The Local Option Levy and Other Financial Tools

Transcription

1 The Local Option Levy and Other Financial Tools

2 Overview Capital Financing Options Funding Option GO Bonds FFC Obligations Local Option levy for capital Repayment / Collateral New, unlimited property tax levy Unconditional pledge of existing general fund monies New, limited property tax levy 2

3 Overview Operating Funding Funding Option Local Option levy for operations Construction Excise Tax Tax Anticipation Notes Source of Funds New, limited property tax levy New excise tax on new construction projects by square footage Borrowing for cash flow purposes in advance of tax collections 3

4 General Obligation Bonds Payable from unlimited property taxes. Considered most secure form of municipal debt. May only be used for capital construction and improvements with useful life of one year or more. Some limitations on expenditures for maintenance, supplies, equipment. Levies for GO bonds are outside M5 and M50 rate limits. Require simple majority voter approval at May or November elections or double majority approval (majority approval and majority turnout) in March and September. 4

5 Full Faith and Credit Obligations Can be used for capital items where GO authority is unavailable or too limited. Unlike GO bonds, may be used to finance just about any non-operating item. Originally derived from lease-purchase authority. Based upon an unconditional promise to repay debt. Repaid from existing resources; no new taxes authorized. Rarely, investors will require pledge of item being financed. Repayment term limited to useful life of item being financed. Voter approval not required. 5

6 Full Faith and Credit Obligations No legal limit on how much is issued. Capacity limited by source of revenue available to repay debt. Annual debt service should be no more than 5-10% of general fund revenues. Pooled borrowing program (OSBA Flexfund) or stand-alone financing is available. CanbeusedforQSCBs. 6

7 Local Option Overview Local option levies present an alternative for raising additional capital or operating funds from property taxes. Created under Measure 50 in 1997 largely for cities, counties and special districts; expanded to schools in 1999, modified in 2007 session. Available for operations (5 year limit), or capital (10 years or useful life of project, whichever is less). Can be levied as fixed dollar amount or rate per thousand. Requires simple majority voter approval at May or November elections or double majority approval at March and September elections. 7

8 School District Local Option Rules School district local option levies are now limited to lesser of: $1,061 in fiscal year 2010 per student (ADMw), growing at 3%/year. 20% of State resources (total formula revenue). M5 limit of $5/$1,000 real market value, less existing M50 collections. Equalization Grants provided by State for low property value districts. For the biennium, $2.3 million appropriation approved for 5 qualifying districts. Districts that had approved local option levies in received the following grants, paid from the biennium appropriation: Crow-Applegate-Lorane $ 48,428 $ 46,975 Hood River 1,022,280* 630,500 Pendleton 187, ,801 Falls City 57,528 55,802 Morrow Co. School District 44,415 43,083 Total $ 1,340,070 $958,161 * Includes allocation also. 8

9 Local Option: What Can You Use it For? Operations: May be used for any legally allowable operating expenses of an Oregon municipality. Capital: May be used for broader list of capital items than GO bonds, as long as life of levy matched to life of item financed. No reason to use for items allowed by GO bonds, as local option is an unpredictable funding source and subject to same voter test as GO. 9

10 How does local option work? The history Measure 5 (1990) - Capped property taxes at $15/$1,000 of the real market value of a property: $5 for education (school districts, community colleges and ESDs) $10 for general government (all others) Measure 50 (1997) Created a lower assessed value on which property taxes are calculated, and capped assessed value growth at 3% a year. Converted levy authority into permanent operating rates, which can never be increased. Created local option levies, which are levied in addition to permanent operating rates, but are still subject to Measure 5 limits, and require voter approval. 10

11 Mind the Gap Salem Version Every property has a gap between real market value (RMV) and assessed value (AV). If a property s market value increases faster than the 3% limit on AV growth, the gap grows. This was particularly the case for the residential housing market over the past decade. RMV AV 11

12 Mind the Gap Bend Version Within the housing sector, the size of the gap can vary widely, depending on what home prices were like in 1995 and how they have behaved since RMV AV 12

13 Different Properties can Have Very Different Gaps The gap between the AV and RMV on commercial and industrial properties did not experience the same widening as residential property, and on average, properties have smaller gaps as a result. In some cases commercial and industrial property depreciate over time, causing the RMV and AV to be the same. RMV can never be greater than AV. Salem House Real Market Value: $250,000 Assessed Value: $150,000 AV as a % of RMV: 60% Albany Target Store Real Market Value: $80,256,230 Assessed Value: $79,508,329 AV as a % of RMV: 99% 13

14 Local Option Levies can Capture the Gap Permanent operating levies are limited by the Measure 50 cap on assessed value growth. Local option levies are levied in addition to permanent operating levies, but are still subject to the Measure 5 limit of $15/$1,000 on the market value of a property. As a result, local option levies tax the gap. The sum of all gaps in a district is the total local option capacity in the district. In order to collect the full capacity, a district would need to set the local option rate at a level to capture the capacity of property with the largest gap in the district. 14

15 Local Option Example 15

16 Measure 5 Compression and Local Option Levies When taxes on a property exceed the Measure 5 limit, all tax rates are reduced proportionally until within the $5 education or $10 general government limit. This is called Measure 5 Compression. Local option levies compress to zero before there is any compression of permanent tax rates. 16

17 Local Option Capacity Example Forest Grove School District 17

18 Local Option Capacity Example 2010 Home Values Drop Forest Grove School District ADMw 7,604 7,686 SSF Total Formula Revenue $ 45,090,653 $ 45,776,097 Permanent Tax Rates School District $ $ Community College Education Service District Total Education Rate $ $ Education Measure 5 Compression School District (actual) $ 82,418 $ 87,618 Community College (estimated) 4,743 AV 5,042 Education Service District (estimated) 2,579 2,742 Total Education Compression in District $ 89,740 $ 95,402 Property Values District Assessed Value $ 1,837,562, % $ 1,904,541,848 District Real Market Value $ 3,134,422, % $ 2,971,113,637 AV as % of RMV 59% 64% Education Taxes in the District Education taxes before Compression $ 9,832,429 $ 10,190,823 Less M5 Compression Loss (89,740) (95,402) Education taxes collected 9,742,689 RMV 10,095,420 Education taxes at $5/$1,000 RMV 15,672,111 14,855,568 Maximum Local Option Revenue $ 5,929,422 $ 4,760,148 Local Option Levy Limits M5 Gap Revenue $ 5,929,422 $ 4,760,148 $1, Per Student Limit 8,067,508 8,153,547 20% of SSF Limit $ 9,018,131 M5 Gap $ 9,155,219 Limit M5 Limit Revenue M5 Limit 18

19 Local Option Taxes are Unpredictable Measure 5 limits affect each property differently, thus the amount to be collected is difficult to calculate and will vary from year to year. Some properties may already be at the limit, thus not everyone will pay local option; some will pay more than others. Unless every property is raised to Measure 5 maximum, the District will not receive amount calculated as local option capacity under M5. The District can only ensure maximum collections if it identifies property with lowest M5 rate and imposes rate necessary to raise it to maximum. Compression may cause reductions if overlapping jurisdictions have competing levies. 19

20 Ongoing Ballot Title Issues Maximizing flexibility vs. specifying projects Separating projects in multiple ballot titles? Estimating levy impact yes or no? Refinancing of existing obligations needs to be in ballot if that is under consideration Using the explanatory statement in the voters pamphlet 500 words file at same time as ballot title Required for every county in which voters pamphlet provided 20

21 Sample GO Bond Ballot Title Caption and Question CAPTION: [10 words] ABC SCHOOL DISTRICT, OREGON GENERAL OBLIGATION BOND AUTHORIZATION QUESTION: [20 words, not counting second required sentence] Shall the District be authorized to issue general obligation bonds in an amount not exceeding $00.00? If the bonds are approved, they will be payable from taxes on property or property ownership that are not subject to the limits of Sections 11 and 11b, Article XI of the Oregon Constitution. 21

22 Sample GO Bond Ballot Title Summary SUMMARY: (175 words) [This measure may be passed only at an election with at least a 50 percent voter turnout] If approved, measure provides funds to: construct and furnish additional classrooms, library and restrooms at the High School; construct and furnish additional classrooms and restrooms at the Elementary School; relocate maintenance facilities; construct cafeteria, restrooms and relocate kitchen to west side of Elementary School; and pay bond issuance costs. Bonds will not exceed $10,000,000 and will mature in 21 years or less. 22

23 Sample Local Option Ballot Title Caption and Question NOTICE OF LEVY ELECTION La Costa Lotta School District JACKSON COUNTY, OREGON NOTICE IS HEREBY GIVEN that on Tuesday, May 18, 2010, an election will be held within the boundaries of La Costa Lotta School District, Jackson County, Oregon. The election will be conducted by mail. The following question will be submitted to the qualified voters thereof: CAPTION (= SUBJECT): [10 or less words reasonably identifying the subject of measure ] FIVE YEAR LOCAL OPTION TAX FOR LIBRARY OPERATIONS QUESTION (= PURPOSE): [Can you in 20 words plainly phrase chief purpose and include name, tax amount or rate, first year and length?] Shall La Costa Lotta School District levy $0.60 per $1000 of assessed value each year for five years beginning for operations? This measure may cause property taxes to increase more than three percent. 23

24 Sample Local Option Ballot Title Summary SUMMARY (= SUMMARY OF EFFECT): The summary for the ballot title must not exceed 175 words and must be a concise and impartial statement summarizing the measure and its major effect. Not included in the word count is statement for all non-general elections: This measure may be passed only at an election with at least a 50 percent voter turnout. Include the total amount of money to be raised by the measure. For tax rate option, need estimate of amount of taxes to be raised in each year with the following statement: The estimated tax cost for this measure is an ESTIMATE ONLY based on the best information available from the county assessor at the time of estimate." (This statement is not included in the 175-word count.) See ORS , , OAR (5) 24

25 2010 Election Schedule Check with your County elections office to verify filing deadlines. All elections are by mail. Revision to double majority provisions makes 5 year operating levy easier on election timing Applies to both GOs and Local Option Levies. * Subject to double majority provisions. 25

26 Lessons Learned and Avoiding Pitfalls 1. Involve your community up front. 2. Organize your Movers & Shakers to carry the message. 3. Keep it simple! 4. Provide a tool to calculate individual property owner estimated tax. Focus your efforts on: a. Educating the maybe voters b. Getting the voters to cast their ballots 26

27 Construction Excise Tax Overview Taxing authority for school districts approved in 2007 session Tax on new square footage Minimum Exemptions apply Locally determined May be used for : Acquisition of Land Construction, reconstruction or improvement of school facilities Acquisition or installation of equipment, furnishings or other property Debt service on obligations to finance capital improvements Does NOT include operating costs or routine maintenance 27

28 Construction Excise Tax Particulars Tax on new square footage Maximum of $1/sq. ft. residential Maximum of $.50/sq. ft. non-res. ($25,000 cap) Paid by person undertaking construction at time permit is issued Minimum Exemptions Private Schools; Public Buildings; HUD Affordable Housing; Hospitals; Churches; Agriculture Buildings Annual Rate Increases Increases in construction cost index Determined by Dept. of Revenue 28

29 Steps for Implementation 1) Enter into IGA with local governments Cities & Counties Collection duties & responsibilities School District account to deposit funds & frequency of deposits Administrative fee for local government; no more than 1% 2) Adopt long-term facilities plan 3) Enact construction excise tax Adopt by board resolution 4) Involve your community! 29

30 Tax Anticipation Notes Short-term borrowing for cash flow needs. IRS rules specifically set limits on borrowing amount. May borrow anytime; must repay within 13 months. Depending on market for investment earnings relative to borrowing costs, may be able to earn arbitrage profits over cost of borrowing. Arbitrage opportunity greater for borrowers of less than $5M in a calendar year, (or $15M if at least $10M is for school construction). OSBA TanPool borrowings will be handled on monthly basis as need arises. 30

31 Budget Law Compliance Specific local budget law provisions apply both to proceeds received from bond sale and payment of bond debt service. Funds to Establish (if necessary) Capital projects (used to receive and expend proceeds). Debt service (receive and expend taxes levied for debt service). Exemptions may apply: For the expenditure of bond proceeds received during the fiscal year of passage For bonds issued to refund previous bonds 31

32 Contact Information Seattle-Northwest Securities Corporation Carol Samuels, Senior Vice President (503) David Taylor, Senior Vice President (503) OASBO Angie Peterman, Executive Director (503) K& L Gates Ann Sherman, Esq. (503) Ann.Sherman@klgates.com Jennifer Cordova, Esq. (503) Jennifer.Cordova@klgates.com 32