Operating Referendum: Background Information and Trends Round Lake-Brewster Public Schools ISD No. 2907
What is an Operating Referendum? An election ballot question that allows districts to generate additional general education revenue Revenue is provided through a combination of local property tax levies, and for most districts, state aid Referendum revenue may be used for any operating or capital expenses, the same as basic general education revenue 2
Current Referendum Provisions Revenue is authorized by voters as a specified dollar amount per pupil, levied annually Can be a fixed amount per pupil throughout the term Can be subject to annual inflationary adjustments The term, or number of years, is specified Maximum of 10 years For most districts, revenue is limited to $1,869.91 per adjusted pupil unit for fiscal year 2016, an amount that is adjusted annually for inflation No limit for districts which qualify for sparsity revenue Districts may qualify for a higher grandfathered limit 3
Current Referendum Provisions Districts can conduct only one operating referendum election per year Exception for districts in statutory operating debt Vote can only occur on the November general election day, unless held by mail ballot Election can be held either one year or two years prior to the initial tax year Notices must be sent to all taxpayers By first class mail Content is specified by law 4
Current Referendum Provisions Operating referendum property tax levies are spread on referendum market value (RMV) Referendum property taxes are not levied on Seasonal recreational property (cabins) Agricultural land and buildings (only levied on house, garage and 1 acre) Almost all other property in a district pays same tax per dollar of market value Operating referendum revenue levies can qualify for state equalization aid State aid portion of referendum revenue is dependent on the district s RMV per pupil 5
2013 Legislative Changes The 2013 Legislature made significant changes to referendum revenue, effective for FY 2015 New pupil count for referendum Adjusted Pupil Units (APU) instead of Resident Marginal Cost Pupil Units APU is based on pupils served, with new grade weightings and no declining enrollment factor FY 2015 existing referendum authority is recalculated based on change in pupil units Maintain the same level of revenue, including alternative attendance 6
Referendum Authority Conversion Pay 2014 Pay 2014 Levy Sheet Updated What was your Referendum allowance for FY 14? 1,500.00 1,500.00 FY 14 Allowance What would your allowance be for FY 15 under old law? 1,500.00 1,500.00 FY 15 Allowance before conversion What was your pupil count for referendum under old law? 299.16 295.92 FY 15 Old Res. MC Pupil Units What is your pupil count for referendum under new law? 278.20 287.00 FY 15 New Adjusted Pupil Units What will your allowance be for FY 15 under new law? 1,612.29 1,547.52 FY 15 Allowance after conversion How did we get to this new referendum allowance? First, we calculate your old revenue using your old pupil count and old allowance, for FY 15: FY 15 Revenue excluding Alt Att, after pupil change 448,740.00 443,880.00 Then, we divide that old revenue by the new pupil count for the new law: FY 15 Old Revenue Divided by new pupils 1,613.01 1,546.62 Next, we calculate your old alternative attendance aid (based on open enrollment students coming in) FY 15 Old Alternative Attendance Aid -200.93 258.93 And divide the old aid by the new pupil count (since there's no longer an open enrollment adjustment) FY 15 Old Alternative Attendance Aid per new pupil -0.72 0.90 Then we add your recalculated referendum allowance and alternative attendance aid together FY 15 Allowance after conversion 1,612.29 1,547.52 7
2013 Legislative Changes 2 tier equalization state aid system is now a 3 tier system Districts can convert up to $300 per pupil of voter approved referendum authority to board approved authority, or add board approved authority up to $300 per pupil Authorize for up to 5 years Same equalizing factor as voter approved authority Addition of new Location Equity Revenue (LER) for FY 2015 $424 / pupil for 7-county metro area districts, or $212 / pupil for outstate districts with more than 2,000 pupils Reduced voter approved authority by equivalent amount ELIMINATED for FY16, replaced by Local Optional Revenue (LOR) 8
2014 Legislative Changes All districts will now qualify for $424 per pupil unit of LOR, which will reduce their operating referendum revenue LOR is equalized like LER (2 nd tier of operating referendum) Districts can choose to levy all of the LOR revenue, or any portion of it Stacking of LOR with the $300 is included so all districts can receive $724 per pupil unit of referendum and LOR without voter approval 9
Equalization Three tier equalization aid formula, with percent of aid based on each district s referendum market value (RMV) per resident pupil unit 1 st tier Up to $300 of revenue per pupil unit Equalized at a relatively high level ($880,000) Most districts receive some aid For RL-B, approximately 69% of first tier revenue for FY15 is state aid 10
Equalization 2 nd tier of aid Revenue between $300 and $760 per pupil unit Equalized at $510,000 of RMV per resident pupil Many districts receive aid For RL-B, approximately 46% of the second tier revenue is being paid through state aid for FY15 3 rd tier of aid Revenue above $760 per pupil unit, up to 25% of the basic formula allowance ($1,457.75), with no limit for districts that qualify for sparsity revenue Equalized at $290,000 of value per pupil RL-B receives 5% of third tier revenue through state aid 11
Referendum Allowance Initial allowance is original allowance, converted for changes in pupil counts in FY 2014-15 Initial allowance will continue to be recomputed based on pupil count for FY 2014-15, until that pupil count is finalized LOR is subtracted from initial allowance If result of subtraction is less than $300 in authority, board may approve additional allowance to get to $300 Board approved amounts previously created by board action are not subject to the subtraction, but voter approved amounts converted by board action are subject to the subtraction 12
Implications of LOR for Round Lake-Brewster #2907 No change for FY2014-15 No additional revenue for FY2015-16 New category of Local Optional Revenue (LOR) for 2015-16 $424/PU, not subject to voter approval LOR provides tax relief, which gives the district the opportunity to add revenues with a slightly smaller tax increase 13
Implications of LOR for Round Lake-Brewster #2907 Converted Referendum Allowance reduced by LOR Voter-approved allowance for 2014-15 = $1,500/PU Initial Estimated Converted Allowance for 2014-15 = $1,612.29/PU Revised Converted Allowance for 2014-15 = $1,547.52/PU Amount will be recalculated until 2014-15 data is finalized Estimated Allowance (Net of $424 LOR) for 2015-16 = $1,123.52/PU Remaining voter-approved authority is in effect through taxes payable in 2015 (FY 2015-16) 14
Implications of LOR for Round Lake-Brewster #2907 Legislative changes will result in property tax relief for taxes payable in 2015 (fiscal year 2015-16) $424 of LOR will be equalized at 2 nd tier of Referendum formula (41% aid) $788 of existing voter-approved referendum is currently equalized in the 3 rd tier of referendum formula, with no state aid Net decrease in property tax levy of about $58,000 15
Referendum Trends Number of districts relying on operating referendum revenue is increasing In 1993, only 65% of districts had referendum authority Today, more than 95% of districts receive referendum and/or Local Optional Revenue Only 16 districts currently do not have referendum authority in place 16
Referendum Trends 17 Number of Districts Trends in Referendum Revenue Receiving Total % Receiv- Total Refer- Total Average Fiscal Referendum No. of ing Ref. endum Rev- Pupil Revenue/ Percent Year Revenue Districts Revenue enue ($000s)* Units *** Pupil Unit Change 1992-93 269 414 65.0% $283,103 853,076 $332 1993-94 273 395 69.1% 308,026 881,996 349 5.2% 1994-95** 269 382 70.4% 292,564 911,790 321-8.1% 1995-96 272 365 74.5% 308,069 929,955 331 3.2% 1996-97 278 358 77.7% 351,686 944,187 372 12.4% 1997-98 281 353 79.6% 375,172 953,383 394 5.6% 1998-99 280 350 80.0% 407,776 961,776 424 7.7% 1999-00 284 347 81.8% 448,556 977,038 459 8.3% 2000-01 299 345 86.7% 490,899 981,370 500 9.0% 2001-02 306 343 89.2% 544,106 979,629 555 11.0% 2002-03** 268 343 78.1% 291,707 975,235 299-46.1% 2003-04 285 343 83.1% 426,337 956,409 446 49.0% 2004-05 299 343 87.2% 504,721 952,281 530 18.9% 2005-06 301 343 87.8% 534,315 952,296 561 5.9% 2006-07 299 340 87.9% 598,966 952,429 629 12.1% 2007-08 300 340 88.2% 644,192 952,260 676 7.6% 2008-09 306 340 90.0% 720,567 947,476 761 12.4% 2009-10 303 337 89.9% 781,675 946,292 826 8.6% 2010-11 302 337 89.6% 803,506 946,955 849 2.7% 2011-12 302 337 89.6% 828,223 951,401 871 2.6% 2012-13 296 336 88.1% 859,035 956,834 898 3.1% 2012-13 300 336 89.3% 856,326 959,832 892-0.6% 2013-14 296 332 89.2% 886,019 968,199 915 2.6% 2014-15 *** 316 332 95.2% 984,013 915,699 1,075 20.4% * Revenue shown is based on maximum authority. Some districts may choose to underlevy. ** For 1994-95, all district's referendum and/or supplemental allowances were reduced by $100, and the general education formula allowance was increased by the same amount. For 2002-03, referendum allowances were reduced by $415 and the general education formula allowance was increased by the same amount. *** For 2014-15, Total Revenue includes both Referendum and Location Equity Revenue. In addition, significant changes were made to the way pupils are counted, reducing the total number of pupils. Source: Minnesota Department of Education enience and information only. Additionally, this material is provided for educational purposes only and should not be construed as investment advice or an offer
18 Referendum Trends
Referendum Trends Average referendum authority per pupil is increasing In 1993, average referendum authority was $332 per pupil For FY 2015, the average referendum plus LER authority is $1,075 per pupil 18.4% of general education formula allowance Round Lake-Brewster s revised FY 2015 referendum authority is $1,548 and the district does not qualify for LER 19
20 Referendum Trends
Growing Reliance on Referendums Since 2004-05, the state General Education Revenue formula has not kept pace with inflation Per-pupil allowance for the current year would need to increase by $343 (6.3%) to have kept pace with inflation For FY 2014, Legislature approved an increase of $78 per pupil unit, or 1.5%, and an additional 2.0% for FY 2015 (about $105 per year) 21
Growing Reliance on Referendums $6,000 Trends in General Education Formula Allowance for Minnesota School Districts, 2004-05 through 2014-15 Adjusted for Inflation $5,800 $5,600 $5,400 $5,200 $5,000 $4,800 $4,600 $4,601 $4,601 $4,783 $4,776 $5,306 $5,462 $5,554 $5,639 $5,302 $5,224 $5,153 $5,201 $5,174 $5,074 $5,124 $5,124 $5,124 $4,974 $5,081 * If the formula allowance had increased by the rate of inflation each $4,901 year since 2004-05 the 2014-15 allowance would be $5,750. * The difference between the 14-15 formula allowance and the inflation adjusted formula allowance is $343 or 6.3% $5,750 $5,407 $4,400 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 ** Formula Allowance Formula Allowance Adjusted for Annual Inflation SOURCE: Formula Allowance and CPI-U are from Minnesota Department of Education, Referendum Cap Inflation Estimate 2014 22 * Consumer Price Index for all urban consumers for the Minneapolis-St. Paul area. ** The real dollar increase in the Formula Allowance for 2014-15 is 2.0% or $105. The balance of the increase to $5,831 is to adjust the Formula Allowance for the change in student weighting. Prepared by Ehlers
Growing Reliance on Referendums Other funding sources (e.g., special education, capital funds) also have not kept pace with inflation Only options for districts to bridge the funding gap are to cut budgets or increase referendum revenue; most districts have done both 23
Election Trends Approval rates are typically higher in odd-numbered years (no statewide elections) and lowest in presidential election years In total, over the past 21 years, voters have approved 67% of elections 24
25 Election Trends
District Specific Information Election Date: Tuesday, November 4, 2014 Existing authority is $1,548 per pupil With no inflationary adjustments Expires in FY 2015-2016 Election Question Revoke final year of existing levy and replace with new authority of $1,547.52, which adds $424 back into the District s referendum authority Estimated revenue increase of $125,000 annually Subject to annual inflationary adjustments Expires after 10 years State General Election polling locations and hours 26
Estimated Tax Impact Pay 2015 to Pay 2016 Year Taxes are Payable 2015 2015 Revoked Proposed NET Authority Authority CHANGE Additional Revenue/Pupil Unit -$1,123.52 $1,547.52 $424.00 Est. Net Change in Revenue -$329,865 $454,352 $124,486 Est. Market Value Tax Rate -0.26957% 0.42515% 0.15558% Estimated Type of Property Market Value Estimated Taxes for Referendum Levy Only* $50,000 -$135 $213 $78 75,000-202 319 117 100,000-270 425 155 125,000-337 531 194 150,000-404 638 234 Residential 175,000-472 744 272 Homesteads, 200,000-539 850 311 Apartments, 225,000-607 957 350 and Commercial- 250,000-674 1,063 389 Industrial Property 275,000-741 1,169 428 300,000-809 1,275 466 325,000-876 1,382 506 350,000-943 1,488 545 375,000-1,011 1,594 583 400,000-1,078 1,701 623 425,000-1,146 1,807 661 450,000-1,213 1,913 700 475,000-1,280 2,019 739 500,000-1,348 2,126 778 NOTE: Agricultural property 550,000will pay taxes -1,483 for the proposed referendum 2,338 based only on 855the value 27
Greg Crowe Financial Advisor, Ehlers 651-697-8522 gcrowe@ehlers-inc.com Joel Sutter Financial Advisor, Ehlers 651-697-8524 jsutter@ehlers-inc.com 28