MREA Encourages HF3224 to Bring Equalization to Revenue Streams
HF 3224 is a comprehensive bill that will bring more equalization to district’s multiple revenue streams like LOR, Debt Service, Operating Referendums, Consolidations, and Cooperative facilities. The bill rebases the equalization formulas to a fixed percent of property wealth per pupil (125% of ANTC/pupil for instance). The intended effect is to maintain a more consistent state share of levies over time. Many of the equalization formulas have not been adjusted significantly since the 1990’s while property tax values have changed significantly in many areas of the state.
MREA has been working closely with the other education organizations to get this bill passed, as it would positively affect all districts in the state. This article focuses specifically on Operating Referendum Equalization and Local Optional Revenue (LOR) Equalization.
The bill size and dollar amount will be changing quickly, so MREA is teaming up with the Schools for Equity in Education (SEE) in a meeting on Tuesday, March 22 at 7 am to discuss this issue.
Operating Referendum Equalization
For operating referendums, HF3224 will increase the equalization by basing the aid off referendum equalization factor that will increase as Referendum Market Values (RMV) increase. The factor is calculated by taking the RMV of all schools in the state divided by the Total Resident Pupil Units (RPU) for all students in school districts for the year before the referendum. Then, it is multiplied by 125%. A district’s equalization levy revenue is calculated by taking a district’s levy revenue multiplied by RMV/RPU for the district and dividing it by this equalization factor. If this number is greater than 1, the district will not receive equalization. The equalization revenue is found by taking your district’s referendum equalization allowance times the adjusted pupil units for that year. In the end, your Equalization Aid is calculated by taking your levy and subtracting out your equalization levy revenue. The nice thing about this factor is that it is not stagnant. As property values increase, the factor also increases. These changes will start in FY24. The other piece of this is that it replaces a two-tiered system of equalization, thus simplifying the equalization of Operating Referendums.
Example: Higher Property Value
Spring Lake Park
Equalization factor is $883,459 (set by state data)
District’s operating referendum revenue = $1,318,936
District’s RMV/RPU = $714,188
Equalized Levy = 1,318,936 * (714,188/883,459)= $1,066,227
Equalized Levy = Levy Rev * (District RMV/RPU divided by Equalizing Factor)
***Any district that has RMV/RPU greater than 883,459 will receive no Equalization Aid in this example***
Equalization Aid = 1,318,936 – 1,066,227 = $252,708
Equalization Aid = Levy Revenue – Equalization Levy
In the end, this results in a property tax savings for residents. Many districts do not have an operating referendum, so this bill will not affect them immediately, however in the future they may have an easier time passing an operating referendum at this higher equalization rate. At the time of this article, accurate numbers for operating referendums were not available. When they become available, MREA will distribute a map to members.
Local Optional Revenue Equalization
HF3224 also simplifies how LOR is equalized. Currently there is a two-tier system with equalization factors of $880,000 per pupil and $510,000 per pupil for each tier (FY22 had a one year amount of $548,842 per pupil). Under this bill, the current $724 per pupil allowance would raise to $825 for FY23 and then from FY24 on it would be tied to the general education basic formula allowance for that year by taking $825 multiplied by general education basic formula allowance/$6,863.
The local optional levy amount is calculated by taking your LOR times a District’s RMV/RPU divided by the equalizing factor. If the RMV/RPU divided by the equalizing factor is equal to or greater than 1, the district will not receive Local Optional Aid. This equalizing factor is based on state numbers of RMV/RPU and then multiplying by 150%. To figure out a district’s local optional aid, take the Local Optional Revenue minus your Local Optional Levy. There are two parts to this bill. The first is additional revenue a district will receive ( in 2023 it would be $101/pupil). The second is levy reduction due to the increased equalization. The reduction in the levies would reduce property taxes on all properties in a district.
Example 1:
Wrenshall – This district has a high RMV/Pupil
District LOR Revenue = $311,355
District RMV/RPU = 1,066,267
State Equalization Factor = $1,060,651 (set by state numbers)
Local Optional Levy = 311,355 * (1,066,267/1,060,651) = 313,004
Local Optional Levy = LOR Revenue * (District RMV/RPU divided by State Equalization Factor)
If the ratio is greater than 1, as in this example, the district will receive no aid
Local Optional Aid = 311,355 – 311,355 = 0
Example 2:
Mountain Lake – This district has a low RMV/Pupil
District LOR Revenue = 452,430
District RMV/RPU = 339,995
State Equalization Factor = 1,066,267 (Set by state numbers)
Local Optional Levy = 452,430 * ( 339,995/1,066,267) = $144,264
Local Optional Aid = 452,430 -144,264 = $308,166
Notice how the higher the property wealth a district has, the less aid that is produced in LOR.
Once again tying LOR to the basic formula allowance and rebasing it to state property wealth will allow the state’s share to remain consistent over time.
MREA created a district map for the LOR formula at 150%, but we are still waiting on accurate data for the Operating Referendum formula at 125%. Just like with the Operating Referendum portion of the bill, this part of the bill would reduce property taxes. The median reduction on a $200,000 house is $15. This portion of the bill would not help many of the metro schools, but the vast majority of MREA districts would see a reduction in property taxes. On top of the property tax reduction shown on the map, the bill will also increase LOR revenue for each district by $101 per pupil.
