Hopkins Public Schools #270. December 5, 2017 Presented by John Toop Director of Business Services

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1 Hopkins Public Schools #270 Public Hearing for Taxes Payable in 2018 December 5, 2017 Presented by John Toop Director of Business Services

2 Tax Hearing Presentation State Law Requires Public Meeting: Between November 24 th and December 28 th After 6:00 PM May be part of regularly scheduled meeting May adopt final levy at same meeting State Law Requires Presentation of: Current year budget Prior year actual revenue & expenditures Proposed property tax levy including % increase Specific purposes & reasons taxes are being increased *State Law also requires the district allow for public comment

3 Agenda for Hearing A. Background on School Funding, Property Tax Levies, and Budgets B. Information on District Budget C. Information on District s Proposed Tax Levy for Taxes Payable in 2018 D. Public Comments and Questions

4 Background Information Minnesota Public Education is Strong State law requires all juniors and seniors be offered the ACT at no cost, but test is no longer mandatory In 2017, 90% of Minnesota graduates took the ACT with an average composite score of 21.5, highest score among 17 states where every eligible student takes exam National composite score for 2017 is 21.0 based on 60% of 2017 graduating seniors taking the ACT

5 ARTICLE XIII Public Schools Established by Minnesota Constitution MISCELLANEOUS SUBJECTS Section 1 UNIFORM SYSTEM OF PUBLIC SCHOOLS.The stability of a republican form of government depending mainly upon the intelligence of the people, it is the duty of the legislature to establish a general and uniform system of public schools.the legislature shall make such provisions by taxation or otherwise as will secure a thorough and efficient system of public schools throughout the state.

6 As a result School funding is highly regulated by the state State Sets: Formulas which determine revenue; most revenue based on specified amounts per pupil Tax policy for local schools Maximum authorized property tax levy (districts can levy less but not more than amount authorized by state, unless approved by voters) State also authorizes school board to submit referendums for operating and capital needs to voters for approval

7 Challenge: State Set Basic General Education Formula Lags Inflation Since 2003, state is General Education Revenue formula has not kept pace with inflation For FY 2018 and FY 2019, Legislature approved an increase of 2% per year o $121 per pupil unit in FY 2018 o An additional $124 for FY 2019 Per-pupil allowance for Fiscal Year 2019 would need to increase by another $596 (9.4%) to have kept pace with inflation since 2003

8 Basic General Education Formula Lags Inflation

9 Underfunding of Special Education MDE reports cost of providing special education programs was underfunded by $697 million, or an average of 40% underfunded Translating into a statewide average funding shortfall of $5,783 per special education student Underfunding of special education costs necessitates a transfer from regular program resources to support an underfunded program mandated by state and federal law Primary options to bridge special education funding gap are to cut regular program budgets or increase referendum revenue, most districts have done both

10 Result: Growing Dependence on Referendum Revenue In 1993, 65% of districts had operating referendum revenue averaging $332 per pupil For , all Minnesota districts have referendum revenue and/or local optional revenue levy authority averaging $1,296 per pupil o 20.5% of general education formula allowance o Of this amount, $879 is board approved or voter approved operating referendum, and $417 is Local Optional Revenue

11 Change in Tax Levy Does not Determine Change in Budget Tax levy is based on many state-determined formulas plus voter approved referendums Some increases in tax levies are revenue neutral, offset by reductions in state aid Expenditure budget is limitedby state-set revenue formulas, voter-approved levies, and fund balance An increase in school taxes does not always correlate to an equal increase in budget

12 School District Levy Cycle Differs from City/County Levy Cycle City/County: Schools: Budget Year same as calendar year Budget year begins July 1st and 2018 taxes provide revenue for coincides with school year 2018 calendar year budget 2018 taxes provide revenue for school fiscal year Budget will be adopted in June 2018

13 Budget Information Because approval of school district budget lags certification of tax levy by six months, state requires only current year budget information and prior year actual financial results be presented at this hearing. All school districts budgets are divided into separate funds based on purposes of revenue, as required by law. Our District s Funds: General Food Service Community Service Capital Projects Debt Service Trust * Internal Service * OPEB Trust Fund * OPEB Debt Fund *Annual budgets are not prepared for these funds

14 Hopkins Public Schools #270 District Revenues and Expenditures Actual for FY 2017, Budget for FY 2018 FISCAL ACTUAL ACTUAL JUNE 30, BUDGET BUDGET JUNE 30,2018 FUND BEGINNING REVENUES AND EXPENDITURES & ACTUAL FUND REVENUES AND EXPENDITURES & PROJECTED FUND BALANCES TRANSFERS IN TRANSFERS OUT BALANCE TRANSFERS IN TRANSFERS OUT FUND BALANCE General Fund/Restricted $1,263,154 $14,235,753 $12,760,715 $2,738,192 $11,485,846 $14,285,984 -$61,946 General Fund/Other 12,080,944 79,692,997 80,488,410 11,285,531 82,501,242 80,606,488 13,180,285 Food Service Fund 441,485 4,474,764 4,193, ,256 4,475,380 4,423, ,312 Community Service Fund 1,713,069 9,781,386 9,415,074 2,079,381 9,644,004 9,425,966 2,297,419 Building Construction Fund (2,921,926) 27,440,433 12,851,655 11,666,852 9,166,555 19,303,182 1,530,225 Debt Service Fund 2,418,674 10,267,516 10,290,449 2,395,741 10,550,714 10,865,670 2,080,785 Trust Fund 57,073 24,425 30,057 51,441 55,000 65,000 41,441 Internal Service Fund 15,831,041 15,831,041 18,095,262 OPEB Revocable Trust Fund 17,111, , ,245 16,937,987 1,000,000 1,000,000 16,937,987 OPEB Debt Service Fund 419,682 4,401,013 4,237, ,697 4,635,143 4,416, ,420 Total All Funds $48,415,111 $150,923,604 $135,047,596 $64,291,119 $133,513,884 $144,392,034 $55,677,190

15 Hopkins Public Schools #270 Revenue all Funds Budget $133,513,884 Building Construction $9,166, % Debt Redemption $10,550, % OPEB Trust $1,000, % OPEB Debt Redemption $4,635, % Community Service $9,644, % Food Service $4,475, % General Fund $93,987, %

16 Hopkins Public Schools ISD #270 General Fund Revenue Budget $93,987,088 Excess Tax Increment $2,377, % Other Local Sources $3,557, % Federal Aid $3,099, % Other $66, % Property Taxes $23,302, % State Aid $61,583, %

17 Hopkins Public Schools ISD #270 General Fund Expenditures by Program Budget $94,892,472 Sites, Buildings & Equipment $12,503, % Fixed Costs $1,386, % Administration $4,394, % District Support Services $2,081, % Vocational Instruction $1,350, % Regular Instruction $44,679, % Student Support Services $8,790, % Instructional Services $3,867, % Exceptional Instruction $15,839, %

18 Hopkins Public Schools ISD #270 General Fund Expenditure by Object Budget $94,892,472 Purchased Services $13,409, % Capital Expenditures $4,547, % Miscellaneous $180, % Other Fiscal Services $1,102, % Supplies & Materials $1,686, % Salaries and Wages $57,132, % Employee Benefits $16,833, %

19 Payable 2018 Property Tax Levy Determination of levy Comparison of 2017 to 2018 levies Specific reasons for changes in tax levy Impact on taxpayers

20 Property Tax Background Every owner of taxable property pays property taxes to various taxing jurisdictions (county, city/township, school district, special districts) in which property is located Each taxing jurisdiction sets own tax levy, often based on limits in state law County sends bills, collects taxes from property owners, and distributes funds back to other taxing jurisdictions

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22 School District Property Taxes Each school district may levy taxes in over 30 different categories Levy limits (maximum levy amounts) for each category are set by: o State law o Voter approval Minnesota Department of Education (MDE) calculates detailed levy limits for each district

23 School District Property Taxes Property Tax Background Key steps in process are summarized on next slide Any of these steps may affect the taxes on a parcel of property, but district has control over only 1 of the 7 steps

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25 Schedule of Events in Approval of District s 2017 (Payable 2018) Tax Levy September 8: MDE prepared and distributed first draft of levy limit report setting maximum authorized levy September 19: School board approved proposed levy amounts Mid-November: County mailed Proposed Property Tax Statements to all property owners December 5: Public hearing on proposed levy at regular meeting December 19: School Board will certify final levy amounts

26 Overview of Proposed Levy Payable in 2018 The total 2018 proposed property tax levy will increase from 2017 by $2,822,643, or 5.76% State law requires that we explain the reasons for the major increases in the levy Some decreases in specific levies will also be explained

27 Hopkins Public Schools #270 Comparison of Proposed Tax Levy Payable in 2018 to Actual Levy Payable in 2017 Actual Levy Proposed Levy Fund Levy Category Payable in 2017 Payable in 2018 $ Change % Change General Fund Voter Approved Referendum $15,337,668 $14,797,767 ($539,901) Local Optional Levy 3,237,155 3,071,626 (165,530) Equity 381, ,220 (19,520) Student Achievement Levy 164,979 0 (164,979) Alternate Teacher Compensation 629, ,404 (18,323) Capital Projects - Technology Levy 9,056,555 9,963, ,284 Operating Capital 1,371,419 1,172,087 (199,332) Long Term Facilities Maintenance 789,422 1,250, ,578 Instructional Lease Levy 2,048,573 1,770,755 (277,818) Safe Schools 389, ,464 (19,910) Other 743, ,847 (55,472) Levy Adjustments and Abatements (1,790,980) (1,249,990) 540,990 Total, General Fund $32,358,951 $32,807,017 $448, % Community Service Fund Basic Community Education $437,619 $437,619 $0 Early Childhood Family Education 386, ,629 (5,428) School-Age Child Care 550, ,000 (25,000) Other 15,910 17,396 1,486 Levy Adjustments and Abatements 35, , ,920 Total, Community Service Fund $1,425,018 $1,625,995 $200, % Debt Service Funds Voter Approved Debt Service $4,872,481 $6,242,603 $1,370,122 Other Debt Service 325, ,563 17,115 LT Facility Maintenance Debt Service 5,679,688 6,637, ,441 Other Post Employment Benefits 4,635,143 4,065,677 (569,466) Reduction for Debt Excess (478,353) (327,064) 151,289 Levy Adjustments and Abatements 151, , ,099 Total, Debt Service Fund $15,185,857 $17,359,457 $2,173, % Total Levy, All Funds $48,969,826 $51,792,469 $2,822, % Note: Debt service levy is adjusted to reflect the estimated tax impact of the November 7 bond election. Any variance in the estimate will be included in the December 19 board resolution to certify the Pay 2018 tax levy. Subtotal by Truth in Taxation Categories: Voter Approved Levies $29,717,226 $30,337,387 $620,161 Other Levies $19,252,600 $21,455,082 $2,202,481 Total $48,969,826 $51,792,469 $2,822, %

28 Explanation of Levy Changes Category: Voter Approved Operating Referendum and Local Optional Revenue Change:- $705,431 Use of funds: General operating expenses Reason for decrease: Revised Projected decrease of 390 pupil units from FY17-18 to FY18-19 Partially offset by $33.82 per pupil unit increase in authorized levy

29 Explanation of Levy Changes Category: General Fund Capital Projects Change: $907,284 Use of funds: Instructional technology software, hardware and support Reason for increase: Levy is based on a voter approved tax rate applied to the tax base $380,880 of the levy increase relates to an increase in the tax base Voter approved increase on November 7

30 Explanation of Levy Changes Change: -$199,332 OPERATING CAPITAL Use of Funds: Technology, facility maintenance, other capital expenses Reason for Decrease: Revenue neutral offset by increase in state aid State set decrease to in part offset levy increase for long term maintenance Change: -$164,979 STUDENT ACHIEVEMENT Use of Funds: General operating expenses Reason for Decrease: Legislature phased out levy for 2018 State set decrease to in part offset levy increase for long term maintenance

31 Explanation of Levy Changes Category: General Fund Long Term Facility Maintenance (LTFM) Change: $460,578 Use of funds: Deferred Facility Maintenance Reason for increase: Replaces Alternative Facility Levy, Health and Safety Levy, and Deferred Maintenance Levy Levy based on ten year maintenance program approved by district and MDE Levy is for pay as you go maintenance expenses Increase offset by reduction in Student Achievement and Operating Capital levies

32 Explanation of Levy Changes ADJUSTMENTS FOR PRIOR YEARS GENERAL FUND Change: +$540,990 Use of Funds: General operating expenses Reason for Increase: Initial levies are based on estimates of enrollment, values and costs Reflects net of prior three year levy adjustments to 18 levies COMMUNITY SERVICE FUND Change: +$200,977 Use of Funds: Various after school, pre-school and adult programs Reason for Increase: Initial levies are based on estimates of enrollment, values and costs Prior year levy adjustment for School Age Care increased by $214,911

33 Explanation of Levy Changes VOTER APPROVED DEBT SERVICE Change: +$1,370,122 Use of Funds: Annual required payment of principal & interest on voter approved bonds Reason for Increase: On November 7 voters approved new bond issue to fund facility improvements $1,364,281 of levy increase is for the first year s payments on the bonds General Fund facility lease levy reduced $235,944 in response to bond levy increase OTHER DEBT SERVICE LEVIES Change: +$803,478 Use of Funds: Annual required payment of principal & interest on LT Facility Maintenance and OPEB bonds Reason for Increase: $957,441 increase on facility maintenance bonds ($569,466) decrease on OPEB bond levy $151,289 reduction in excess debt adjustment $247,099 increase in abatement levy

34 Factors Impacting Individual Taxpayers School Taxes Many factors can cause the tax bill for an individual property to increase or decrease from year to year: Changes in value of the individual property Changes in the total value of all property in the district Increases or decreases in levy amounts caused by changes in state funding formulas, local needs and costs, voter-approved referendums, and other factors

35 Four Year School Levy Comparison The following are tables and graphs showing examples of changes in the school district portion of property taxes from 2015 to 2018 Examples include school district taxes only All examples are based on a 14.1% increase in property value over this period Actual changes in value may be more or less than this for any parcel of property Figures are intended to provide a fair representation of what has happened to school district property taxes over this period for typical properties

36 Impact on Taxpayers Examples for property in the City of Hopkins, for commercial-industrial property, school taxes in other parts of the district may be slightly higher or lower due to variations in the impact of the Fiscal Disparities Program Figures for 2018 are preliminary estimates, based on the best data available now final figures could change slightly Estimates prepared by Ehlers, district s municipal financial advisors

37 Hopkins Public Schools #270 Estimated Changes in School Property Taxes, 2015 to 2018 Based on 14.1% Cumulative Changes in Property Value from 2015 to 2018 Taxes Type of Property Estimated Actual Estimated Actual Estimated Actual Estimated Estimated Taxes Payable in 2018 Change Change Market Taxes Market Taxes Market Taxes Market Without Proposed in Taxes in Taxes Value for Payable Value for Payable Value for Payable Value for Ballot Ballot 2015 to 2017 to 2015 Taxes in Taxes in Taxes in Taxes Questions* Questions* Total $131,447 $557 $138,020 $581 $143,541 $564 $150,000 $570 $19 $589 $32 $25 175, , , , Residential Homestead 219,079 1, ,033 1, ,234 1, ,000 1, , ,895 1, ,040 1, ,081 1, ,000 1, , ,527 1, ,053 1, ,775 1, ,000 1, , ,158 2, ,066 2, ,469 2, ,000 2, , ,790 2, ,079 2, ,163 2, ,000 2, , ,422 3, ,093 3, ,856 3, ,000 3, , ,869 3, ,113 3, ,397 3, ,000 3, , ,317 4, ,132 4, ,938 4,468 1,000,000 4, , $613,422 $4,595 $644,093 $4,664 $669,856 $4,446 $700,000 $4,673 $197 $4,870 $275 $424 Commercial/ Industrial # 876,317 6, ,132 6, ,938 6,434 1,000,000 6, , ,095,396 8,384 1,150,166 8,496 1,196,172 8,091 1,250,000 8, , ,489,738 11,484 1,564,225 11,632 1,626,794 11,073 1,700,000 11, , ,063 1,752,633 13,550 1,840,265 13,723 1,913,876 13,061 2,000,000 13, , ,255 Apartments and Res. Non-Homestead ( 2 or more units) $175,263 $979 $184,026 $1,000 $191,388 $958 $200,000 $983 $37 $1,020 $41 $62 525,790 2, ,079 3, ,163 2, ,000 2, , ,317 4, ,132 5, ,938 4,788 1,000,000 4, , Tax Rates Tax Capacity Rate Referendum Market Value Rate * "Proposed ballot questions" includes estimates of additional taxes for Increase in Cap Proj Levy and new bond issue approved # For commercial-industrial property, figures above are for property in the City of Hopkins. Taxes for commercial-industrial property in other municipalities may be slightly different, due to the impact of the Fiscal Disparities Program. General Notes 1. The figures in the table are based on school district taxes only, and do not include taxes for the city or township, county, state, or other taxing jurisdictions. 2. Estimates of taxes payable in 2018 are preliminary, based on the best data available as of the date above. 3. For all examples of properties, taxes are based on changes in taxable market value of 5.0% from 2015 to 2016 taxes, 4.0% from 2016 to 2017, and 4.5% from 2017 to 2018.

38 Hopkins Public Schools #270 Estimated Changes in School Property Taxes, 2015 to 2018 Based on 14.1% Cumulative Changes in Property Value from 2015 to 2018 Taxes Example 1: $250,000* Residential Homestead Property Example 2: $500,000* Residential Homestead Property $1,200 $1,000 $1,053 $35 $2,500 $2,000 $2,190 $74 School Property Taxes $800 $600 $400 $200 $1,004 $1,039 $1,004 $1,018 School Property Taxes $1,500 $1,000 $500 $2,115 $2,172 $2,088 $2,116 $ est. $ est. Year Taxes are Payable Year Taxes are Payable Example 3: $1,000,000* Commercial-Industrial Property Example 4: $1,000,000* Apartment Property School Property Taxes $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $7,049 $286 $6,661 $6,754 $6,434 $6,763 School Property Taxes $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $5,102 $186 $4,895 $5,001 $4,788 $4,916 $ est. Year Taxes are Payable $ est. Year Taxes are Payable * For all four examples of properties, the value shown in the title of the chart is the estimated market value for taxes payable in Taxes are calculated based on changes in market value of 5.0% from 2015 to 2016 taxes, 4.0% from 2016 to 2017, and 4.5% from 2017 to ** The darker portion of the 2018 bar represents the estimated taxes associated with Increase in Cap Proj Levy and new bond issue approved

39 Minnesota Homestead Credit Refund Circuit Breaker Has existed since 1970s Available each year to owners of homestead property (applies to taxes paid on house, garage and one acre for ag homestead property) Annual income must be approximately $108,660 or less (income limit is higher if you have dependents) Sliding scale - refund based on income and total property taxes Maximum refund for homeowners is $2,660 Average refund was $847 for property tax in year 2015 Also available to renters

40 Minnesota Special Property Tax Refund Available each year to owners of homestead properties with a gross tax increase of at least 12% and $100 over prior year Helpful in first year after referendum Refund is 60% of amount by which tax increase exceeds greater of 12% or $100, up to a maximum of $1,000 No income limits Complete state tax form M-1PR (

41 Senior Citizen Property Tax Deferral Allows people age 65 and older with household income of $60,000 or less to defer a portion of property taxes on their home Limits maximum amount of property tax paid to 3% of household income Additional taxes are deferred, not forgiven Provides predictability; amount of tax you pay will not change for as long as you participate in the program Deferred property taxes plus accrued interest must be paid when home is sold or homeowner(s) dies

42 Next Steps Board will accept public comments and questions on proposed levy Board will certify the 2018 property tax levy

43 Public Comments and Questions