267-7882Brian Kahl, Auditor

266-3862Karen Kucharz, Consultant

266-3464Derek Sliter, Auditor

267-9218

Thanks to WASDA for the opportunity to speak to you today!


Department of Public Instruction 1. Property Value, Tax Levy, and Taxpayers – The Confusing...

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