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Operating Referendum: Background Information, 2013 Legislative Changes & Trends

Marshall Public SchoolsISD No. 413

August 5, 2013

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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

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Current Referendum Provisions

• Revenue is authorized by voters as a specified dollar amount per pupil unit, 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

• Revenue is limited to $1,845 per adjusted pupil unit for fiscal year 2015– Adjusted annually for inflation– Increase from FY 2014 cap of $1,667 for most districts

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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

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Current Referendum Provisions• Operating referendum property tax levies are spread

on “referendum market value” (RMV)– Almost all property in a district pays same tax per dollar

of market value– Referendum taxes are not levied on:

• Seasonal recreational property (cabins)

• Agricultural land & buildings (only house, garage & 1 acre)

• Operating referendum revenue levies can qualify for state equalization aid

• The state aid portion of referendum revenue is dependent on the District’s RMV per pupil

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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 pupil served, with new grade weightings

and no declining enrollment factor

• Fiscal 2015 existing referendum authority is recalculated based on change in pupil units– Maintain the same level of revenue, including alternative

attendance

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Referendum Authority Conversion

Old Law: New Law:Taxes Payable Taxes Payable

in 2013 in 2014Operating Referendum (FY 2013-14) (FY 2014-15)*

$675.00 Voter Approved $675.00 $690.04

* Note: Referendum allowances are converted from $ per Resident Marginal Cost Pupil Unit to $ per Adjusted Pupil Unit and separate alternative attendance adjustment is eliminated. New allowances are calculated so that 2014-15 referendum revenue is the same as it would have been under old law.

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2013 Legislative Changes

• New Location Equity Revenue (LER) for fiscal 2015– $212 / pupil for outstate districts with more than 2,000 pupils,

or $424/pupil for 7-county metro area districts

– Reduces voter approved authority by equivalent amount

– District could “opt out” of receiving LER by Board action prior to September 1, 2013; advantages of not opting out

• Increases referendum state aid equalization & reduces property taxes

• Allows district to be eligible for more equity revenue

• Provides more room under the referendum cap for new elections

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Referendum Authority Conversion with LER

Prior to 9/1/13,Option 1:

Board DoesNot Opt Out

of LEROperating Referendum$675.00 Voter Approved $478.04Board Approved $0.00New/Additional Voter Approved $0.00 Total Operating Referendum $478.04

Location Equity Revenue (LER) $212.00

Total (Operating Ref. and LER) $690.04

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2013 Legislative Changes

• District could convert up to $300 / pupil of voter approved referendum authority to board approved authority by September 30– Authorize for up to 5 years

– Same equalizing factor as voter approved authority

– For District #413, this will not result in additional revenue

– Potential issue due to converted authority being subject to LER subtraction in future years

• No District may increase referendum authority for FY 2015 unless

– Renewing an expiring referendum

– Had no referendum authorized in FY 2014

– Were in statutory operating debt as of June 30, 2013

– Board adopts a resolution by June 30 to have a fall 2013 election

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Referendum Authority Conversion with LER

Prior to 9/1/13, Prior to 9/30/13,Option 1: Option 2:

Board Does LER & BoardNot Opt Out Converts

of LER $0.00Operating Referendum$675.00 Voter Approved $478.04 $478.04Board Approved $0.00 $0.00New/Additional Voter Approved $0.00 $0.00 Total Operating Referendum $478.04 $478.04

Location Equity Revenue (LER) $212.00 $212.00

Total (Operating Ref. and LER) $690.04 $690.04

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2013 Legislative ChangesThree tier equalization aid formula (previously was a two tier formula), with percent of aid based on each district’s referendum market value (RMV) per resident pupil unit

– For District #413, this will result in an increase in the share of the referendum revenue paid by the state from 19% to 41%

• Corresponding levy reduction provides property tax relief

• 1st tier – Up to $300 of revenue per pupil unit

– Equalized at a relatively high level ($880,000)

– Most districts receive some aid

– For District #413, approximately 53% of first tier revenue for FY15 is state aid

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2013 Legislative Changes

• 2nd tier of aid– Revenue between $300 and $760 / pupil unit– Equalized at $510,000 of RMV per pupil

– Many districts receive aid

– For District #413, approximately 19% of the second tier revenue will be paid through state aid for FY15

• 3rd tier of aid– Revenue above $760 / pupil unit, up to 25% of the basic formula

allowance ($1451.50), with no limit for districts that qualify for sparsity revenue

– Equalized at $290,000 of RMV per pupil– Most districts do not receive any aid– District #413 would not receive any aid in the third tier of revenue

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Tax Impact

Analysis of Tax Impact for Referendum Revenue and Location Equity Revenue

Tax Rate Tax Ratefor FY 14 for FY 15 Change

Estimated Market Value Rates 0.14054% 0.11498%

Estimated Estimated EstimatedType of Property Market Value Taxes * Taxes *

$50,000 $70 $57 -$13Residential 100,000 141 115 -26

Homesteads, 150,000 211 172 -38Apartments, 200,000 281 230 -51

and Commercial- 250,000 351 287 -64Industrial Property 300,000 422 345 -77

400,000 562 460 -102500,000 703 575 -128

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Referendum Trends

The number of districts relying on operating referendum revenue is increasing• In 1993, only 65% of districts had referendum authority• Today, almost 90% of districts receive referendum

revenue• Only 36 districts currently do not have referendum

authority in place, but many of those are likely to choose to increase their authority with the board approved $300 per pupil allowance

Minnesota School DistrictsStatewide Trends in Referendum Revenue 1992-93 to 2013-14

Receiving Total % Receiv- Total Refer- Total AverageFiscal Referendum No. of ing Ref. endum Rev- Pupil Revenue/ PercentYear Revenue Districts Revenue enue ($000s)* Units Pupil Unit Change

1992-93 269 414 65.0% $283,103 853,076 $3321993-94 273 395 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%2013-14 300 336 89.3% 885,259 962,057 920 5.7%* 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, refer- endum allowances were reduced by $415 and the general education formula allowance was increased by the same amount.Source: Minnesota Department of Education

Number of Districts Trends in Referendum Revenue

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Ehlers provides public finance materials for convenience and information only. Additionally, this material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy Ehlers’ products or services.

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Referendum Trends

Average referendum authority per pupil is increasing • In 1993, average referendum authority was $332 per

pupil• For 2014, the average authority is projected to be $920

per pupil – 17.6% of general education formula allowance

• For 2015, the average will drop, because Districts that are eligible for Location Equity Revenue will have their referendum authority reduced by the amount of Location Equity Revenue they receive

19Ehlers provides public finance materials for convenience and information only. Additionally, this material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy Ehlers’ products or services.

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Growing Reliance on Referendums

• Since 2001-03, the state General Education Revenue formula has not kept pace with inflation

• Per-pupil allowance for the current year would need to increase by $314 (6.01%) to have kept pace with inflation

• For FY 2014, Legislature approved an increase of $78 per pupil unit, or 1.5%, and an additional 1.5% for FY 2015 (about $80 per year)

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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

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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

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71.1%

50.9%

82.4%

62.3%

88.3%

43.8%

87.2%

63.2%

77.4%

65.7%68.5%

60.2%

70.3%

55.6%

75.3%

42.7%

67.0%

50.9%

71.2%

54.4%

78.6%73.2%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

Percentage of Referendums Approved by Voters, by Calendar Year

Presidential election yearsGubernatorial election yearsYears with no statewide elections

Ehlers provides public finance materials for convenience and information only. Additionally, this material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy Ehlers’ products or services.

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District Specific Information

• Existing referendum authority is $478.04 per pupil – Assumes District #413 does not opt out of $212 LER

– Expires after FY 2018

• Qualify for slightly more revenue in FY 2015 than FY 2014– Based on total of referendum, LER and equity revenue

– State aid increases by about $270,000

– Tax levy decreases by about $200,000

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District Specific Information

• Options– Present question to voters to increase referendum authority

– Could be subject to annual inflationary adjustments

– Expiration after a maximum of 10 years

• Election Date: Tuesday, November 5, 2013• Election Resolution Approval Deadline: August 23, 2013

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Referendum Notice Language

• Voters must be notified of the District’s intent to hold a referendum, and the tax impact of the referendum levy

• The District’s bond attorney will draft the appropriate notice language, which is different based on the ballot question– Revoke & Replace, or add additional authority: “Passage of this

referendum will result in an increase in your property taxes”– Renew & Extend: “Passage of this referendum extends an existing

operating referendum at the same amount per pupil as in the previous year”

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Tax Impact

Year Taxes are Payable 2013 2014 2014 2014 2014 2014Current Added Total Net Referendum

Referendum Referendum Referendum Referendum Referendum Location plus Location NetAuthority Authority Authority Authority Change Equity Equity Change

Initial Referendum Allowance $675.00 $690.04 $125.00 $815.04 $140.04Net Referendum Allowance** $675.00 $478.04 $125.00 $603.04 -$71.96 $212.00 $815.04 $140.04Estimated Aid $309,441 $463,967 $59,511 $523,478 $214,038 $100,931 $624,409 $314,968Estimated Levy $1,363,409 $696,105 $247,264 $943,369 -$420,040 $419,360 $1,362,729 -$680Estimated Revenue $1,685,983 $1,173,206 $306,775 $1,479,981 -$206,002 $520,290 $2,000,271 $314,289Est. Market Value Tax Rate 0.14054% 0.07175% 0.02549% 0.09724% -0.04330% 0.04322% 0.14046% -0.00008%

EstimatedType of Property Market Value

$50,000 $70 $36 $13 $49 -$21 $22 $70 $075,000 105 54 19 73 -32 32 105 0

100,000 141 72 25 97 -44 43 140 -1150,000 211 108 38 146 -65 65 211 0200,000 281 144 51 194 -87 86 281 0

Residential 250,000 351 179 64 243 -108 108 351 0Apartments, 300,000 422 215 76 292 -130 130 421 -1

Industrial Property 350,000 492 251 89 340 -152 151 492 0400,000 562 287 102 389 -173 173 562 0500,000 703 359 127 486 -217 216 702 -1

Estimated Taxes for Referendum Levy Plus Location Equity RevenueEstimated Taxes for Referendum Levy Only*

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Referendum & LER Scenarios

Prior to 9/1/13, Prior to 9/30/13,Option 1: Option 2:

Board Does LER & Board New/Additional New/AdditionalNot Opt Out Converts Voter Approved Not

of LER $0.00 $125.00 ApprovedOperating Referendum$675.00 Voter Approved $478.04 $478.04 $478.04 $478.04Board Approved $0.00 $0.00 $0.00 $0.00New/Additional Voter Approved $0.00 $0.00 $125.00 $0.00 Total Operating Referendum $478.04 $478.04 $603.04 $478.04

Location Equity Revenue (LER) $212.00 $212.00 $212.00 $212.00

Total (Operating Ref. and LER) $690.04 $690.04 $815.04 $690.04

Options 1 and 2 withNovember Election Results -

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651-697-8526jzesbaugh@ehlers-inc.com

Jodie ZesbaughFinancial Advisor, Ehlers