Some observations on school district property tax report cards…

Monday, May 20th, 2013 at 1:08 pm by

In tomorrow’s school district budget votes, only 27 districts are proposing tax increases above their levy limit – the threshold requiring 60 percent of voters to approve.  This is down from 51 a year ago.

Under proposed school district budgets, spending would rise by an average of 3.1 percent, up from 1.7 percent a year ago. [i]

Proposed tax levy increases also averaged 3.1 percent, compared to 2.2 percent a year ago.

Higher need districts under the State Education Department’s “Need/Resource” categorizations do report higher spending increases, on average than other districts, but generally there do not appear to be distinct patterns in proposed spending and tax increases.

Statewide, districts plan to reduce combined reserves by a total of $370 million.  Poorer, higher need districts are generally drawing down unrestricted reserves at a faster rate than their counterparts and relying more on fund balances to support their budgets.

More detailed observations about the property tax report cards follow.

Over-ride attempts
More favorable state aid and higher tax levy limits may partly explain the drop in districts attempting to over-ride the cap.

For districts subject to budget votes (all those outside the state’s Big 5 cities), the average state aid increase for 2013-14 is 5.0 percent, compared to 3.8 percent a year ago.

According to calculations by the Empire Center for New York State Policy, the average levy limit this year is 4.6 percent, compared to 3.0 percent a year ago.  In other words, an average district could increase its tax levy by about 50 percent more than it did a year ago, before triggering the requirement to obtain approval by 60 percent of voters.

Pension costs account for essentially all of the increase in the levy limit.  The limit is the lesser of 2 percent, or the average change in the Consumer Price Index over the preceding calendar year, plus or minus certain exclusions.

Among the permissible exclusions are such items as change in the tax base, payments in lieu of taxes, large tort settlements, and pension costs attributable to an increase in an employer contribution rate of more than 2 percentage points.

For the coming year the Teachers Retirement System contribution rate is rising from 11.84 percent to 16.25 percent, an increase of 4.41 percentage points.  The contribution rate is multiplied by the payroll for employees in the retirement system.  So for the coming budget year, districts are entitled to exclude from their levy limit an amount equal to 2.41 percent of their TRS payroll.

Another reason for the lower share of districts seeking over-rides could be lessons from last year:  99 percent of districts proposing tax increases within their levy limits won approval on their first vote, while only 64 percent of districts attempting over-rides were successful on the first try.

A crucial point about the tax cap is that the price for failing to win voter approval is extreme – districts may not increase their tax levy at all.  In contrast, the Massachusetts tax cap allows tax levy increases of up to 2.5 percent, without voter approval.

We have stressed that with only one year’s experience with the tax cap and with so few districts attempting over-rides a year ago, it would fallacious to assert conclusions about how the cap has affected voting outcomes.  However, a pattern is emerging in the budgets districts in which districts attempt over-rides.

The State Education Department groups districts into “Need/Resource” categories based on local ability to pay for schools and students needs.  Both last year and this year, high need rural districts were the least likely to propose over-riding the tax cap.  This year, not one high need rural district is attempting to over-ride the cap.

Only one other high need district is attempting an over-ride – Kiryas Joel, a unique district serving only 150 students this year.

It might be argued that few or none of the high need rural districts need to attempt over-rides, either because their levy limits are more generous, or their state aid increases were more favorable.  But in both years, the average tax increases in these districts were lower than for other groups and their School Aid increases this year (excluding Building Aid) are lower on average than for the other district groups.

It’s only anecdotal evidence, but responses to open-ended questions in our comprehensive school finance survey last summer suggest that superintendents from rural districts are most likely to say their voters are unlikely to approve a tax increase greater than 2 percent, not matter what the law says is their district’s tax levy limit.

Proposed Spending and Tax Levy Changes
As noted, proposed school district budgets, spending would rise by an average of 3.1 percent, up from 1.7 percent a year ago.  Proposed tax levy increases also averaged 3.1 percent, compared to 2.2 percent a year ago.

Again, pension costs are a driving force behind school budget increases.  The TRS employer contribution rate increase this year is six times larger than last year – 4.41 percentage points compared to .73 percentage points.  (A year ago the rate rose from 11.11 percent of payroll to 11.84 percent).   Subtract this greater jump in pension costs and the remaining total spending increase would be lower than a year ago for the overwhelming majority of districts.

High need small cities and suburbs are proposing the largest spending increases on average (3.9 percent) and average need districts are proposing the lowest (2.7%).

High need rural districts proposed the lowest tax levy increases on average (2.3 percent) while low need districts proposed the largest (3.2 percent).

Grouping districts based on property wealth per pupil, there appears to be very little pattern to spending or tax increases.  In some lean state aid years past, the poorest districts proposed the smallest spending increases and biggest tax increases, while in the first year of Foundation Aid the opposite was true – the poorest districts were able to propose the largest spending increases on average while asking for the lowest tax increases.

The narrow range of variation in spending increases probably reflects the powerful impact of surging pension contributions as a cost-driver for all districts.

Interestingly, districts attempting over-rides are seeking lower spending increases than those proposing tax increases within their levy limit (2.2 percent vs. 3.1 percent).  As would be expected, over-ride districts are seeking higher tax increases (6.0 percent vs. 2.9 percent).

Reliance on Reserves
There are some apparent patterns in school district reserve funds.  Statewide, districts reduced combined reserves by a total of $370 million, or 7.1 percent.  Reductions in unrestricted reserves averaged 12.4 percent.

Generally, poorer, higher need districts reduced their unrestricted fund balances at greater rates than better off districts.  For example, high need small cities and suburbs reduced their unrestricted fund balances by an average of 37.4 percent, and high need rural district did so by an average of 21.2 percent, compared to only 1.4 percent by low need districts.

Finally, as in recent years past, “assigned fund balance” has played a more significant role in supporting school budgets in poorer districts than in their better-off peers.

Without money from their fund balances, districts statewide would have needed to raise local taxes by 6.3 percent more than they have proposed.  But the poorest 20 percent of districts would have needed to raise taxes by 17 percent more.


[i] We calculate the statewide average change in spending and tax levy by computing the difference between the statewide sums for current and proposed budgets and dividing that difference by the figure for the current year.  Another way of computing statewide average percent change is to take the average of the percent change for all districts.  Both methods are valid.  The latter method gives equal weight to large and small districts and results in lower figures for statewide averages, reflecting the fact that smaller districts typically propose smaller spending and tax increases.  We use the first method chiefly because it is how statewide changes in School Aid are usually reported (i.e., “a $942 million, 4.7 percent increase”).

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