Minnesota House Focuses on Local Optional Revenue as an Area to Lower Property Taxes
New LOR formula, an interactive map, and an MREA legislative win
House File 3224 had many pieces which would increase financing and equalization of LTFM, LOR, Debt Service, and Operating Referendums. It also had MREA’s cooperative facilities language in it, as well as consolidation language. Last week, the bill was heard in the House Property Tax committee and was significantly cut back. The only thing that survived the bill was equalization of LOR using an equalization factor at 170 percent of the states RMV/RPU. Originally the bill was going to raise the $724 per pupil a district currently receives on LOR to $825 per pupil, but that was cut as well.
MREA was incredibly disappointed with the removal of our Cooperative Facilities language. However, we are pleased to report that Sam Walseth, MREA’s Legislative Affairs Director, successfully lobbied this language back into the bill last week.
LOR equalization will help most MREA districts with property tax reduction. The fact that the equalization is rebased to state property values each year is promising to keep this funding source from losing its financial power over time. This bill is now part of the House Property Tax committee bill, HF 4064, which will get rolled into the House omnibus tax bill later this week.
The legislation will not take place until FY24. It would provide over $41.7 million in property tax relief in FY24 and $53.2 million in property tax relief in FY25.
There is currently a first-tier equalization cap for LOR of $880,000. With the new formula, it takes the States RMV/RPU for the year before the levy is certified times 170 percent. This new factor changes as the market value of the state’s properties changes. For 2024 the cap is projected to rise to $1,201,504, and then in 2025 it is projected to rise to $1,303,749. It’s important to note that the proposed new equalization only affects the first-tier equalization of LOR.
How does this help a district in FY24?
MREA has provided an example of the new LOR formula below, using Detroit Lakes as an example. To simplify, this example uses a district, like many districts, that does not receive Tier 2 LOR equalization.
|Detroit Lakes School District|
|RMV/RPU = 678,507|
|APU = 3150.6|
|Baseline LOR (724 * APU) = $2,281,034|
|Old Formula||New Formula|
|Old formula with $880,000 cap on Equalization for Tier 1 for the First $300 of LOR||New formula based on 170 percent above State RMV/RPU factor|
|Detroit Lakes would not qualify for Tier 2 equalization on the remaining $424 because they are over the 510,000 RMV/Res Pupil.||New formula does not affect the Tier 2 criteria of $510,000|
|New state factor = (RMV of all districts in state/Resident Pupil Units of all districts in the state) * 170% = $1,201,504 for FY24|
|Tier 1 Revenue = $300 * APU||Tier 1 Revenue = $300 * APU|
|Tier 1 Revenue = $300* $3,150.6 = $945,180||Tier 1 Revenue = $300* $3,150.6 = $945,180|
|Tier 1 levy = Tier 1 revenue * lesser of 1 or districts RMV/Res Pupil divided by $880,000||Tier 1 levy = Tier 1 revenue * lesser of 1 or districts RMV/Res Pupil divided by State Factor|
|Tier 1 levy = $945,180 * (679,507/880,000) = $728,763||Tier 1 levy=
$945,180 * (678,507/ 1,201,504) = $533,757
|The state would be equalizing the levy by||The state would be equalizing the levy by|
|Levy Revenue – Equalization levy||Levy Revenue – Equalization Levy|
|$945,180 – $728,7673 = $216, 417||$945,180 – $533,757 = $411,423|
New proposed Tier 1 equalization – Old Tier 1 equalization Under the new formula Detroit Lakes can expect an additional reduction of:
411,423 – 216,417 = $195,006 off their FY 24 levy
MREA has developed an interactive map where districts can see how HF 4064 affects their property taxes on a $300,000 house. The median reduction in property taxes would be $28 on a $300,000 house. Most districts will see close to the median reduction in property tax value of $28, with the greatest reduction in property taxes in Houston where there would be a reduction of $119 on a $300,000 house in FY24. When the new language takes effect in FY24 districts whose property values do not keep up with the state property values will be the districts that see the greatest benefit from this proposed new language.