MREA is gaining support for a facility fallout solution that would address the deferred maintenance funding inequities in Minnesota. The inequities between the Alternative Facility school districts (large metro primarily) and all others is well documented. Legislators of all stripes have at the tip of their tongue the $2.79 per square foot versus $0.58 per square foot differential in spending power between the two categories of districts. View updated printer-friendly brief on Ag2School
Where We Stand
Recommendation #1 from the Minnesota Department of Education (MDE) School Facilities Work Group, to expand Alternative Facilities authority to all schools, has been introduced as legislation (SF 76, HF 860). SF 76 has a lot of popular support among Senate E-12 members thanks to Sen. Kevin Dahle (DFL – Northfield) and Chairman Chuck Wiger’s (DFL – North St. Paul) leadership advancing it this session.
Recent House Education Finance chairman Rep. Paul Marquart (DFL – Dilworth) knows how important additional facility levy authority is to protect educational programs. He was willing to introduce the companion bill, HF 860. Getting his colleagues in the majority party to go along with this bill has been tough as GOP majority members are generally skeptical about expanding school board levy authority.
Rep. Marquart also co-authored a bill (HF 596, SF 576 Koenan) that would require school bond payments to be levied on Referendum Market Value or as the farm community calls it, House-Garage-and One Acre. Balancing the relative tax burdens within rural communities and the state is a challenge. For medium sized districts with diverse tax bases the issue isn’t as great, but for one-third of Minnesota’s school districts that have over half of their tax base tied up in agricultural production land the issue is one that’s boiling over.
Ag2School Solution
In order to secure broader legislative support for advancing a long term maintenance levy modeled after recommendation #1 from the MDE School Facilities report, we need to get the buy in from the farm community. MREA has been working with the Farm Bureau’s Property Tax Task Force and has met with the Farmer’s Union to share a package deal that is aimed at accomplishing several goals between our respective organizations. Those goals include:
- Easing the tax burden on agricultural production land for school bonds and facility maintenance
- Addressing representation issues for the farm community when it comes to passage of school bonds
- Giving rural school boards additional long term maintenance levy authority
- Equalizing the levy impact of long term maintenance levy authority to smooth out tax impacts
MREA has come up with a well-rounded proposal called “Ag2School Facilities” and it encompasses two solutions: one for school facility bonds, and another for long term maintenance levy authority. The farm community, while they obviously prefer their bill (HF 596), are willing to join MREA in lobbying for passage of the Ag2School legislative package.
So what does “Ag2School” do?
MREA outlines the issue and the Ag2Schools below and has created a highly visual presentation as well as district runs.
View a graphical presentation of the issue and solutions.
Part 1: Ag2School Long-Term Facility Maintenance
Recommendation #1 from the MDE Facility work group would equalize expanded maintenance levies on Adjusted Net Tax Capacity (ANTC). The problem with this tax base is that over one-third of Minnesota’s school districts in rural Minnesota wouldn’t qualify for equalization of the levy. Instead farmland would be called upon once again to pick up the lion’s share of the tab.
An alternative model to accomplish the same goal is to use Referendum Market Value with a high level of equalization to buy down the impact on homeowners while lowering the impact on the farm community since RMV levies are on House-Garage-One Acre. Rural businesses are treated better under RMV since the Commercial/Industrial tax base is at a lower rate on RMV than on ANTC.
The state’s equalization share to increase current maintenance levy authority from about $220/pupil to $470/pupil would be $67 million in fiscal year 2017. Combined with the $15 million needed from the state this legislative package totals at least $82 million in one fiscal year alone.
While this is no insignificant amount of funding, when taken in context of a $42 billion biennial state budget and a $1.9 billion projected surplus, the ask is appropriate considering it would close one of the largest remaining inequities in school funding system.
MREA believes treating rural students fair is more than worth it and if we can get the adults in town, on the farm and at the Capitol to agree, we have a chance to accomplish this during the 2015 session. View the impact of the levy by school district.
Part 2: Ag2School Tax Equity
This proposal would keep agricultural production land as a contributor to school facility bonds. However, the proposal calls upon the state to smooth out the impacts of school bond taxes on agricultural production land in a similar to an insurance pool for crop insurance.
Agricultural production land would be assessed a state tax rate to produce a pool of revenue (about $20 million each year). That would be coupled with $15 million each year from the state’s general fund to produce a 40 percent credit back to farmland that is being taxed by local school districts for facility bond payments.
Critics might complain that the state is imposing a tax on agricultural land where none might exist since there are 49 school districts without facility bonds today. However, it’s a matter of time before voters in districts with century old buildings get anxious enough about their children’s educational future and begin the campaign for a new or improved building. Since farmers often own land in multiple school districts, but only get to vote in one, creating a state agricultural tax pool will operate like an insurance pool and ease the tax burden when a new bond is passed.
The tax impact on an acre valued at $10,000 with no current debt is 9 cents. An acre with no debt valued at $5,000 would be 4.5 cents. The benefit to the farm community are major reductions in current taxes. Farmland currently facing tax impacts of over $1,000 on $1 million of agricultural land would see major reductions.
From the schools perspective, this proposal doesn’t shuffle the tax base around so homeowners and businesses aren’t asked to pay more in the future than what current law would otherwise require.
What’s the Impact on Your School?
MREA developed these three district runs to illustrate the impact of the Ag2School Facility Fallout Solution.
Long-term Maintenance with HF 968 SF 1619
Long-term Maintenance Property Taxes
Tax Equity Current & 2 Alternatives
* Note: MREA released new district runs dated March 23, 2015 and a new print-friendly fact sheet. Previous versions can be disregarded. The new runs have the same statewide effects as earlier data and make five revisions:
- Report revenue to school districts in APU’s, not ADM’s.
- Add enhanced equalization for districts which have over 30% seasonal recreation property similar to what HF 1641/SF 1323 do for LOR.
- Change the equalization factor to $670,000, midway between Tier 1 and Tier 2 equalization.
- Make miscellaneous corrections resulting in reporting less tax impacts for Ag2School Long Term Maintenance on businesses and homeowners than in previous runs.
- In the Ag2School Tax Equity 40% credit, increase the state participation to $30M and lower the state-wide ag tax approximately $5 million statewide. This is 2.3 cents on $10,000 acre land or 1.2 cents on $5,000 ag land.
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