AASBO Bi-Monthly Meeting Changes in Additional State Aid (Homeowner’s Rebate) September 8, 2010 Prepared by: Judy Richardson, Vice President 602.794.4012 email@example.com
What is the Homeowner’s Rebate? • Primary property tax reduction for homeowners • Part is calculated by statutory formula (ARS 15-972) • Part is in the Constitution ($10 homeowner primary tax limit) • First enacted about 1980 in response to pressure for property tax relief and frequently modified since then • Shown as a credit or subtraction on your tax bill • This credit causes the school district’s primary property tax revenues to be lower than the amount needed for the expenditure budget • The State offsets the loss of tax revenues by paying the district Additional State Aid
Homeowner’s Rebate Changes in HB 2008 (Laws 2010, 7th Special Session, Ch. 8) • Changes the computation of Homeowner’s Rebate & Additional State Aid in statute, effective FY 2012 • The formula is complicated and will be explained this afternoon • The new formula reduces the amount of the rebate in most school districts because certain parts of the budget will be excluded from the calculation of the rebate • The reduced tax credit will cause homeowner tax bills to increase and will reduce the cost of Additional State Aid to the State • School district budgets will not be affected unless the governing board wants to reduce the tax rate
Impact of HB 2008 • Not all districts will be affected by the change • Affected districts with the biggest tax increases will be those that • Budget for Desegregation • Budget for the small school adjustment • Have a TRCL much larger than their TSL • The tax rate for these items will no longer be reduced by 40% • Local share of Career Ladder programs will also not be reduced by 40%
Impact of HB 2008 • Most affected districts will have small increases, but quite a few will see large increases, especially small districts that budget for the small school adjustment • Examples of tax rate increases using FY 2010 data: • Mobile ESD – 1.65 • Roosevelt ESD/Phoenix Union HSD – 0.97 • Tucson USD – 0.74 • Chandler USD – 0.09
Impact of HB 2008 • Districts unaffected by the change that will not have tax increases: • Districts that do not qualify for equalization assistance and have low primary tax rates. Examples (from FY 2010): • Cave Creek USD • Scottsdale USD • Globe USD • Tanque Verde USD • Sedona-Oak Creek USD
Impact of HB 2008 • Unaffected districts with no tax increases, continued: • Districts that use Impact Aid to reduce their primary property taxes to zero. Examples from FY 2010: • Window Rock USD • Ganado USD • Districts with total homeowner primary property tax rates (for all jurisdictions) above $10. Examples from FY 2010: • Bowie ESD • Red Rock ESD
Rationale for Homeowner’s Rebate Changes • The argument for the law change was that it isn’t “fair” for all taxpayers to subsidize excess spending by only some districts – but some districts will continue to get a subsidy for these budget items: • Property wealthy districts with low primary tax rates • Districts with total homeowner primary property tax rates (for all jurisdictions) above $10. • The estimated savings in Additional State Aid was $70 million • But that did not include the small school adjustment because of the mistaken belief that it was already excluded from the rebate calculation • So actual savings will be greater if the law is not changed.
Impact of HB 2008 on Tax Bills • Q: Will the reduction in the rebate look like a school district tax increase on the tax bill? • A: On most tax bills, the tax rebate: • Is on a separate line labeled “state aid to education” or “state aid” • Is subtracted from the total primary property tax or from total education taxes, not from the school district’s tax.
Impact of Tax Increase • Q: Will school districts get blamed for the tax increase even though it won’t look that way? • A: Probably. • A lot depends on how the Counties explain the tax increase to the press and to people who complain. • Recent news reports on the rebate change may be forgotten. • AASBO or the most affected school districts might consider issuing a press release explaining the rebate reduction.
For more Information • In this afternoon’s Business Administration Breakout Session, we will go over the formula change in more detail. • See “Homeowner’s Rebate Analysis” on AASBO website under Chuck’s Updates