2012 Legislation Affecting School Capital Finance, School Facilities, and Property Taxes

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1 2012 Legislation Affecting School Capital Finance, School Facilities, and Property Taxes AASBO 59 th Annual Conference & Exposition July 20, 2012 Prepared by: Judy Richardson Randie Stein Vice President Vice President

2 Legislation on Capital Finance Capital Budget Cuts (SB 1523 and SB 1529): Building Renewal formula is suspended ($248.9 million) $14.2 million appropriated for Building Renewal Grants $11.5 million for FY 2012 $2.7 million for FY 2013 Moratorium on New Construction Soft Capital reduced by $158.1 million CORL reduced by $80.9 million Total CORL plus Soft Capital reduction is $13 million less than in FY $5 million limit to CORL and Soft Capital reductions for districts with less than 1100 student count Page 1

3 Legislation on Capital Finance Changes related to SFB new construction funding HB 2578 requires the proceeds from the sale of buildings funded with SFB monies to be returned to the SFB in proportion to the amount funded by the SFB SB 1529 specifies that leased space is to be included in total square footage in calculating eligibility for funding for new construction It always has been included, unless funded with local money SB 1529 also prohibits use of building renewal money in a leased building Page 2

4 Legislation on Capital Finance Changes related to all elections in HB 2826 Allows for consolidated ballots in all-mail elections Changes to bond elections in HB 2760 Requires the deadline for submitting pro and con arguments to be set at a public meeting Requires publishing the deadline in a newspaper of general circulation Limits the source of SAV data for bond pamphlets to the Department of Revenue Page 3

5 Legislation on Capital Finance Changes to override elections in HB 2760 Requires deadlines for pro and con arguments to be declared at the public meeting when the election is called and posted on the district s website Requires the names of persons submitting pro and con arguments to be included in the voter pamphlet Requires projected tax rates to be calculated using current year valuations provided by the Department of Revenue Page 4

6 Legislation on Capital Finance Legislation that did NOT pass HB 2405 (passed House but held in Senate) would have increased the statutory limit on school district bond indebtedness from 10% to 20% of SAV (unified district) and from 5% to 10% (elementary or high school district) until 7/1/16 HB 2490 (not heard) would have added and tax liability increase just before yes/no on bond and override ballots Page 5

7 Legislation on Capital Finance Legislation that did NOT pass HB 2478 (not heard) would have: Replaced the word override with budget increase Replaced budget increase, yes/no with local support, yes/no on ballots for budget increases funded with a levy of local taxes. For bond and capital outlay budget increase ballots, authorized an additional sentence stating the actual amount of state capital funding currently allocated to the district and received for the past three years. Added alternative ballot language for a continuing capital outlay budget increase Page 6

8 Legislation on Facilities HB 2561 exempts schools in Pima County from the permitting process for local codes, but requires compliance with the codes SB 1059 provides immunity from liability to schools for recreational use of school grounds Page 7

9 Legislation on Construction Procurement Changes to job-order contracting in SB 1060 Requires governing boards to determine the duration of contracts before the solicitation is issued Limits the amount of an individual job order to $1 million unless the governing board adopts a different amount. Page 8

10 Legislation on Energy Savings HB 2830 on energy performance contracts (as later amended by HB 2743) Limits the contracts to, and requires the cost savings to pay for measures within, the shortest of the following: 25 years The expected life of the item The term of the financial agreement Page 9

11 Legislation on Energy Savings HB 2830 as later amended by HB 2743 (cont.) Requires the qualified provider to pay for the validation of cost savings calculations and specifies standards for validating the savings guarantee Requires the guarantee of cost savings to meet or exceed the total purchase cost over the term of the contract Extends the annual measurement and verification report to the term of the contract, instead of just the first 3 years Page 10

12 Legislation on Energy Savings HB 2830 as later amended by HB 2743 (cont.) Expands the required report to the Energy Policy Office and the SFB to include: Relevant cost savings escalators Agreed on baseline in both kilowatt hours and dollars Adds geothermal projects to the list of energy cost saving measures and removes life safety measures and programs to reduce operating costs Increases the requirements for a qualified provider Page 11

13 Legislation on Energy Savings HB 2830 as later amended by HB 2743 (cont.) Makes the previous temporary changes to sections and related to performance contracts permanent Modifies the requirements for energy and water savings accounts to allow for third party financing and to eliminate the requirement for monthly payments Page 12

14 Legislation on Energy Production HB 2830 as later amended by HB 2743, cont. Adds a new law on guaranteed energy production contracts Similar to the law on guaranteed energy savings contracts Must include guaranteed energy price and energy production over the expected life of the measures HB 2743 exempts property procured through a renewable energy development agreement from the requirement for voter approval Page 13

15 Legislation on Property Taxes HB 2486 Homeowners Rebate Affidavit Replaces biennial affidavit requirement with (2012) assessor requirement to request information regarding primary/qualifying family residence if: HB 2621 Evidence suggests other use of property Under specified conditions Primary and secondary property tax levy setting Specifically take into consideration restricted and unrestricted unencumbered balance Page 14

16 Legislation on Property Taxes Sent to the Secretary of State for November Ballot SCR 1012 Personal Property Tax Exemption Current Constitutional provision Legislature authority Property used for agricultural purposes or in a trade or business $50,000 full cash value per taxpayer with inflation indexing ($68,079 in FY 2014) Page 15

17 Legislation on Property Taxes SCR 1012 Personal Property Tax Exemption (cont.) Current Statutory provision applicability Agricultural Shopping centers Golf courses Manufacturers, assemblers or fabricators Communications Locally assessed commercial and industrial EXCLUDES most centrally valued personal property Page 16

18 Legislation on Property Taxes SCR 1012 Personal Property Tax Exemption (cont.) Proposed Constitutional change Legislative authority - SAME Property used for agricultural purposes or in a trade or business - SAME Full cash value amount equal to annual earnings of 50 state (AZ) workers per taxpayer ($2.4 million) Property initially acquired during or after 2013 Potential impacts Taxpayer shifts Increased state aid in FY 2015 Increased business investment in personal property Page 17

19 Legislation on Property Taxes Sent to the Secretary of State for November Ballot SCR 1025 Assessed Value Growth Current Constitutional provision For centrally valued property, no distinction between primary and secondary and no limitation on property value growth No limitation on growth of secondary property values for locally assessed property Locally assessed primary property value annual growth limited to greater of 10% or 25% of difference between prior year primary and current year secondary values Primary value may not exceed secondary value (full cash value) Page 18

20 Legislation on Property Taxes SCR 1025 Assessed Value Growth (cont.) Proposed Constitutional change For centrally valued property, no distinction between primary and secondary and no limitation on property value growth - SAME Eliminates distinction between primary and secondary value for locally assessed property Limits annual property value growth for taxation purposes to 5%, but value for taxation may not exceed full cash value Effective taxes levied beginning FY 2016 Page 19

21 Legislation on Property Taxes SCR 1025 Assessed Value Growth (cont.) Potential impacts Less taxpayer shifts among locally assessed properties May limit bonding capacity (secondary property value) Stabilizes QTR and SETR rates (primary property value) Page 20

22 Legislation on Property Taxes No legislation at all FY 2013 QTR and SETR Increased 10.76% Based on 9.72% decrease in existing primary property values statewide FY 2013 QTR $ / $ per $100 of assessed valuation $ / $ increase from FY 2012 FY 2013 SETR $ per $100 of assessed valuation $ increase from FY 2012 Page 21

23 Legislation on Property Taxes QTR/SETR Increases required by Truth in Taxation Initial concept was to lower the QTR and SETR when property values were rising To keep the total amount raised from existing property about the same To discourage new state spending by preventing state aid from decreasing Now it requires the QTR and SETR to increase To keep the total amount raised from existing property about the same To prevent the cost of state aid from increasing Page 22

24 Impact of QTR Increase A QTR increase reduces equalization assistance This causes an increase in the primary property tax rate (in a state aid district) The actual impact on taxpayers will depend on: Other factors that caused the tax rate to change from the prior year (either increasing or decreasing the impact of the QTR increase) The percentage change in the district s primary tax rate compared to the percentage change in the taxpayer s property value Page 23

25 Impact of QTR Increase For simple state aid districts Taxpayer school district primary property taxes increase if property value change is positive or less negative than -9.72% Taxpayer school district primary property taxes decrease if property value change is more negative than -9.72% Simple means District primary property tax rate is equal to QTR No items outside RCL No adjacent ways levy No excess cash to work off No delinquent property tax collections to recoup Page 24

26 Other Factors in Tax Rate Changes An unusually low or high tax rate last year Unusually large or negative cash balance State aid withholding or repayment Tax judgments or delinquent taxes Changes in district-wide Primary AV For state aid districts, affects the tax rate for items outside the RCL, such as desegregation For non-state aid districts, district PAV decreases cause tax rate increases Page 25

27 Other Factors in Tax Rate Changes Budget increases caused by reductions in formula cuts for FY 2013 (increased spending over FY 2012 levels), the transportation adjustment or increases in enrollment Increase primary tax rates in non state-aid districts Do NOT impact primary tax rates in state aid districts (paid by increases in equalization assistance) Page 26

28 Summary of Tax Rate Changes Primary Tax Rate Secondary Tax Rate FY FY Difference % Change 10.6% 17.0% Main reasons for change The Legislature increased the QTR by 0.38 Our cash balance was lower than last year because of low tax collections Our SAV decreased by 19% Our override was about the same but our bond payment was lower so the total secondary levy was lower Page 27

29 Discussion of Factors Impacting Primary Property Tax Rates FY 2012 PRIMARY TAX RATES Change in QTR Change in Items Outside RCL Adjacent Ways Levy Changes Budget Increases or Decreases (non-state aid districts only) Cash Balance Changes Tax Judgments or Delinquent Taxes State Aid Withholding or Repayment Unusually High/Low Prior Year Tax Rate Change in District Primary Assessed Value TAX RATE PRESSURE INCREASE DECREASE X TOTAL PRIMARY TAX RATE Black Items tax rate pressure same direction Red Italicized Items tax rate pressure opposite direction Page 28

30 Impact of Tax Rate Increases on Taxpayers Even if district-wide property values are declining in your district, some tax bills will increase when tax rates increase Property values do not change uniformly within a district (or within the state) The value of some properties will not have declined or not declined enough to offset the rate increase Page 29

31 Consider the Total Tax Bill Some taxpayers will expect you to explain their total tax bill, not just the school district portion Tax increases or decreases for other jurisdictions will compound or offset school district tax changes Some changes will be caused by the same factors that affected your tax rates Some changes will be caused by different factors The $0.05 SETR increase will add to the total primary property tax rate Page 30