Equalization Gets Its Own Day!
Four property tax-related bills were heard in the Senate Education Finance Committee this morning. The meeting started with two bills authored by Senator Rob Kupec. The first was SF 1330, a bill that would expand the use of Long Term Facilities Maintenance Revenue to include the remodeling of buildings acquired by a school district. Moorhead school district purchased a Sam’s Club facility that had closed and Fergus Falls had purchased a Target that had closed and they are in the process of re-modeling those buildings to make them appropriate for educational purposes. The original purpose of the Long Term Facilities Maintenance Revenue program was to provide a revenue stream to keep existing school facilities up-to-date, but many districts have pressing facilities needs that fall through the cracks as they are not eligible uses currently permitted under the program and don’t readily qualify for any other revenue stream. The Minnesota Department of Education convened the School Facilities Financing Working Group in 2013 to overhaul how the variety of funding issues related to facilities are handled and Long Term Facilities Maintenance Revenue was among the recommendations of that panel. There was another recommendation related to building improvements that was not adopted and if it had been, situations like the ones faced by Moorhead and Fergus Falls would have a ready remedy. It’s something the state may have to look at again in the future.
Speaking of recommendations of the School Facilities Financing Working Group that have yet to be adopted, Senator Kupec’s next bill presented today was SF 2552, a bill that would increase the state’s commitment to the Debt Service Equalization Program. The bill–a high priority for SEE–would lower the eligibility threshold from 15.74% of tax effort to 10% of tax effort and increase the equalizing factor from 55.33% of the statewide average ANTC to 100% of the statewide average ANTC. It would eliminate the second tier of debt service equalization–which kicks in at 26.24% of tax effort because a qualifying district’s debt above 10% would all be equalized at the 100% level. The bill would cost the state approximately $40 million. Kasson-Mantorville Superintendent, one of the most prominent and eloquent voices supporting debt service equalization provided testimony in favor of the bill.
The committee then moved to SF 1601, Senator John Hoffman’s bill that would increase referendum equalization on the first tier of referendum revenue ($460 per pupil unit) by raising the current equalizing factor of $567,000 of referendum market value to 150% of the statewide average referendum market value per pupil unit, or just over a million dollars of referendum market value per pupil unit. Anoka-Hennepin School District Chief Financial Officer Michelle Vargas and Anoka-Hennepin School Board Chair Marci Anderson (pictured above with Senator Hoffman) provided strong testimony in favor of the bill. One of the important aspects of the bill is that the equalizing factor would rise along with growth in the statewide average referendum market value. Currently, with the equalizing factor expressed as a constant, a district’s aid-to-levy ratio decreases as their property wealth grows. In the case of Anoka-Hennepin, when the referendum equalizing program was established, Anoka-Hennepin first tier of referendum revenue was composed of 25% levy and 75% state aid. As their property wealth has grown and now exceeds the equalizing factor, their first tier revenue is 100% levy.
The next bill on the docket was Senator Bonnie Westlin’s SF 866. SF 866 would increase the equalizing factor on the local option revenue funding category and increase local option revenue by $116 per pupil unit. An amendment was added in committee to tie the equalizing factor to growth in the statewide average referendum market value per pupil unit that, as would be the case in Senator Hoffman’s SF 1601, would preserve the aid/levy ratio and promote an on-going commitment to property tax fairness. Minnetonka Superintendent David Law and St. Michael-Albertville Superintendent Ann Marie Foucault testified in favor of the bill. Superintendent Foucault’s testimony was especially passionate, as she outlined the challenges for St. Michael-Albertville as they are unable to pass an operating levy and are facing significant cuts. Raising the amount of revenue districts could raise through the local option revenue would definitely help districts without an operating levy meet their revenue needs. It also needs to be added that in the case of St. Michael-Albertville, their extremely high level of debt and the lag of the debt service equalization program to meet the needs of districts in that situation has put a heavier-than-deserved property tax burden on the taxpayers in those districts.
The day wrapped up with SF 1247, a bill authored by Senator Gary Dahms. This bill has a long and interesting history. It has been contained in a number of bills that have gone into conference committees over the past two biennia, but it has never survived. In fact, it was contained in the tax conference committee report last year, but the bill was not passed. The bill would expand the Long Term Facilities to include the building needs of cooperative units. The intermediate districts already have this ability, but other cooperative facilities do not. As constructed, school districts that are members of cooperative units could add to their Long Term Facilities Maintenance Revenue to pay for the maintenance needs of their cooperative unit. A district would not be forced to use that avenue to pay for the costs related to maintenance of the facilities of the cooperative unit, but they would still be on the hook for those costs.
So, all in all, it was a good day to promote both property tax fairness and fairness in school facilities policy. Thanks to Chair Kunesh for hearing these bills, committee staff for preparing background documents, and the great witnesses who helped make the case for these bills.