Inver Grove HeightsPublic Hearing for

Taxes Payable in 2011

WELCOMEDecember 20, 2011

Presented by:Bruce Rimstad

Business Manager

Requirement for a Public Hearing

• Scheduling of hearing:Property tax hearing can now be held at regular meeting

or special meeting. Hearing must be at 6:00 PM or laterAll school districts must now hold a hearing. Prior to

2009 some districts were exempted from the requirement to hold a hearing

Levy may be adopted at same meeting as hearing

• You are here for the school district’s annual required hearing on the proposed 2011 levy

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 yearSpecific purposes and reasons for which taxes are

being increased

• District must also allow for public comments

Agenda for Hearing

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

B. Information on District BudgetC. Information on the District’s Proposed

Tax Levy for Taxes Payable in 2011D. Public Comments and Questions

State of MN 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.”

Public Education is Strong in Minnesota…

• In Minnesota, the most commonly taken standardized college entrance exam is the ACT. Sixty-eight percent of Minnesota high school graduates in 2009 took the assessment.

• Minnesota's average composite score of 22.7 was the highest in the nation among the 27 states in which more than half the college-bound students took the test in 2009. Minnesota has led the nation in average composite ACT scores for five consecutive years. The national composite score was 21.1.

Public school operations are challenging, complicated and competitive• Challenging: Economic times are difficult

• Complicated: Complex funding formulas and layers of state and federal regulations

• Competitive: Districts compete to attract students with private schools, home schools and other public schools… open enrollment gives parents a choice

School District Revenues and Taxes Are 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 2010-11 is $425 below the 2002-03 inflation adjusted amount

• For Fiscal 2012 and 2013, per-pupil funding is not projected to increase, while most districts’ expenses will likely increase, without budget cuts, by at least 3-4% annually.

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

Fiscal Year Allowance (2009=1.0) * in 2011 $s 2002-03 Annual Inflation Shortfall

2002-03 4,601 0.8485 5,549 0 4,601 0

2003-04 4,601 0.8671 5,430 -119 4,702 -101

2004-05 4,601 0.8931 5,272 -277 4,843 -242

2005-06 4,783 0.9271 5,279 -269 5,027 -244

2006-07 4,974 0.9511 5,351 -197 5,157 -183

2007-08 5,074 0.9853 5,270 -279 5,343 -269

2008-09 5,124 1.0000 5,243 -305 5,422 -298

2009-10 5,124 1.0070 5,207 -342 5,460 -336

2010-11 5,124 1.0233 5,124 -425 5,549 -425

SOURCE: Formula Allowance and CPI-U are from Minnesota Department of Education,K-12 Education Finance Overview, 2008-09

* 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, 2002-03 through 2010-11

Adjusted for Inflation

Impact is budget cuts and levy referendums…

• With no increase in state funding since FY 08-09 many districts are facing projected budget shortfalls for FY 2012 and FY 2013 and anticipate the need for budget cuts

• To meet local school budget shortfalls, on 11/2/10, 77 Minnesota districts submitted proposals to voters on seeking support of increased operating levies: 43 districts, or 56%, passed at least 1 operating levy question

Contrast of City/County to School District Levy Cycle

• City/County - Budget Year is same as calendar year. The 2011 taxes provide revenue for the calendar year 2011 budget

• Schools - Budget year begins July 1st and coincides with school year. The 2011 taxes provide revenue for the 2011-2012 school fiscal year. Budget will be adopted in June 2011

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

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 Redemption• Trust • Internal Service• OPEB Trust • OPEB Debt Redemption

2009-10 ACTUAL 2009-10 ACTUAL JUNE 30,2010 2010-11 BUDGET 2010-11 BUDGET JUNE 30,2011

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

TRANSFERS IN TRANSFERS OUT BALANCE TRANSFERS IN TRANSFERS OUT FUND BALANCE

General $34,011,210 $31,073,268 $5,991,519 $34,195,699 $34,098,411 $6,088,807

General Reserved 4,362,391 5,444,522 1,928,920 4,459,368 3,923,032 2,465,256

Food Service 1,827,609 1,671,647 941,688 1,779,466 1,761,062 960,092 Community Service Unreserved (6,480) 34,033 7,351 22,450 40,420 (10,619) Community Service Reserved 2,005,556 2,184,926 117,265 2,162,270 2,294,199 (14,664)

Building Construction 598 27,163 166,822 200 133,000 34,022

Debt Redemption 2,819,106 2,812,656 596,651 2,930,729 2,922,160 605,220

Trust 267,499 267,665 12,232 266,600 269,150 9,682

Internal Service $225,654 $238,154

Trust (OPEB) 25 578,305 927,700 9,088,212 575,000 483,362 9,179,850

Debt Redemption Fd 47 683,249 656,814 26,435 644,689 613,323 57,801

Total All Funds $46,549,043 $45,100,394 $19,102,749 $47,036,471 $46,538,119 $19,613,601

Independent School District No. 199

District Revenues and ExpendituresActual for FY 10, Budget for FY 11

Inver Grove Heights

General Fund$38,655,067

84.4%

Food Service$1,779,466

3.9%

Community Service$2,184,720

4.8%

Building Construction$200

0.00%

Trust Accounts$266,600

0.6%Debt Redemption

$2,930,7296.4%

Independent School District No. 199Inver Grove HeightsRevenue all Funds

2010-11 Budget $45,789,782

State General Education

$23,987,57862.1%

Local Property Tax$7,208,945

18.6%

Federal Aid$2,243,378

5.8%

State Categorical Aid$3,153,650

8.2%

Other$1,954,846

5.1%

State Tax Credits$106,670

0.3%

Independent School District No. 199Inver Grove Heights

General Fund Revenue2010-11 Budget $38,655,067

Regular Instruction$15,506,820

40.8%

Exceptional Instruction$7,148,109

18.8%

District Support Services

$1,136,3673.0%

District & School Administration

$1,553,6814.1%

Instructional & Pupil Services

$3,556,1219.4%

Transportation$2,282,375

6.0%

Site, Building & Equipment$5,340,249

14.0%

Fixed Costs$1,326,644

3.5%

Vocational Instruction$171,077

0.4%

Independent School District No. 199Inver Grove Heights

General Fund Expenditures by Program2010-11 Budget $38,021,443

Salaries and Wages$22,655,078

59.6%

Employee Benefits$7,022,074

18.5%

Purchased Services$4,229,647

11.1%

Capital Expenditures$2,182,004

5.7%

Supplies & Materials$1,881,490

4.9%

Other Expenditures$51,150

0.1%

Independent School District No. 199Inver Grove Heights

General Fund Expenditure by Object2010-11 Budget $38,021,443

Proposed 2011 Property Tax Levy

• Determination of levy• Comparison 2010 to 2011 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, orVoter approval

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

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 2011

Schedule of events in approval of district’s 2010 (Payable 2011) tax levy• September 8: Dept. of Education prepared and distributed first

draft of levy limit worksheets setting maximum authorized levy• September 29: School board approved proposed levy amounts• Mid-November: County mailed “Proposed Property Tax

Statements” to all property owners • December 20: Public hearing on proposed levy at regular

meeting • Following hearing school board will certify final levy amounts

Inver Grove Heights ISD No 199Comparison of Proposed Tax Levy Payable in 2011 to Actual Levy Payable in 2010

Actual Levy - FY 11 Proposed Levy - FY 12 FY 12 FY 12

Fund Levy Category Payable in 2010 Payable in 2011 $ Change % Change

General FundVoter Approved Referendum $3,800,489 $3,761,593 -$38,895Equity 467,238 522,864 55,625Alternate Teacher Compensation 0 0 0Capital Projects - Technology Levy 0 0 0Operating Capital 636,325 576,744 (59,581)Health and Safety/Deferred Maint. 862,746 572,590 (290,155)Instructional Lease Levy 681,769 678,774 (2,995)Safe Schools 147,217 151,714 4,497Other 238,984 255,204 16,220Adjustments for Prior Years 445,654 425,011 (20,643)Total, General Fund $7,280,422 $6,944,495 -$335,927 -4.6%

Community Service FundBasic Community Education $190,725 $190,725 $0Early Childhood Family Education 111,828 104,879 (6,949)School-Age Child Care 27,175 109,245 82,070Other 2,880 2,838 (42)Adjustments for Prior Years (50,847) 21,407 72,255Total, Community Service Fund $281,760 $429,094 $147,334 52.3%

Debt Service FundVoter Approved Debt Service $3,065,774 $3,111,463 $45,689Other Debt Service 0 636,450 636,450Abatement Adjustments 2,996 3,027 31Other Post Employment Benefits 643,989 643,989 0Reduction for Excess Fund Balance (145,540) (118,645) 26,895Total, Debt Service Fund $3,567,219 $4,276,284 $709,065 19.9%

Total Levy, All Funds $11,129,401 $11,649,873 $520,472 4.7%

Overview of Proposed Levy Payable in 2011

• The total 2011 proposed property tax levy will increase from 2010, by 4.7% or $520,471• This total includes a reduction of $77,514 from the proposed levy

approved in September, resulting from the bond refunding approved by the Board on September 27th

• Law requires that we explain the reasons for the major increases in the levy

• We will also explain some of the decreases in specific levies

Explanation of Levy Changes

• Category: Operating Referendum• Change: -$38,895• Use of funds: General operating expenses • Reason for decrease:

The levy is based on the voter approved per pupil amount multiplied by resident students

The decline is a result of a small projected decline in enrollment

Explanation of Levy Changes

• Category: Equity Levy• Change: +$55,625• Use of funds: general operating expenses• Reason for increase:

Funding is based on a legislatively set formula for each district’s “equity allowance” multiplied times enrollment of students served in the district

Revenue is increasing because of an increase in the state-determined equity allowance and a projected increase in students served

Explanation of Levy Changes• Category: Operating Capital• Change: -$59,581• Use of funds: Technology, facility

maintenance, other capital expenses• Reason for decrease:

Funding for this program is provided through a combination of state aid and local tax levies

Because the district’s total property value decreased, the share of funding provided through the tax levy is decreasing

State aid will increase by a similar amount, so there will be little net change in revenue

Explanation of Levy Changes• Category: Health and Safety Levy• Change: -$290,155• Use of funds: State-approved capital projects

related to facility health and safety needs• Reason for decrease:

The amount of this levy is based on the estimated cost of qualifying state-approved projects

The levy will be used to address health and safety deficiencies in district facilities

Alternative facility bonds will be issued to fund major health and safety projects, resulting in a reduced need for the annual levy

Explanation of Levy Changes• Category: School-Age Child Care• Change: +$82,070• Use of funds: Provide child care services for

students with disabilities• Reason for increase:

The number of students qualifying for this program is expanding, leading to increased costs

Explanation of Levy Changes

• Category: Adjustments for Prior Years – Community Service Fund

• Change: +$72,255• Use of funds: Various purposes• Reason for increase:

For the 2010 levy, the community service fund balance exceeded a state-determined threshold, resulting in a negative levy adjustment of $57,549

For the 2011 levy, the fund balance was reduced so there was no corresponding negative adjustment

Several other minor adjustments in both years accounted for the remainder of the increase

Explanation of Levy Changes

• Category: Other Debt Service• Change: +$636,450• Use of funds: Annual required payment of

principal and interest on “alternative facilities” bonds

• Reason for increase: The district is planning to issue bonds early in 2011 to

finance a variety of critical projects related to health and safety

This levy is for the first year’s payments on the bonds

Impact on Taxpayers• Following is a table and graphs showing examples of changes

in the school district portion of property taxes from 2008 to 2011

• Examples include school district taxes only• All examples are based on a 13.7% decrease in property

value over this period• Actual changes in value may be more or less than this for any parcel

of property• The percentage changes in value for each year are based on

property value data provided by Dakota County• These figures are intended to provide a fair representation of what

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

• The figures for 2011 taxes are slightly lower than what the County showed on the proposed property tax statements, due to the impact of the bond refunding that the Board approved in late Sept.

Impact on Taxpayers• Examples for property in the City of Inver Grove

Heightsschool 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 2011 are preliminary estimates, based on the best data available now – final figures could change slightly

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

Inver Grove Heights ISD No 199Estimated Changes in School Property Taxes, 2008 to 2011

Based on -13.7% Cumulative Changes in Property Value from 2008 to 2011 Taxes

Taxable Actual Taxable Actual Taxable Actual Taxable 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 2007 to 2010 toType of Property 2008 Taxes in 2008 2009 Taxes in 2009 2010 Taxes in 2010 2011 Taxes in 2011 2011 2011

$173,802 $523 $173,524 $520 $160,107 $543 $150,000 $550 $27 $7

260,703 827 260,286 820 240,160 856 225,000 867 40 11

Residential 318,638 1,030 318,127 1,021 293,529 1,066 275,000 1,079 49 13

Homestead 347,605 1,131 347,048 1,121 320,214 1,170 300,000 1,185 54 15

405,539 1,333 404,889 1,322 373,583 1,379 350,000 1,397 64 18

463,473 1,526 462,731 1,513 426,952 1,579 400,000 1,608 82 29

550,374 1,837 549,493 1,820 507,005 1,878 475,000 1,913 76 35

637,275 2,166 636,255 2,146 587,058 2,218 550,000 2,246 80 28

724,176 2,495 723,017 2,472 667,112 2,558 625,000 2,595 100 37

811,077 2,824 809,779 2,797 747,165 2,897 700,000 2,943 119 46

$115,868 $375 $115,683 $371 $106,738 $382 $100,000 $389 $14 $7

Commercial/ 289,670 1,027 289,207 1,014 266,845 1,035 250,000 1,051 24 16

Industrial # 579,341 2,150 578,413 2,121 533,690 2,173 500,000 2,219 69 46

869,011 3,273 867,620 3,229 800,534 3,311 750,000 3,386 113 75

1,158,682 4,396 1,156,826 4,336 1,067,379 4,449 1,000,000 4,554 158 105

Apartments $289,670 $1,097 $289,207 $1,085 $266,845 $1,132 $250,000 $1,161 $64 $29

(4 or more units) 1,448,352 5,484 1,446,033 5,426 1,334,224 5,660 1,250,000 5,806 322 146

2,317,364 8,774 2,313,653 8,681 2,134,758 9,056 2,000,000 9,290 516 234

Tax Rates Tax Capacity Rate 19.764 19.303 21.795 24.676 Referendum Market Value Rate 0.13159 0.13392 0.15180 0.15606

+ 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 2011 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 -0.2% from 2008 to 2009 taxes, -7.7% from 2009 to 2010, and -6.3% from 2010 to 2011.

Inver Grove Heights ISD No 199Estimated Changes in School Property Taxes, 2008 to 2011Based on -13.7% Cumulative Changes in Property Value from 2008 to 2011 Taxes

* For all four examples of properties, the value shown in the title of the chart is the taxable market value for taxes payable in 2011. Taxes are calculated based on changes in taxable market value of -0.2% from 2008 to 2009 taxes, -7.7% from 2009 to 2010, and -6.3% from 2010 to 2011.

Example 1: $225,000* Residential Homestead Property Example 2: $400,000* Residential Homestead Property

Example 3: $1,000,000* Commercial-Industrial Property Example 4: $2,000,000* Apartment Property

$827 $820 $856 $867

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

2008 2009 2010 2011 est.

Sch

oo

l P

rop

erty

Tax

es

Year Taxes are Payable

$1,526 $1,513 $1,579 $1,608

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2008 2009 2010 2011 est.

Sch

oo

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rop

erty

Tax

es

Year Taxes are Payable

$8,774 $8,681 $9,056 $9,290

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

2008 2009 2010 2011 est.

Sch

oo

l P

rop

erty

Tax

es

Year Taxes are Payable

$4,396 $4,336 $4,449 $4,554

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

2008 2009 2010 2011 est.

Sch

oo

l P

rop

erty

Tax

es

Year Taxes are Payable

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, orVisit 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 1970sAvailable to all owners of homestead propertyAnnual income must be approx. $98,290 or less

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

taxes and incomeMaximum refund is $2,350Especially helpful to those with lower incomesFill out state tax form M-1PR

State Property Tax Refunds

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

increase of at least 12% and $100 over the prior yearRefund 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 limitsFill 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 on December 20 to certify the 2011 school tax levy

Public Comments and Questions