Tuesday, April 23, 2013

Senate Tax Committee Adds Education Funding Provisions.  When the Senate Tax Committee unveiled the Senate Omnibus Tax Bill--SF 552--this morning, it contained several education funding and education tax relief measures.  Senator Rod Skoe, the Senate Tax Chair, was the chief author of SFs 177 and 526  As a brief refresher, SF 177 was the bill introduced in January that doubled the referendum and debt service equalizing factors.  SF 526 was the bill that created a new funding category called Educational Advancement Revenue (EAR) that would roll in $300/PU of referendum revenue into this new category and provide districts with less than $300/PU in referendum revenue the difference between their current referendum revenue per pupil and $300/PU.  EAR would be equalized discretionary levy.

SF 552 contains much of SF 526, making EAR part of the omnibus tax bill.  The equalization factor for EAR would be $785,000/PU in referendum market value.  It's important to remember that the Senate changes the pupil weightings considerably in its bill, so it is difficult to compare this proposed equalizing factor with current law.  In terms of a "back of the envelope" calculation, it looks like an increase of 45% in the equalizing factor.

The EAR mechanism also reduces the referendum cap by $300/PU and sets a new referendum cap at 25% of the general education formula amount.  I have been unable to discern whether or not the districts currently "grandfathered" above the cap would remain above the cap.

There were no increases in the equalizing factor outside of the increased equalizing factor for EAR.  This is very disappointing to me--and I suspect a lot of SEE members--who were hoping that SF 177 would have been the centerpiece of the Senate's heralded education property tax relief proposal they have been promoting all session instead of the decision to re-establish the general education levy that is currently in SF 453, the omnibus education funding bill.  There is what I would call "backdoor" increased equalization in SF 552, as EAR is equalized at a higher rate than the first tier referendum is.  Further, the first tier remains at about its current law level, meaning that the sum of EAR and the first tier adds approximately $300/PU in heavily-equalized revenue.  The total price tag on EAR and the equalization is $83.6 million, so it is a heady amount.

All that said, higher referendum equalizing factors are still preferred to the general education levy, as the re-establishment of the general education levy does not address the property tax "yield" disadvantage experienced by low property wealth school districts.  While low property wealth school districts may get more relief in the aggregate compared to high property wealth school districts in the process that re-establishes the general education levy, this relief evaporates faster than it does in high wealth districts if and when the low property wealth district attempts to turn the relief into new referendum revenue in a subsequent election.  Policy makers who operate at the junction of education funding and property tax policy often forget that equalization is both property tax relief based on the relative wealth of the school district and "yield enhancement" also based on the relative property wealth of the district.

So, disappointments aside, SEE marshals on.  It is difficult to say how the education property tax proposals proceed.  The House Education Funding bill has an increase in the equalizing factor which provides approximately $30 million in relief and indexes the equalizing factor into the future.  The House omnibus tax bill contains no education property tax provisions.  As I've just outlined, both the Senate omnibus education funding and tax bills contain education property tax relief proposals.  All these provisions will likely find their home in either the tax bills or the education funding bills and be negotiated as part of those packages.

I will keep you posted.

There are one other interesting education property tax proposals in the Senate omnibus tax bill.  Under the bill, there would be a referendum freeze this fall.  In other words, no school district could seek to increase their referendum this fall.  Districts would be able renew existing levies, but would be limited to that amount.  Obviously, this would put a number of districts at a disadvantage, as a number are seeking to increase their levies.  There may be ways around this for these districts, but no alternative paths have been suggested at this point.  My reason for pointing this out is that I remember a similar proposal within the last twenty years when districts seeking to increase their levies during a similar freeze had to apply to the Minnesota Department of Education and could receive a waiver if they met certain criteria.  While any freeze could prove detrimental (and clearly erodes any notion of local control), at the very least those districts who can demonstrate a crucial need to seek increased referendum revenue should be afforded that opportunity.


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