Fiscal capacity
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Fiscal Capacity?. What is Fiscal Capacity?. Where do the numbers come from? How is it calculated? What does it mean for my school system?. The answers.?.?.?. …...I don’t know, but I did stay at a Holiday Inn Express last night……. What is Fiscal Capacity?.

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What is Fiscal Capacity?

  • Where do the numbers come from?

  • How is it calculated?

  • What does it mean for my school system?


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The answers.?.?.?.

  • …...I don’t know, but I did stay at a Holiday Inn Express last night……


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What is Fiscal Capacity?

  • Fiscal capacity is the relative ability of local governments to fund education from their own taxable sources.


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TACIR Model

  • Local Revenue

  • Property

  • Sales

  • Per Capita Income

  • Ratio of Residential & Farm to Total Assessment

  • Ratio of Average Daily Membership to Population


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CBER Model (Fox Model)

  • The new formula determines a county’s capacity to raise local revenues for education from its property and sales tax base.

  • Property tax base – add the equalized, assessed tax bases to the equalized, assessed public utility property and the estimated assessed value of industrial development property.

  • Sales tax base - divide county sales tax revenue by the county sales tax rate. Must adjust revenue for higher city rates, cities that cross county boundaries and rate changes during the year.


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CBER Model (Fox Model)

  • Each county’s fiscal capacity is the sum of:

  • The county’s property tax base multiplied by a statewide average property tax rate for education (1.30%).

  • The county’s sales tax base multiplied by a statewide sales tax rate for education (1.57%).


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Property & Sales Tax Rates For Education

Total State Property Tax Spent on Education ÷Total State Property Tax Base

$1,487,147,245 ÷ $114,014,886,851 = 1.30%

Total State Local Option Sales Tax Spent on Education ÷Total State Sales Tax Revenue

$973,366,074 ÷ $62,122,196,778 = 1.57%

  • Each county’s fiscal capacity index is the ratio of its total fiscal capacity to total statewide fiscal capacity.


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CBER?

  • CBER (Center for Business and Economic Research) is a department within the College of Business Administration at the University of Tennessee which conducts research on national and state economic trends for UT Knoxville, state agencies, and public and private organizations.

  • CBER website: http://cber.bus.utk.edu/


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Where do the numbers come from?

  • The 3-year averages of property tax spent on education and local option sales tax spent on education come from the DOE’s Annual Statistical Report which is produced from school system’s annual financial reports.

  • The 3-year average of county equalized assessed property come from the Comptroller’s Tax Aggregate Report.

  • IDBs come from the Comptroller.

  • The 3-year average of county sales tax base comes from the Department of Revenue.


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What are IDBs?

  • Industrial Development Bonds: Upon the approval of the city/county issuer, it may be possible to exempt/abate most of the real and/or personal property tax of new real estate improvements and new machinery financed by a Chapter 100 bond. To enact this procedure, the city/county must own the assets financed by the bonds and an eligible company would lease the assets from the city/county for the term of the bonds. The amount and term of abatement/exemption depends on a negotiation with the city/county issuer, as they have the discretion to abate any portion of the property taxes. In effect, the property tax is exempt by virtue of public ownership, however, the city/county may require that a portion of the payments otherwise due will be paid in the form of a payment in lieu of tax.


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IDBs continued…

  • When a company’s property tax is abated it does not pay its full rate on real property (land and buildings) and/or its personal property (machinery, equipment and inventory). Abatements range from 5 to 20 years, and may be partial, full, or phased. In some cases, companies make payments in lieu of taxes (PILOTS) or fees in lieu of taxes (FILOTS) during the period that their property taxes are abated to partly offset for lost tax revenues.


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CBER Calculation Example

Meigs County

Property Tax Base (3-year average): $174,291,854

Sales Tax Base (3-year average): $26,267,910

Fiscal Capacity = ($ 174,291,854 x 1.30%) + ($ 26,267,910 x 1.57%)

= $411,581+ $2,273,367

= $2,684,948

= $ 2,684,948 /$2,461,000,000 (total state fiscal capacity)

Fiscal Capacity Index = .109%

These can affect fiscal capacity index.


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Capacity Used in BEP 07-08

50% of TACIR Model & 50% of CBER Model

(TACIR Capacity Index x .50) + (CBER Capacity Index x .50)

  • Unless……………CBER increased 30% or more over TACIR……


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My CBER Increased 30% or more?

  • During the transition from TACIR to CBER if a county’s capacity increased 30% or more, a county’s capacity was held at a 30% increase.


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What does that mean?

Meigs County

  • 07-08 TACIR: 0.06%

  • 07-08 CBER: 0.11%

  • Which is a 77.3% increase, so the 0.06%(TACIR) is held at a 30% increase.

  • 0.06% held at a 30% increase = 0.08%

  • 07-08 CBER: 0.08% is used in 50/50 capacity calculation.


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Capacity Used in BEP 07-08

50% of TACIR Model & 50% of CBER Model

(TACIR Capacity Index x .50) + (CBER Capacity Index x .50)

(0.06% x .5) + (0.08% x .5)

0.07%


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How does my capacity relate to my local share?

  • Equalization: the fiscal capacity index is then applied to the BEP generated dollars, using the same methodology as has been in place since 1992, to adjust the 70%(instructional), 75%(classroom), and 50%(non-classroom) state shares.


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How is my equalized local share calculated?

Equalized Local Share

[Fiscal Capacity Index x Local Share (30%, 25%, or 50%)]

[County Generated Funds by Component ÷ State Generated Funds by Component]


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Equalized Local Share Example

Meigs County Equalized Instructional Share

(0.07% x 30%) ÷ ($5,703,000 ÷ $2,996,806,000)

0.021% ÷ 0.1903026%

Eq. Local Share: 11.16%

Eq. State Share: (1 – 11.16%) = 88.84%



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