Inver Grove Heights Community SchoolsPublic Hearing for

Taxes Payable in 2013

WELCOMEDecember 17, 2012

Presented by:Bruce Rimstad

Business Manager

Tax Hearing Presentation

• State law requires that we present information on the current year budget and actual revenue and expenses for the prior year

• State law also requires that we present information on the proposed property tax levy, including:• The percentage increase over the prior year• Specific purposes and reasons for which taxes are being

increased

• District cannot increase proposed levy unless an increase was approved by voters or the levy limitation calculations updated by the Commissioner of Education

• District must also allow for public comments

Agenda for Hearing

A. Background on School Funding, Property Tax Levies, and Budgets

B. Information on District Budget

C. Information on the District’s Proposed Tax Levy for Taxes Payable in 2013

D. Public Comments and Questions

Public Education is Strong in Minnesota…• In Minnesota, the most commonly taken standardized

college entrance exam is the ACT. Seventy-four percent of Minnesota high school graduates in 2012 took the assessment.

• Minnesota’s average composite score of 22.8 was the highest in the nation among the 28 states in which more than half the college-bound students took the test in 2012. Minnesota has led the nation in average composite ACT scores for seven consecutive years. The national composite score was 21.1.

Public Schools Established by Minnesota Constitution

• “ARTICLE XIII MISCELLANEOUS SUBJECTS

• Section 1. UNIFORM SYSTEM OF PUBLIC SCHOOLS. The stability of a republican form of government depending mainly upon the intelligence of the people, it is the duty of the legislature to establish a general and uniform system of public schools. The legislature shall make such provisions by taxation or otherwise as will secure a thorough and efficient system of public schools throughout the state.”

As a result… School funding is highly regulated by the state

• State sets formulas which determine revenue; most revenue is based on specified amounts per pupil

• State sets tax policy for local schools• State sets maximum authorized property tax

levy (districts can levy less but not more than amount authorized by state, unless approved by the voters)

• State authorizes school board to submit referendums for operating and capital needs to voters for approval

State Funding for Schools Has Not Kept Pace with Inflation

• Increases in basic general education revenue per pupil have been less than inflation Per-pupil revenue for fiscal year 2013-14 without

increase is $401 below the 2004-05 inflation adjusted amount

• Basic per-pupil funding for FY 2014 and 2015 will be set by the 2011 legislature.

• Most districts’ expenses will likely increase, without budget cuts, by at least 2-3% annually.

Formula Change Formula Allow. AnnualFormula CPI-U Allowance Since if Adjusted for Funding

Fiscal Year Allowance (2009=1.0) * in 2013 $s 2004-05 Annual Inflation Shortfall

2004-05 4,601 0.8929 5,625 0 4,601 0

2005-06 4,783 0.9268 5,633 8 4,776 -7

2006-07 4,974 0.9511 5,708 84 4,901 -73

2007-08 5,074 0.9860 5,617 -8 5,081 7

2008-09 5,124 1.0000 5,593 -32 5,153 29

2009-10 5,124 1.0093 5,542 -83 5,201 77

2010-11 5,124 1.0298 5,431 -194 5,307 183

2011-12 5,174 1.0601 5,328 -297 5,463 289

2012-13 5,224 1.0699 5,330 -295 5,513 289

2013-14 5,224 1.0915 5,224 -401 5,625 401

SOURCE: Formula Allowance and CPI-U are from Minnesota Department of Education,Referendum Cap Inflation Estimate 2012

* Consumer Price Index for all urban consumers for the Minneapolis-St. Paul area.

Prepared by Ehlers & Associates, Inc.

Trends in General Education Formula Allowancefor Minnesota School Districts, 2004-05 through 2013-14

Adjusted for Inflation

Impact is budget cuts and operating referendums…

• With minimal or no increase in state funding or a voter approved referendum, many districts are facing projected budget shortfalls for FY 2014 and FY 2015, and anticipate the need for budget cuts.

• To meet local school budget shortfalls voters in 297 districts, or 88% of all Minnesota districts, have approved an operating referendum levy.

• The state average amount is $899 per pupil.

Change in Tax Levy Does not Determine Change in Budget

• Tax levy is based on many state-determined formulas

• Some increases in tax levies are revenue neutral, offset by reductions in state aid

• Expenditure budget is limited by state-set revenue formulas, voter-approved levies, and fund balance, not just by tax levies

Contrast of City/County to School District Levy Cycle

• City/County - Budget Year is same as calendar year. The 2013 tax levy provides revenue for the calendar year 2013 budget

• Schools - Budget year begins July 1st and coincides with school year. The 2013 tax levy provides revenue for the 2013-2014 school fiscal year. Budget will be adopted in June 2013.

Budget Information

• Because approval of the budget lags certification of the tax levy by six months, the state requires only current year budget information and prior year actual financial results to be presented at this hearing

Budget Information

• All school districts’ budgets are divided into separate funds, based on purposes of revenue, as required by law

• For our district, 9 funds:• General • Food Service• Community Service• Building Construction• Debt Service• Trust • Internal Service• OPEB Revocable Trust• OPEB Debt Service

FISCAL 2012 2011-12 ACTUAL 2011-12 ACTUAL JUNE 30,2012 2012-13 BUDGET 2012-13 BUDGET JUNE 30,2013

FUND BEGINNING REVENUES AND EXPENDITURES & ACTUAL FUND REVENUES AND EXPENDITURES & PROJECTED

FUND BALANCES TRANSFERS IN TRANSFERS OUT BALANCE TRANSFERS IN TRANSFERS OUT FUND BALANCE

General Fund/Restricted $1,694,849 $4,866,319 $7,122,406 $2,732,525 $4,853,110 $4,906,099 2,679,536

General Fund/Other 8,296,137 34,825,199 31,249,192 8,802,672 34,585,479 35,749,508 7,638,643

Food Service Fund 1,027,178 1,754,873 1,748,430 1,033,622 1,832,772 1,794,312 1,072,082

Community Service Fund (1,738) 1,983,339 1,927,957 53,645 2,242,718 2,104,522 191,841

Building Construction Fund 2,458,820 (2,249) 2,456,571 - -

Debt Service Fund 757,107 3,663,621 3,596,254 824,474 3,682,311 3,636,563 870,222

Trust Fund 12,232 257,785 257,785 12,232 268,100 268,000 12,332

Internal Service Fund 179,746 52,755 $52,755

OPEB Revocable Trust Fund 9,925,766 205,738 785,356 9,346,148 1,067,800 824,625 9,589,323

OPEB Irrevocable Trust Fund - -

OPEB Debt Service Fund 53,672 635,778 613,773 75,677 644,689 613,773 106,593

Total All Funds $24,403,769 $48,210,403 $49,757,724 $22,933,750 $49,176,979 $49,897,402 $22,213,327

Independent School District No. 199District Revenues and Expenditures

Actual for FY 12, Budget for FY 13

General Fund$39,438,589

80.2%

Food Service$1,832,772

3.7%

Community Service$2,242,718

4.6%

Trust Accounts$268,100

0.5%

Debt Redemption$3,682,311

7.5%

OPEB Trust$1,067,800

2.2%

OPEB Debt Redemption

$644,6891.3%

Independent School District No. 199Revenue all Funds

2012-13 Budget $49,176,979

State General Education

$25,003,55163.4%Local Property Tax

$7,299,32718.5%

Federal Aid$1,709,075

4.3%

State Categorical Aid$3,734,395

9.5%

Other$1,692,241

4.3%

Independent School District No. 199General Fund Revenue

2012-13 Budget $39,438,589

Salaries and Wages$23,437,155

57.6%

Employee Benefits$7,369,436

18.1%

Purchased Services$5,491,449

13.5%

Capital Expenditures$2,289,473

5.6%

Supplies & Materials$2,010,719

4.9%Other Expenditures

$57,3750.1%

Independent School District No. 199General Fund Expenditure by Object

2012-13 Budget $40,655,607

Regular Instruction$16,544,602

40.7%

Exceptional Instruction$7,478,464

18.4%

District Support Services

$1,232,7393.0%

District & School Administration

$1,669,4104.1%

Instructional & Pupil Services

$3,662,3269.0%

Site, Building & Equipment$6,254,710

15.4%

Transportation$2,338,685

5.8%

Fixed Costs$1,381,850

3.4%Vocational Instruction

$92,8210.2%

Independent School District No. 199General Fund Expenditures by Program

2012-13 Budget $40,655,607

Proposed 2013 Property Tax Levy

• Determination of levy

• “Homestead Credit Shift” (elimination of homestead credit and replacement with homestead market value exclusion)

• Comparison 2012 to 2013 levies

• Specific reasons for changes in tax levy

• Impact on taxpayers

Property Tax Background

• Every owner of taxable property pays property taxes for the various “taxing jurisdictions” (county, city or township, school district, special districts) in which the property is located

• Each taxing jurisdiction sets its own tax levy, often based on limits in state law

• County sends out bills, collects taxes from property owners, and distributes funds back to other taxing jurisdictions

School District Property Taxes

• Each school district may levy taxes in up to 30 different categories

• “Levy limits” (maximum levy amounts) for each category are set either by:• State law, or• Voter approval

• Minnesota Department of Education (MDE) calculates detailed levy limits for each district

The Homestead Credit Shift

• The 2011 legislature repealed the Homestead Market Value Credit

• In its place, the Legislature implemented a Homestead Market Value Exclusion

• This caused some significant shifts in tax burdens in some communities between 2011 and 2012

• 2013 is the second year of this change; it will not cause significant shifts in the tax burdens from 2012 to 2013

Property Tax Background

School District Property Taxes• Key steps in the process are summarized on

the next slide• Any of these steps may affect the taxes on a

parcel of property, but the district has control over only 1 of the 7 steps

Minnesota School District Property Taxes - Key Steps in the Process

Step 1. The City or County Assessor determines the estimated market value for each parcel of property in the county.

Step 4. The Legislature sets the formulas which determine school district levy limits. These are the maximum amounts of taxes that school districts can levy in every category.

Step 2. The Legislature sets the formulas for tax capacity. (E.g., for homestead residential property, tax capacity = 1% of first $500,000 in value + 1.25% of value over $500,000.) These formulas determine how much of the tax burden will fall on different types of property.

Step 5. The Minnesota Department of Education calculates detailed levy limits for each school district, based on the formulas approved by the Legislature in step 4. These limits tell districts the exact amounts that can be levied in every category.

Step 6. The School Board adopts a proposed levy in September, based on the limits set in step 5. After a public hearing, the board adopts a final levy in December. Final levy cannot be more than the preliminary levy, except for amounts approved by voters.

Step 3. The County Auditor calculates the tax capacity for each parcel of property in the county (based on values from step 1 and tax capacity formulas from step 2), as well as the total tax capacity for each school district.

Step 7. The County Auditor divides the final levy (determined by the school board in step 6) by the district's total tax capacity (determined in step 3) to determine the tax rate needed to raise the proper levy amount. The auditor multiplies this tax rate times each property's tax capacity, to determine the school tax for that property.*

* For certain levy categories (referendum, equity and transition levies), tax rates and levy amounts are based on referendum market value, rather than tax capacity.

Proposed Levy Payable in 2013

Schedule of events in approval of district’s 2012 (Payable 2013) tax levy

• Mid-September: Dept. of Education prepared and distributed first draft of levy limit worksheets setting maximum authorized levy

• September 24: School board approved proposed levy amounts

• Mid-November: County mailed “Proposed Property Tax Statements” to all property owners

• December 17: Public hearing on proposed levy at regular meeting

• Following hearing school board will certify final levy amounts

Independent School District No. 199Comparison of Proposed Tax Levy Payable in 2013 to Actual Levy Payable in 2012

Actual Levy - FY 13 Proposed Levy - FY 14 FY 14 FY 14

Fund Levy Category Payable in 2012 Payable in 2013 $ Change % Change

General FundVoter Approved Referendum $4,196,784 $4,351,453 $154,669Equity 452,060 539,625 87,565Alternate Teacher Compensation 0 0 0Capital Projects - Technology Levy 0 0 0Operating Capital 563,596 523,984 (39,613)Health and Safety 594,156 245,632 (348,523)Deferred Maintenance 271,018 270,104 (914)Instructional Lease Levy 641,514 633,503 (8,010)Safe Schools 151,573 153,244 1,671Other 346,387 308,460 (37,927)Prior Year Adj Included Above 0 0 0Total, General Fund $7,217,088 $7,026,006 -$191,082 -2.6%

Community Service FundBasic Community Education $211,823 $211,823 $0Early Childhood Family Education 109,300 103,484 (5,817)School-Age Child Care 177,879 196,276 18,397Other 3,130 3,048 (82)Prior Year Adj Included Above 202 (16) (218)Total, Community Service Fund $502,333 $514,614 $12,281 2.4%

Debt Service FundVoter Approved Debt Service $3,227,254 $3,348,582 $121,328Other Debt Service 589,720 586,688 (3,032)Abatement Adjustments 5,054 138 (4,916)Other Post Employment Benefits 643,989 643,989 0Reduction for Excess Fund Balance (141,617) (321,554) (179,937)Total, Debt Service Fund $4,324,400 $4,257,843 ($66,557) -1.5%

Total Levy, All Funds $12,043,821 $11,798,463 -$245,358 -2.0%

Overview of Proposed Levy Payable in 2013

• The total 2013 proposed property tax levy will decrease from 2012, by 2.0% or $245,358. State law requires that we explain the reasons for the major increases in the levy

• We will explain some of the changes in specific levies

Explanation of Levy Changes• Category: General Fund• Change: -$191,082• Use of funds: general operating expenses• Reason for decrease:

• Levy for health and safety costs decreased by $348,523 – current levy decreased by $210,256 coupled with a 2013 negative prior year adjustment of $138,267

• Increase in enrollment resulted in an increase in referendum, equity, and operating capital levies off-setting in part the decrease noted above.

Explanation of Levy Changes

• Category: Community Services• Change: $12,281• Use of funds: Provide after school programs for youth

and adults of the community and early childhood family education services

• Reason for increase:• A $18,397 increase in the levy for school age care offset by an

small decrease in ECFE levies. • Increase in school age levy triggered by change in prior year

adjustments

Explanation of Levy Changes

• Category: Debt Service• Change: -$66,557• Use of funds: Annual required payment of principal

and interest on bonds• Reason for decrease:

• Dollars available in fund balance (levy reduction for excess fund balance) were used to reduce the required debt service levy

Impact on Taxpayers

• Examples for property in the City of Inver Grove Heights• school taxes in other parts of the district may be slightly

higher or lower, due to variations in the impact of the state homestead and agricultural credits and the Fiscal Disparities Program

• Figures for 2013 are preliminary estimates, based on the best data available now – final figures could change slightly

• Estimates were prepared by Ehlers, the district’s financial advisors

Impact on Taxpayers

• Following are a table and graphs showing examples of changes in the school district portion of property taxes from 2010 to 2013• Examples include school district taxes only• All examples are based on a 13.2% decrease in

property value over this period• Actual increases in value may be more or less than this for any

parcel of property• These figures are intended to provide a fair representation of

what has happened to school district property taxes over this period for typical properties

Independent School District 199Estimated Changes in School Property Taxes, 2010 to 2013

Based on -13.2% Cumulative Changes in Property Value from 2010 to 2013Taxes

Taxable Actual Taxable Actual Estimated Actual Estimated Estimated Change ChangeMarket Taxes Market Taxes Market Taxes Market Taxes in Taxes in Taxes

Value for Payable Value for Payable Value for Payable Value for Payable 2010 to 2012 toType of Property 2010 Taxes in 2010 2011 Taxes in 2011 2012 Taxes in 2012 2013 Taxes in 2013 2013 2013

$115,206 $364 $107,933 $368 $105,574 $394 $100,000 $382 $18 -$12

172,809 589 161,900 597 158,361 644 150,000 625 36 -19

Residential 230,411 814 215,867 826 211,149 894 200,000 867 53 -27

Homestead 288,014 1,039 269,833 1,056 263,936 1,144 250,000 1,110 71 -34

374,419 1,376 350,783 1,399 343,117 1,519 325,000 1,474 98 -45

460,823 1,704 431,733 1,739 422,297 1,892 400,000 1,838 134 -54

547,227 2,049 512,683 2,073 501,478 2,247 475,000 2,187 138 -60

633,632 2,416 593,633 2,449 580,659 2,658 550,000 2,566 150 -92

720,036 2,782 674,583 2,825 659,840 3,069 625,000 2,963 181 -106

806,440 3,149 755,533 3,201 739,020 3,480 700,000 3,361 212 -119

$115,206 $412 $107,933 $410 $105,574 $447 $100,000 $439 $27 -$8

Commercial/ 288,014 1,125 269,833 1,116 263,936 1,216 250,000 1,183 58 -33

Industrial # 576,029 2,354 539,666 2,344 527,872 2,561 500,000 2,495 141 -66

864,043 3,582 809,500 3,571 791,807 3,906 750,000 3,806 224 -100

1,152,057 4,811 1,079,333 4,799 1,055,743 5,251 1,000,000 5,117 306 -134

Apartments $288,014 $1,222 $269,833 $1,254 $263,936 $1,369 $250,000 $1,324 $102 -$45

(4 or more units) 1,440,072 6,109 1,349,166 6,268 1,319,679 6,847 1,250,000 6,619 510 -228

2,304,115 9,775 2,158,666 10,028 2,111,486 10,955 2,000,000 10,590 815 -365

Tax Rates Tax Capacity Rate 21.795 24.679 28.363 27.674 Referendum Market Value Rate 0.15180 0.15606 0.16428 0.18358

+ Figures above are for property in the City of Inver Grove Heights. Since the portion of the homestead credit deducted from school district taxes varies across municipalities, school taxes may be slightly different than shown above for homestead property in other portions of the school district. For commercial-industrial property, school taxes may also be slightly different in other municipalities in the district, due to the varying impact of the Fiscal Disparities Program.

General Notes1. The figures in the table are based on school district taxes only, and do not include taxes for the city or township, county, state, or other taxing jurisdictions.2. All estimates for 2013 taxes are preliminary estimates, based on the best data available as of the date above.3. For all examples of properties, taxes are based on changes in taxable market value of -6.3% from 2010 to 2011 taxes, -2.2% from 2011 to 2012, and -5.3% from 2012 to 2013.

Independent School District 199Estimated Changes in School Property Taxes, 2010 to 2013Based on -13.2% Cumulative Changes in Property Value from 2010 to 2013Taxes

* For all four examples of properties, the value shown in the title of the chart is the estimated market value for taxes payable in 2013. Taxes are calculated based on changes in market value of -6.3% from 2010 to 2011 taxes, -2.2% from 2011 to 2012, and -5.3% from 2012 to 2013.

Example 1: $200,000* Residential Homestead Property Example 2: $400,000* Residential Homestead Property

Example 3: $1,000,000* Commercial/Industrial Property Example 4: $2,000,000* Appartment Property

$814 $826$894 $867

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2010 2011 2012 2013 est.

Sch

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Year Taxes are Payable

$1,704 $1,739$1,892 $1,838

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2010 2011 2012 2013 est.

Sch

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Year Taxes are Payable

$9,775 $10,028$10,955 $10,590

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2010 2011 2012 2013 est.

Sch

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axes

Year Taxes are Payable

$4,811 $4,799$5,251 $5,117

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2010 2011 2012 2013 est.

Sch

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Year Taxes are Payable

Factors Causing Changes from 2012 to 2013

• Many factors can cause the tax bill for an individual property to increase or decrease from year to year:• Changes in the total value of all property in the district• Changes in value of the individual property• Increases or decreases in levy amounts caused by

changes in state funding formulas, local needs and costs, voter-approved referendums, and other factors

State Property Tax Refunds

• State of Minnesota has two tax refund programs and one tax deferral program available for owners of homestead property

• These programs may reduce the net tax burden for local taxpayers, but only if you take time to complete and send in the forms

• For help with the forms and instructions:• Consult your tax professional, or• Visit the Department of Revenue web site at

www.taxes.state.mn.us

State Property Tax Refunds

• Minnesota Property Tax Refund (aka “Circuit Breaker” Refund)• Has existed since 1970s• Available to all owners of homestead property• Annual income must be approx. $100,780 or less

(income limit is higher if you have dependents)• Refund is a sliding scale, based on total property taxes

and income• Maximum refund is $2,460• Especially helpful to those with lower incomes• Fill out state tax form M-1PR

State Property Tax Refunds

• Special Property Tax Refund• Available for all homestead properties with a gross tax

increase of at least 12% and $100 over the prior year• Refund is 60% of the amount by which the tax increase

exceeds the greater of 12% or $100, up to a maximum of $1,000

• No income limits• Fill out state tax form M-1PR

Senior Citizen Property Tax Deferral

• Allows people 65 years of age or older with a household income of $60,000 or less to defer a portion of the property taxes on their home

• Taxes paid in any year limited to 3% of household income for year before entering deferral program; this amount does not change in future years

• Additional taxes are deferred, but not forgiven• State charges interest up to 5% per year on deferred

taxes and attaches a lien to the property• The deferred property taxes plus accrued interest

must be paid when the home is sold or the homeowner(s) dies

Next Steps

• Board will accept public comments and questions on proposed levy

• Board action to certify the 2013 school tax levy

Public Comments and Questions