Operating Referendum: Background Information, 2013 Legislative Changes & Trends

1. Operating Referendum:Background Information, 2013 Legislative Changes & Trends Marshall Public Schools ISD No. 413

2. What is an Operating Referendum? • An election ballot question that allows Districts to generate additional general education revenue • Revenue is provided through a combination of local property tax levies, and for most Districts, state aid • Referendum revenue may be used for any operating or capital expenses, the same as basic general education revenue

3. Current Referendum Provisions • Revenue is authorized by voters as a specified dollar amount per pupil unit, levied annually • Can be a fixed amount per pupil throughout the term • Can be subject to annual inflationary adjustments • The term, or number of years, is specified • maximum of 10 years • Revenue is limited to $1,845 per adjusted pupil unit for fiscal year 2015 • Adjusted annually for inflation • Increase from FY 2014 cap of $1,667 for most districts

4. Current Referendum Provisions • Districts can conduct only one operating referendum election per year • Exception for districts in statutory operating debt • Vote can only occur on the November general election day, unless held by mail ballot • Election can be held either one year or two years prior to the initial tax year • Notices must be sent to all taxpayers • By first class mail • Content is specified by law

5. Current Referendum Provisions • Operating referendum property tax levies are spread on “referendum market value” (RMV) • Almost all property in a district pays same tax per dollar of market value • Referendum taxes are not levied on: • Seasonal recreational property (cabins) • Agricultural land &buildings (only house, garage & 1 acre) • Operating referendum revenue levies can qualify for state equalization aid • The state aid portion of referendum revenue is dependent on the District’s RMV per pupil

6. 2013 Legislative Changes The 2013 Legislature made significant changes to Referendum Revenue, effective for FY 2015 • New pupil count for referendum (Adjusted Pupil Units (APU) instead of Resident Marginal Cost Pupil Units) • APU is based on pupil served, with new grade weightings and no declining enrollment factor • Fiscal 2015 existing referendum authority is recalculated based on change in pupil units • Maintain the same level of revenue, including alternative attendance

7. Referendum Authority Conversion

8. 2013 Legislative Changes • New Location Equity Revenue (LER) for fiscal 2015 • $212 / pupil for outstate districts with more than 2,000 pupils, or $424/pupil for 7-county metro area districts • Reduces voter approved authority by equivalent amount • District could “opt out” of receiving LER by Board action prior to September 1, 2013; advantages of not opting out • Increases referendum state aid equalization & reduces property taxes • Allows district to be eligible for more equity revenue • Provides more room under the referendum cap for new elections

9. Referendum Authority Conversion with LER

10. 2013 Legislative Changes • District could convert up to $300 / pupil of voter approved referendum authority to board approved authority by September 30 • Authorize for up to 5 years • Same equalizing factor as voter approved authority • For District #413, this will not result in additional revenue • Potential issue due to converted authority being subject to LER subtraction in future years • No District may increase referendum authority for FY 2015 unless • Renewing an expiring referendum • Had no referendum authorized in FY 2014 • Were in statutory operating debt as of June 30, 2013 • Board adopts a resolution by June 30 to have a fall 2013 election

11. Referendum Authority Conversion with LER

12. 2013 Legislative Changes Three tier equalization aid formula (previously was a two tier formula), with percent of aid based on each district’s referendum market value (RMV) per resident pupil unit • For District #413, this will result in an increase in the share of the referendum revenue paid by the state from 19% to 41% • Corresponding levy reduction provides property tax relief • 1sttier • Up to $300 of revenue per pupil unit • Equalized at a relatively high level ($880,000) • Most districts receive some aid • For District #413, approximately 53% of first tier revenue for FY15 is state aid

13. 2013 Legislative Changes • 2ndtier of aid • Revenue between $300 and $760 / pupil unit • Equalized at $510,000 of RMV per pupil • Many districts receive aid • For District #413, approximately 19% of the second tier revenue will be paid through state aid for FY15 • 3rd tier of aid • Revenue above $760 / pupil unit, up to 25% of the basic formula allowance ($1451.50), with no limit for districts that qualify for sparsity revenue • Equalized at $290,000 of RMV per pupil • Most districts do not receive any aid • District #413would not receive any aid in the third tier of revenue

14. Tax Impact

15. Referendum Trends The number of districts relying on operating referendum revenue is increasing • In 1993, only 65% of districts had referendum authority • Today, almost 90% of districts receive referendum revenue • Only 36 districts currently do not have referendum authority in place, but many of those are likely to choose to increase their authority with the board approved $300 per pupil allowance

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18. Referendum Trends Average referendum authority per pupil is increasing • In 1993, average referendum authority was $332 per pupil • For 2014, the average authority is projected to be $920per pupil • 17.6% of general education formula allowance • For 2015, the average will drop, because Districts that are eligible for Location Equity Revenue will have their referendum authority reduced by the amount of Location Equity Revenue they receive

19. Ehlers provides public finance materials for convenience and information only. Additionally, this material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy Ehlers’ products or services.

20. Growing Reliance on Referendums • Since 2001-03, the state General Education Revenue formula has not kept pace with inflation • Per-pupil allowance for the current year would need to increase by $314 (6.01%) to have kept pace with inflation • For FY 2014, Legislature approved an increase of $78 per pupil unit, or 1.5%, and an additional 1.5% for FY 2015 (about $80 per year)

21. Growing Reliance on Referendums • Other funding sources (e.g., special education, capital funds) also have not kept pace with inflation • Only options for districts to bridge the funding gap are to cut budgets or increase referendum revenue; most districts have done both

22. Election Trends • Approval rates are typicallyhigher in odd-numbered years (no statewide elections) and lowest in presidential election years • In total, over the past 21 years, voters have approved 67% of elections

23. Ehlers provides public finance materials for convenience and information only. Additionally, this material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy Ehlers’ products or services.

24. District Specific Information • Existing referendum authority is $478.04 per pupil • Assumes District #413 does not opt out of $212 LER • Expires after FY 2018 • Qualify for slightly more revenue in FY 2015 than FY 2014 • Based on total of referendum, LER and equity revenue • State aid increases by about $270,000 • Tax levy decreases by about $200,000

25. District Specific Information • Options • Present question to voters to increase referendum authority • Could be subject to annual inflationary adjustments • Expiration after a maximum of 10 years • Election Date: Tuesday, November 5, 2013 • Election Resolution Approval Deadline: August 23, 2013

26. Referendum Notice Language • Voters must be notified of the District’s intent to hold a referendum, and the tax impact of the referendum levy • The District’s bond attorney will draft the appropriate notice language, which is different based on the ballot question • Revoke & Replace, or add additional authority: “Passage of this referendum will result in an increase in your property taxes” • Renew & Extend: “Passage of this referendum extends an existing operating referendum at the same amount per pupil as in the previous year”

27. Tax Impact

28. Referendum & LER Scenarios

29. Jodie Zesbaugh Financial Advisor, Ehlers 651-697-8526 jzesbaugh@ehlers-inc.com