AASBO Bi-Monthly Meeting

AASBO Bi-Monthly Meeting TAX RATES AND TAX BILLS Questions You Never Thought You’d Have to Answer November 9, 2011 Prepared by: Judy Richardson, Vice President 602.794.4012 jrichardson@syllc.com

Current Property Tax Issues • In recent years, large changes in property values have made tax bills less consistent • From year to year • Within a district – some taxpayers see increases while others see decreases • The same principles were at work in the past, but were not as noticeable • The changes in property values were not as great • The addition of new property in many districts tended to reduce tax rates and tax bills

Current Property Tax Issues • Even if property values have been stable in your area, your district’sprimary property taxes are affected by statewide changes in property values • The reasons for changes in school district tax bills can becomplex • Most reporters don’t understand the system well enough to explain it • County assessors and treasurers often don’t explain the changes correctly • When taxpayers call their school district, they often start with false assumptions and misinformation

Typical Questions Asked This Year • Why did my taxes go up when my neighbor’s taxes went down? • Why did my school taxes go up? What are you doing with all the extra money? • Why did my taxes go up when the tax rate went down? • Why did the state aid subtraction (homeowner’s rebate) go down? Why is it a different % than last year?

What Changed This Year? • Statewide Primary Assessed Valuation (PAV) decreased • Caused by large decreases in Maricopa and Pinal Counties • State Equalization (County) Tax Rate (SETR) and Qualifying Tax Rate (QTR) both increased • To keep the total amount raised from existing property about the same • To prevent the cost of state aid from increasing • QTR increase = $0.5770 (USD) / $0.2885 (ESD/UHSD) • Combined SETR/QTR increase = $0.6465 (USD) • 19.5% rate increase • Calculated to offset a 14.8% decline in statewide PAV

Increases and Decreases • Note that PAV percentage decrease (14.8) and offsetting tax rate percentage increase (19.5) don’t match • The % increase is always larger than the % decrease • Same principle with stocks: • If stock falls from $100 to $50, that is a 50% decline • But $50 requires 100% increase to get back to $100 • The bigger the percentages, the bigger the differential • 5.0% decrease requires 5.3% increase • 30% decrease requires 43% increase • 50% decrease requires 100% increase • Bigger drops in valuation cause bigger tax impacts

Increases and Decreases • Statewide calculations only “work” at local level if local or individual PAV change matches statewide PAV change • This year, residential PAV changes were inconsistent within districts and across the state • Some were up • Some were about the same or down a little • Some were down a lot • These differences created differences in tax bills

Examples of School DistrictPrimary Property Tax Changes • Assume a state aid school district with a tax rate close to the QTR • Assume the primary tax rate increased by the amount of the QTR increase (no other factors changed) • USD example: • FY 2011 = $3.00 • QTR Increase = +$0.58 • FY 2012 tax rate = $3.58 • Percentage increase = 19.3%

Example #1 • If an individual property PAV declined by about 15% (the same as the statewide decrease) • The tax rate increase offset the PAV decrease and kept district primary property taxes about the same • These taxpayers called the school district because the newspaper (or their intuition) told them their taxes would go down if their property value dropped • Your explanation: • Their decrease in value was offset by the tax rate increase which was caused by the QTR increase

Example #2 • If the individual property PAV dropped 25% (more than the statewide decrease) • The primary property taxes went down because the tax rate increase was not enough to offset the PAV decrease • These taxpayers felt they got what they deserved and didn’t call the school district • Their tax cut did not reduce your total revenues because it was offset by • Increased taxes on property whose value didn’t drop (or didn’t drop as much) • Increased state aid if your total District PAV dropped by more than the statewide average

Example #3 • If the individual property PAV increased, stayed the same, or only declined a little • Their district primary property tax bill went up • These taxpayers called the school district because they think you increased your spending • Your explanation: • The district tax rate increased because of the QTR increase • Their value did not drop (enough) to offset the rate increase • The amount you can spend did not change – Their increased tax was used to offset: • a reduction in state aid (if the statewide PAV decrease was greater than the district’s PAV decrease) • tax cuts for other tax payers whose value dropped

Other Factors Affecting Primary Tax Rates • In the previous examples, the district primary tax rate was close to the QTR • The percentages are different if the district tax rate is not close to the QTR - for example: • If the previous district primary tax rate was $6.00, then a $0.58 increase to $6.58 is only 9.7% increase • A homeowner’s PAV would only need to decline by 8.9% to offset that increase • The critical number is the % increase in the district tax rate caused by the QTR, not the % increase in the QTR itself

Other Factors Affecting Primary Tax Rates • Other district-specific factors compounded or mitigated the effect of the QTR increase on the tax rate: • An unusually low or high tax rate last year • Unusually large or negative cash balance • State aid withholding or repayment • Tax judgments or delinquent taxes • Changes in district wide PAV • For state aid districts, affects the tax rate for items outside the RCL

Other Factors Affecting Primary Tax Rates • Non-state aid districts are not affected by QTR increase – • Their primary tax rates are calculated like secondary tax rates • The tax rate will increase if the district PAV decreases • Partial state aid districts are a hybrid - their primary tax rates are affected by both: • The QTR • Changes in their district total PAV

Homeowners Rebate Changes • Homeowners rebate is a property tax reduction (also called additional state aid) • Changes enacted in 2010 took effect this year • Formula changes reduced the amount of the rebate (for state aid districts) • Items no longer included in rebate calculation: • Desegregation • TRCL/TSL difference • Small school adjustment • Interest on registered warrants or TANs • Excessive property tax valuation judgments • Career ladder QTR

Homeowners Rebate Changes • Smaller subtraction increased the total bill (or total primary property tax), not the line for school district primary taxes • Some taxpayers might have lost the rebate because it is now limited to primary residences (no second homes) • Not a law change, but some taxpayers might be at the $600 limit • If their primary taxes increased, $600 would be a smaller % of their primary tax bill • Homes valued at $425,000 or more are affected by the $600 limit

Secondary Property Taxes • Changes in secondary property taxes are easier to explain because they are not affected by • Changes in statewide SAV • The homeowners rebate • The tax rate is determined by the amount of your overrides and bond debt service and your SAV • If the bond and override amounts are about the same but your SAV decreases, then the ratemust increase

Examples of School DistrictSecondary Property Tax Changes • Assume that the amount levied for bond debt service and overrides was about the same as the previous year • Assume the district’s total SAV decreased • The district secondary tax rate was increased to offset the SAV decrease

Secondary Property Tax Example #1 • If a taxpayer’s SAV decrease was about the same amount as the district-wide SAV decrease • Their secondary property tax bill was about the same as last year • They call the school district because they expected a decrease • Your explanation: • The amount levied is about the same as last year • The tax rate had to be increased to account for the district-wide SAV decrease, so it also offset their decrease

Secondary Property Tax Example #2 • If a taxpayer’s SAV decrease was more than the district-wide decrease • Their secondary property tax bill decreased • They did not call the district because they thought that was what they deserved • Their tax cut did not reduce your total levy because it was offset by tax increases for taxpayers whose value didn’t drop (or didn’t drop as much)

Secondary Property Tax Example #3 • If a taxpayer’s SAV increased, stayed about the same, or decreased less than the district-wide SAV decrease • Their secondary property tax bill increased • They called the district to find out what you are doing with the extra money • Your explanation: • The total amount levied is about the same as last year • The tax rate had to be increased to account for the district-wide SAV decrease, so the higher rate caused higher taxes • Their increase offsets decreased revenues from taxpayers whose values dropped • The good news is their property held its value!

Summary • Don’t worry about trying to explain decreases in tax bills – no one will ask • Figuring out what caused an individual’s tax bill to increase (or not decrease) is a combination of • The factors that caused the tax rate to change (or not) • The change in the value of the taxpayer’s property • The relationship between tax rate change and value change • Explaining this to the taxpayer is a challenge • 2012 could be similar to 2011 (except for the change in homeowners rebate calculation) • Good Luck!

AASBO Bi-Monthly Meeting