Seasonal/Recreational Tax Base Replacement Aid: HF 4986/SF 4995 

Last week, the House Education Finance committee heard testimony on HF4986 (Rep. Dave Lislegard, DFL Aurora), creating a new seasonal tax base replacement aid to school districts. Many thanks to Jeff Burgess, Mesabi East Superintendent, Carol Copp, a teacher in Grand Rapids, John Ward, Brainerd School Board, and Paul Peltier with RAMS for their testimonies. The Senate Education Finance Committee plans to hear SF4995 (Sen. Grant Hauschild, DFL Hermantown) on April 11 which provides seasonal tax base replacement aid to districts. This bill has been a focus area for MREA during this session.

Seasonal Tax Base Replacement Aid is a good start to bringing equity to some MREA districts that are unable to pass Operating Referendums. One big reason for this inequity is that the Operating Referendums are based on the Referendum Market Value (RMV), which does not include seasonal/recreational properties and agricultural land in the tax base for this funding stream. As such, the revenue from an Operating Referendum is paid by fewer taxpayers. Losing the seasonal and recreational property tax base makes the cost per taxpayer much higher.

This bill does not change how “cabins” are taxed. Instead, it creates a tax base replacement aid, whereby the state will send funding back to the school district if they have a voter approved Operating Referendum in place. The school district then uses this aid to reduce the total cost of the levy, which is then distributed across the RMV properties by the county auditor.

The new tax base replacement aid creates a seasonal tax base adjustment factor based on the amount of seasonal property in the school district. That factor is used to generate the aid amount, if an Operating Referendum is approved. As part of the formula, a district will not have a reduction of more than 50% on their levy.

The district still will need to pass an Operating Referendum to receive aid from this bill. The new program will hopefully help improve the local conversation about passing an Operating Referendum, especially in districts with a high number of seasonal/recreational properties.

The projected initial price tag is around $8.5M, which would be immediate property tax relief to districts that already have an Operating Referendum in place. This bill targets many of the districts that have struggled passing a referendum, and it does not impact taxation of seasonal/recreation properties. The state is collecting $40M on seasonal properties through the state’s general business levy. This program recognizes the state has been using seasonal/recreation property taxes for their own use and is now putting those dollars back into local schools.

As a reminder, there are 92 districts that do not have an Operating Referendum in place. The median revenue from Operating Referendums for districts throughout the state is $513/pupil.

This MREA map shows the distribution.

Seasonal Tax Base Replacement Aid will affect districts across the state differently. Many districts will not benefit from the aid if they do not have much seasonal/recreation property. However, many districts, particularly in northern Minnesota, would see levy decreases to their taxpayers of up to 50%.

This MREA map shows how the aid will impact different districts.

This MREA spreadsheet shows the breakdown by district of how this new aid could affect districts.

  • Column C – referendum allowance that the voters have approved in a district in $/pupil.
  • Column D – potential percentage reduction in a levy because of the legislation.
  • Column E – what the taxes would be without the aid on a $300k home.
  • Column F – what the taxes would be with the aid on a $300k home.

This chart clearly shows one of the big inequities that MREA is trying to solve in Minnesota School Finance – the reliance on the Operating Referendums to finance schools and the amount of money generated by Operating Referendums.

Besides many schools not being able to pass a referendum, we see that some districts can pass them with less tax impact.

For example, Minneapolis has a $2,354/pupil Operating Referendum that costs their citizens $315 on a $300,000 home. Lake Benton has a $2,381/pupil Operating Referendum that costs their citizens $929 on a $300,000 home. That’s almost three times the tax impact in Lake Benton.

As MREA works to reduce the inequity in Minnesota Public School Finance, this legislation is a step in the right direction. We recognize that this aid will help only some districts, while others will not benefit. MREA will continue advocating on bigger picture funding, such as raising the LOR base, equalization, and allowing more projects into LTFM.