Property Tax Working Group January 3, 2017 Adequacy Level and Local - - PowerPoint PPT Presentation

School Funding Commission Property Tax Working Group

January 3, 2017

Adequacy Level and Local Effort

• Q. How well funded is the district with

an ideal equalized local tax effort (LCT)?

• Q. How well funded is the district with

the current tax effort (Real Revenues)?

• Q. How can we discount current tax

effort based on ideal local effort and %

• f adequacy and promote potential

property tax relief?

2

Overview of the Model

3

Loc Local l Cap Capacit ity: How much can the district contribute? Base Base Fun Fundin ing g Min Minim imum: How much does the state currently contribute? 1.

• 1. Ade

Adequacy Tar arget: How much does providing high quality education cost? Gap to Adequacy

• 2. Ad

Adequacy Le Level: How well- funded is the district?

100% of

• f

Ad Adequacy Tar arget

This model distributes dollars based on how adequately funded a district is. The current level of funding for a district is its Ade dequacy Level:

• The Adequacy Level is calculated by determining a district’s current

level of state funding plus its current level of local funding and dividing this by the district’s Adequacy Target.

• For example, if a district has an Adequacy Target of $12,000 and

receives $4,000 in local funding and $5,000 in state funding, its Adequacy Level would be 75%.

Adequacy Level

4

Local Funding + Current State Funding Adequacy Target Adequacy Level =

• Loc
• cal

l Cap apacit ity Tar arget (L (LCT CT) is a calculation of local effort—the amount a district would ideally contribute towards its Adequacy Target

• Calculating the Local Capacity Target:
• Step

ep 1: 1: Calculate an Effort Index for each district

• High effort index = greater expected contribution
• Low effort index = low expected contribution
• Step

ep 2: 2: Convert Effort Index to Local Capacity Target (LCT) by comparing all districts in the state

• LCT represents the percent of local support a district should ideally contribute
• No district will be expected to pay more than 90% of their adequacy target
• Step

ep 3: 3: Adjust LCT to allow for equalization of tax rates and new funds

Effort In Index: 3 Year Average of EAV Adequacy Target Districts with higher property wealth are expected to contribute a greater % toward adequacy, while districts with greater adequacy needs contribute less.

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How much can a district contribute?

How much can a district contribute?

• Some districts collect Real Receipts* from local taxes that are above their

LCT, some collect Real Receipts below their LCT

• For districts taxing below their LCT, the formula uses their calculated LCT.
• This means that districts are responsible for a portion of how inadequately

funded they are.

• However, as districts raise more revenue to reach their target, they will not lose

their spot in line for new state dollars.

• For districts taxing above their LCT, EBM adjusts their real receipts

downwards towards their LCT.

• Creates incentive for these districts to lower taxes because doing so will

increase their eligibility for state dollars.

• Adjustment is based on how far a district is from reaching their Adequacy

Target, so districts that tax at high rates but are still far from adequacy get the biggest adjustment of real revenue towards their LCT.

6 *Calculation of real receipts can be found in Appendix

The Local Capacity Target Adjustment in Action

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Local Capacity Target

10 100% 0% of

• f

Ad Adequacy Tar arget

District Taxing Below LCT District Taxing Above LCT Real Receipts Adjusted Local Capacity

Using the Preliminary Adequacy Level as a Discount Factor

• Preliminary Adequacy Level is the district’s Adequacy Level in an ideal state
• Calculation is LCT + CPPRT + Base Funding Minimum
• This is the district’s percent of adequacy that would be funded if the district

were contributing its Local Capacity Target

• This Preliminary Adequacy Level is used as a Discount Factor to make 2

adjustments in the model

• In the calculation of a district’s Local Capacity, the Discount Factor is used to adjust

real revenue downwards toward the ideal LCT

• In the calculation of the Base Funding Minimum, the Discount Factor is used to

decrease the amount of the previous year’s poverty supplemental grant in the calculation of how adequately funded a district currently is, allowing for a smoother transition from a formula that incorporates poverty concentration to one that does not

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Using the Preliminary Adequacy Level as a Discount Factor means that adjustments to formula components are based on need.

Calculating Local Capacity (Over LCT Example)

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TYP YPE EAV AVE VERAGE (G (Greater of

• f 3

3 YR YR Averag age

• r
• r Prio

rior Yea ear) Ade dequacy Tar arget Effort In Index Unit $17,350,979 $5,285,866 3.283 St Step 1: 1: Calculate the Effort Index (EAV/Adequacy Target) St Step 2: 2: Convert Effort Index to Local Capacity Target (LCT) by comparing all districts in the state (normal distribution) Norm

• rmali

lized Effort Ind Index = = LCT CT Per ercent Di Distric ict Ca Calc lculated LCT CT Amount 10.74% $567,458

Calculating Local Capacity (contd.)

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Current Local Receipts (EAV*OTR-Trans) Over-LCT Amount (Current Local Receipts – LCT) Discount Factor aka Preliminary Adequacy Level [(LCT + CPPRT + Base Funding Minimum)/Adequacy Target] $804,709 $237,251 62% St Step 3: 3: Adjust LCT to allow for greater equalization of state funds and potential tax relief. Adjusted LCT [LCT + (Over-LCT Amount x Discount Factor)] Final Adjusted LCT $567,458 + ($237,251 x 62%) = $715,078 $715,078

Calculating Local Capacity (Under LCT Example)

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TYP YPE EAV AVE VERAGE (3 (3 YR YR Average or

• r Prio

rior Year ear if f 10% 10% les ess) Ade dequacy Tar arget Effort In Index Adj Adjusted Ind Index (x (x 9/ 9/13 El Elem, 4/ 4/13 HS HS) HS $443,290,161 $12,816,736 34.587 10.642 St Step 1: 1: Calculate the Effort Index (EAV/Adequacy Target) St Step 2: 2: Convert Effort Index to Local Capacity Target (LCT) by comparing all districts in the state (normal distribution) Norm

• rmali

lized Effort Ind Index = = LCT CT Per ercent Di Distric ict Ca Calc lculated LCT CT Amount 45.77% $567,458

Calculating Local Capacity (contd.)

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Current Local Receipts (EAV*OTR-Trans) Over-LCT Amount (Current Local Receipts – LCT) Discount Factor aka Preliminary Adequacy Level [(LCT + CPPRT + Base Funding Minimum)/Adequacy Target] $527,990

• $39,468

NA because current receipts less than LCT St Step 3: 3: Adjust LCT to allow for greater equalization of state funds and potential tax relief. Adjusted LCT [LCT + (Over-LCT Amount x Discount Factor)] Final LCT = Calculated Effort NA because current receipts less than LCT $567,458