AASBO Bi-Monthly Meeting

Changes in Additional State Aid

(Homeowner’s Rebate) – Details

September 8, 2010

Prepared by:Judy Richardson, Vice President602.794.4012jrichardson@syllc.com

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HB 2008 – Homeowner’s Rebate(Laws 2010, 7th Special Session, Ch. 8)

Changes the computation of Homeowner’s Rebate (property tax reduction) effective FY 2012

Current computation – the lesser of:a) 40% of the school district’s adjusted primary

property tax rate (recalculated after subtracting certain items)

b) The QTR New computation - the lesser of:

a) 40% of the school district’s adjusted primary property tax rate (recalculated after subtracting certain items)

b) 40% of the QTR Not changed:

a) Constitutional homeowner primary tax limit of 1% of primary value (= $10.00 primary tax rate)

b) $600 rebate limit for individual homeowner

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HB 2008 – Homeowner’s Rebate For most school districts, the rebate is

currently 40% of the adjusted primary tax rate

For a few small districts with high tax rates, the rebate is currently the QTR

For most districts, the rebate will be 40% of the QTR in FY 2012, which will be a reduction

Districts not affected: Those with no or low adjusted primary tax rates

(below the QTR) Those with total homeowner primary property

tax rates (for all jurisdictions) above $10

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Adjusted Primary Tax Rate Adjusted primary tax rate is currently

supposed to exclude: Adjacent ways Dropout prevention programs Bond issues portion of tuition Small school adjustment (first year over the size

limit) Adjustment for tuition loss if a school district does

not qualify for equalization assistance Adjusted ADM for high school districts that do not

qualify for equalization assistance (this provision repealed effective 7/1/11)

Liabilities in excess of the budget pursuant to ARS 15-907 (not usually in adopted budget, so hard to exclude)

QTR for Optional Performance Incentive Programs

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Adjusted Primary Tax Rate Adjusted primary tax rate currently

includes: Desegregation Career ladder QTR Difference between TRCL and TSL Small school adjustment Interest on registered warrants or TANs Excessive property tax valuation judgments

(Note: Budget balance carry forwards are included but should be offset by cash balance)

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Impact of HB 2008 For most districts:

The levy for these included items is what causes the adjusted primary tax rate to be higher than the QTR

The tax rate for these items will no longer be reduced by 40% for homeowners, which will cause a homeowner tax increase

The maximum tax rate increase is 60% of the QTR

This applies to districts with tax rates so high that 40% of their adjusted primary tax rate is > QTR

QTR minus 40% of the QTR = 60% of the QTR For FY 2010, 60% of the QTR was $1.65 For FY 2011, 60% of the QTR is $1.78

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Impact of HB 2008 To estimate the tax impact on your

district: 1. Add up the amounts budgeted for:

o Desegregationo Difference between TRCL and TSLo Small School Adjustmento Interest on registered warrants of TANso Excessive property tax valuation judgments

2. Using your Primary AV, determine the tax rate. (Amount/(PAV/100)

3. Add the Career Ladder QTR, if applicable.4. Multiply by 40%.5. Use the lesser of line 4 or 60% of the QTR.6. The result is the tax rate increase without

considering the $10 limit.

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Impact of HB 2008 The $10 tax rate limit is complicated. If your tax rate is over $10 that doesn’t

mean the homeowner is paying $10 now, because the rebate must be subtracted first.

Example: If the tax rate was $11.00 in FY 2010, the homeowner could have paid as little as $11 minus the QTR or $8.25 so they would still see a tax increase under the new formula.

The $10 limit needs to be tested if the tax increase is significant, but there are shortcuts.

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Impact of HB 2008 To test for the $10 limit:

7. Look up the total primary taxes for your district (we use the ATRA tax book).

8. If more than one, note the lowest and highest.9. If a rate is less than $9.00, those taxpayers

are not affected by the $10 limit.10. If a rate is above $13.00, the homeowner

should be above the $10 limit and will not see a tax increase.

11. If a rate is between $9.00 and $13.00, the $10 limit may apply and will need to be calculated – it depends on the amount of the current rebate.

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Impact of HB 2008 For tax rates between $9.00 and $13.00:

a) Subtract the current homeowner’s tax rate reduction from the total primary tax. (We estimated the rebate amount by using 40% of the unified QTR plus the projected tax rate increase (step 6) for both the elementary and the high school district.)

b) If the amount in a) is over $10, the formula change will not cause a tax increase.

c) If the amount in a) is under $10, add the projected tax rate increase.

d) If the amount in c) is under $10, the tax rate increase is not limited.

e) If the amount in c) is over $10, the tax rate increase will be reduced by the amount over $10.

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Impact of HB 2008 Remember this is the estimated tax

increase caused by the formula change, not the increase over the prior year.

The total rebate amount and the total tax rate will be impacted by other factors, including the primary assessed valuation, the cash balance and the QTR (will it go up another $0.20?)

The $10 tax rate limit calculation is especially sensitive to changes from year to year.

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Limits on Tax Impact of HB 2008

$600 limit on individual homeowner’s rebate

Home Value Tax Impact of Rebate Change

$500,000 or more

Little or no tax increase because the home is at the $600 limit with or without the change

$200,000 Full tax increase in districts in which the total school district primary tax rate is $7.50 or less

$100,000 or less Full tax increase unless the $10.00 tax rate limit is reached

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For More Information

See “Homeowner’s Rebate Analysis” on AASBO website under Chuck’s Updates