LOCAL OPTIONAL REVENUE—TAX LEVY INFORMATION
The Minnesota legislature and Governor Dayton approved a significant tax bill early in the 2014 legislative session. The actions of the legislature this spring opened several decisions for the ROCORI School District regarding levy options and referendum activity.
In September, the school board had to take action to begin the process of setting the tax rate for calendar year 2015. These decisions affect the amount of revenue for the school district in the 2015-2016 school year. I would like to spend a little time looking at the new legislation. This week will simply be an introduction to the concept!
The bill approved during the legislative session included a significant change to the 2013 legislation known as Location Equity Revenue (LER). That bill, in itself, was a major change for school districts like ROCORI as it provided several funding choices and options. Our school board implemented elements of the Location Equity Revenue in 2013 which affected the district in the current school year.
In the 2014 legislation, the Senate renamed the LER revenue as Local Option Revenue. It was a fairly complex piece of legislation. It changed school board levy authority. The law changed factors related to state equalization of levy efforts. It also has a significant impact on local tax applications.
The legislature extended authority to local school districts to determine whether to implement a local tax assessment. The effort was intended to bridge some of the financial gap for districts that either have a difficult time securing voter approval or have limited authority because of the equalization issues with districts who have greater referendum/levy authority.
In addition, the legislature was attempting to address some previous issues in school funding. Several years ago, legislation was approved that was known as “small school funding” in that it provided support for schools with student enrollment of 800 students or less. In 2013, the Location Equity Aid supported schools in the seven county metro area or outstate schools of 2000 or more students. The schools between 800 and 2000 students did not benefit from either of the previous actions.
Local Optional Revenue applies to all school districts in some fashion. A minimal effect, for those that already exceed the referendum values involved, would be alignment of funding structure to maximize state aid available to schools. For other schools, like ROCORI, the Local Optional Revenue opened up funding opportunities that previously did not exist.
Although a number of issues occurred with the 2014 legislative session, the primary focus for our school board was to consider the issue of Local Optional Revenue. Because ROCORI did not have the same kind of referendum effort in place, the implementation of Local Optional Revenue could provide increased revenue for the district.
In June, the School Board heard from Greg Crowe of Ehlers, Inc. Ehler’s is the district financial advising firm and Greg was present to share information related to the Local Option Revenue created in the recent legislative session. Greg explained to the board the structure of the Local Option base and offered insight into the effects of the legislation.
The local option revenue falls under two different state equalization tiers but all of the local option revenue is a combination of local levy authority and state equalization aid. Throughout the summer, the school board examined the current levy status of the district, the effects of changing the values on district revenues, and the impact on local taxpayers of the various options.
It was clear, very early, that the district would have to take some action. Doing “nothing” in regard to the new legislation actually was the worst thing the school district could do because it reduced state aid, increased local taxes, and provided little revenue. The analysis indicated that the school board needed to take some action.
On the other end of the scale, the application of the full scope of Local Optional Revenue will provide an additional $470,000 in revenue to the district. The revenue comes in a combination of local levy and state aid. Part of the process, for the school board, was to align the actions to maximize state aid while making the local property tax impact as minimal as possible.
The district was required to make a decision about the scope of levy authority to exercise before September so that the information could be included in the proposed tax levy. The new information will be reflected in the tax statements that come out in November.
NEEDS AND ISSUES TO ADDRESS
Because the implementation of local optional revenue would increase funding to the district, and before it had to make its decision, the school board requested information from the administrative team about the use of funds. The school board wanted to hear from our principals, in particular, about the programs and needs within the district that could be addressed if the district were able to access additional funds.
The board not only wanted to hear about needs, but also asked the administrators to identify their priorities for the use of additional funds. The principals attended the first meeting in August to share information about their needs and priorities. I will address a number of those issues in an additional article about the Local Optional Revenue, but there are a number of ways that ROCORI programs can be enhanced to meet student needs. The focus of the recommendations was on issues that can continue to enhance the experience of our students and help to secure core or fundamental skills..
Through all of the analysis and exploration of the issues, the district's financial advisers recommended that the district take two steps to pursue the Local Optional Revenue. The legislation, actually, assumed that school districts would implement the option fully. Board action, however, was required to align the funding appropriately or to access less than the full amount.
The first action recommended by Ehlers was to repeal the action from 2013. This action actually converted voter-approved referendum authority into school board-approved authority. Because of the way the new legislation was structured, the board needed to rescind that action.
The second resolution was to implement the full scope of the Local Optional Revenue. This step would align the parts of Local Optional Revenue appropriately to the equalization tiers and the best arrangements for state assistance. Again, the idea was to maximize state aid and apply the local property tax in the best manner possible.
At this point, the school board has taken these two steps. This allows the board to pursue the maximum effort. The district still has opportunity to adjust, but that decision is made final in December when the levy is finalized.
This is a fairly complex issue with many different elements. I will return to the topic in future issues to address, more clearly, the options and the tax impact of various approaches. I will also review the ideas and issues presented to the board in relation to the proposed uses of the funds.