By Jeff Seeley
Senior Municipal Advisor
Straight Talk About School District Revenues
It’s that time of year…and I’m not talking about new year’s resolutions! It’s the time when school district revenue-limit calculations are complete and property tax levies are on the minds of taxpayers; it’s also the time when tax information has been received by property owners. The annual confluence of these two activities usually results in some level of taxpayer confusion and questioning. Add to that the fact that most home values increased significantly over the past year, resulting in another layer of complexity. As we embark on a new calendar year, it’s important for school districts to be able to objectively explain the relationship, or lack thereof, between a district’s revenue and individual, local, and state property valuations. This can go a long way in helping taxpayers understand why (and how much) their taxes may be changing.
School District Revenue: The Basic Equation
First, your district’s taxpayers need to understand whether or not, and to what degree, changes in property valuations impact a school district’s revenue (state aid and tax levy). Increases in individual property assessment values, or growth in the district’s tax base (sum of all property values within the district) doesn’t necessarily result in additional revenue. A district’s revenue, comprised largely of a combination of state aid and local property taxes, is predominantly a function of the number of pupils served by that district. Pre-established state formulas calculate a revenue allocation for each school district based on that district’s total number of students. From there, specifically approved expenses, such as annual debt service payments, are added to the initial per student allocation to calculate a district’s total annual revenue.
Equalization: Leveling the Playing Field
All basics aside, it’s important for your taxpayers to know that the tax base per pupil, relative to the state-determined valuation, will impact the ratio of aid and levy that comprise the revenue allocation. This is done through a process known as “equalization.” Conceptually, equalization delivers more state aid to school districts with a lower tax base and less support for those with a higher one. The theory holds that districts with larger tax bases can raise more funds through property taxes at a given rate, and therefore can offer more local support to its education and instructional efforts. Conversely, districts with lower valuations can’t raise the same amount of local revenue at a comparable tax rate, thereby diminishing educational efforts in those communities. The equalization process addresses these local revenue disparities among school districts and attempts to level the playing field to provide equitable education opportunities for all K-12 students.
Tax Impact: It’s All About Transparency
Because school funding depends, in part, on local support…and yes, that includes periodic referenda for both capital and operating needs, it’s important that your district’s voters have a fundamental understanding of the relationship between school revenues and local property taxes. When explaining tax increases to your constituency, there are three primary components to discuss on a year-over-year basis. They are:
- Assessed Property Value – Determined by County/City Assessors
- Overall District Revenue – Established by State Statute and dependent on estimated student counts
- Equalization – Established by State Statute and dependent upon district valuations relative to the state valuation trends or statewide equalization formulas
Consider a situation where the number of pupils in your district remains unchanged year-over-year. Your total revenue will only change by any annual state increase in per pupil funding, a historically small amount. In this situation, because school district revenue is largely driven by student count, the district’s overall revenue would stay approximately constant. However, if the tax base, or wealth per pupil, of the district outpaces the state averages or statewide equalization formulas, then the district may receive less in state aid, shifting more of the burden on the local taxes.
For individual property owners, if there is a general, equivalent valuation increase to all property district-wide, the pie (total levy) gets divided exactly the same way, and everyone has the same slice (pays the same share). If your individual value grows less, or grows more, your slice of the pie will get a little smaller or a little larger, respectively.
Many homeowners have felt the impact of significant valuation increases this past year. Effectively communicating to your constituents that your school district will not see growth in revenue commensurate with that increase is difficult but imperative. Pointing to change in school district revenue, individual property growth, district property growth and any potential shift of that revenue to local property taxes can instill trust and understanding and help allay future concerns district residents may take with them into capital or operating referendum elections.
Required Disclosures: Please Read
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