School Finance Puzzle What Can and Cant Board

School Finance Puzzle: What Can and Can’t Board Members Influence? Presented by Wisconsin Association of School Business Officials and Wisconsin Department of Public Instruction, School Finance Team 1

Today’s Presenters • Wisconsin Association of School Business Officials (WASBO) • Wisconsin Department of Public Instruction School Finance Team 2

Global Goals • Enhance awareness and understanding • Raise confidence level of board members in communicating on school finance topics • Help foster an environment of trust between citizens and elected officials 3

The Puzzle Pieces • • Overview Revenue Limits Equalization Aid Tax Levies, Referenda and Tax Bills 4

This Session is Interactive! • The first part of this session is an interactive activity designed to give you an overview of the philosophical basis of Wisconsin school finance. 5

This Session is Interactive! • Questions – There are index cards on your table. Please write your questions on the cards. They will be picked up throughout the afternoon and addressed as we go or at the end of the session. 6

Session Evaluation • This is the twelfth year we have offered this session. We look forward to providing continuing education on school finance topics. • Please complete the evaluation form at the end of the session. We appreciate your feedback on what worked, what didn’t and what you would like to learn more about. • If you need more time you can drop off your evaluation at the WASBO booth - #901. 7

Wisconsin School Finance Overview • Emily Koczela, Chief Financial Officer, Messmer Catholic Schools 8

Revenue Limits • Darren Clark, Assistant Superintendent of Business Services, School District of Waukesha 9

Basic Funding Equation Revenue Limit Authority (-) General Aid (=) Local Property Tax Levy 10

Revenue Limits • In 1993 -94, the State enacted revenue limits to control the amount of revenue a school district can collect through: – State General Aids • • Equalization, Special Adjustment, Chapter 220 High Poverty Aid for Exempt Computer Property Aid for Exempt Personal Property – Local Property Taxes 11

Additional Information ü In your folder you will find copies of your school district’s revenue limit calculation ü DPI School Financial Services Webpage: https: //dpi. wi. gov/sfs 12

Why Revenue Limits? Capped (Controlled) vs Uncapped Revenues Statewide Figures 81. 22% Revenue Limit Non-Capped Revenues 18. 78% 13

Revenue Limits • Think of Revenue Limits as a Pie – The Limit itself is the outer crust – this defines the size of the pie. – There are two fillings: state aids and local taxes. • As one increases, the other decreases. Revenue Limit (District A) 51. 18% State Aid 48. 82% Local Taxes 14

Revenue Limits Property Wealthy District (District B) 18. 18% Property Poor District (District C) 11. 00% 89. 00% 81. 82% State Aid Local Taxes 15

Revenue Limits • Controlled Revenues do not include other revenues such as: – Per Pupil Aid ($654 per FTE in 2018 -19, $630 in 2019 -20) – School Fees – Categorical Aids (Library aid, Transportation aid, Special Education Categorical Aid) – State and Federal Grants – Open Enrollment Tuition Revenue • These revenues are in addition to the controlled revenues under the revenue limit. 16

Revenue Limit Factors • Critical factors in the revenue limit calculation include: – Base Revenue (Prior Year Revenue Limit) – Membership (Full time equivalent resident students) – Allowable Annual Change Per Member ($0 in 2018 -19) – Allowable Exemptions to the Limit 17

Revenue Limit Membership • Membership does not equal Students in Seats – Based on a 3 -year rolling average – Based upon residents • Non-Residents Open Enrolling into the district are not in Membership 18

Impact of Per Member Adjustment • Allowable Per Member Adjustment – The amount of the per member adjustment will impact how much or how little the revenue limit increases. – A drop in the revenue limit membership may offset any increase, when applicable, generated by the per member amount. 19

Per Member Adjustment & Per Pupil Aid . 20

Revenue Limit Calculation Membership Maximum Revenue / Member Revenue Limit with No Exemptions If Membership or the Maximum Revenue per Member increase, the “Pie Crust” (Revenue Limit) can get bigger. 21

Impact of Exemptions Additional Ways to Expand the Pie Crust: • Allowable Exemptions to the Limit – Exemptions typically increase a district’s revenue limit, but the impact is dependent upon whether the exemption is temporary or permanent in nature. – If an exemption is temporary, the district will need a plan to either fund the future expenditures with a different source or eliminate the expenditures. 22

Revenue Limit Versus Expenses • Revenue limits control the amount of money a district can raise • The board chooses how they wish to expend those funds – Balanced budget – Build Fund Balance – Spend Fund Balance 23

QUESTIONS? 24

For More Information For more in depth information on revenue limits attend: A Deep Dive into School Finance Thursday, January 24 – 8: 45 AM Wisconsin Center, 201 AB Presented by WI DPI and School Business Managers 25

Equalization Aid • Bob Soldner, Director, DPI School Financial Services Team 26

Handouts ü District-Specific % Method Equalization Aid ü District-Specific Aid Formula Position Grid 27

Why Equalization Aid? Recall Article 10 of the Wisconsin State Constitution ü“The legislature shall provide by law for the establishment of district schools, which shall be as nearly uniform as practicable…. ” ü“Each town and city shall be required to raise by tax, annually, for the support of common schools therein……” 28

Modern-Day Wisconsin The original funding source for public schools is property tax, but we know that property values across the state are not uniform. The challenge is defining “as nearly uniform as practicable” 29

What is as Nearly Uniform as Practicable? (Does it mean that state aid is the same for all districts? ) $1, 000 $2, 000 $3, 000 $4, 000 $5, 000 10 mil tax (Example: $1, 000 x. 010) $10, 000 $20, 000 $30, 000 $20, 000 $40, 000 $30, 000 $20, 000 $50, 000 $40, 000 $20, 000 $60, 000 $50, 000 $20, 000 $70, 000 30

What is as Nearly Uniform as Practicable? (Does it mean the “Robin Hood” principle with local property taxes? ) $1, 000 $2, 000 $3, 000 $4, 000 $5, 000 $10, 000 $20, 000 $30, 000 $20, 000 $10, 000 $30, 000 $ 0 $30, 000 $40, 000 $-10, 000 $30, 000 $50, 000 $-20, 000 $30, 000 31

State Cannot Recapture From Local Tax Base and Redistribute Buse vs. Smith (1976) NOT LEGAL 32

What is as Nearly Uniform as Practicable? (How about if state aid is related to local property value? ) $1, 000 $2, 000 $3, 000 $4, 000 $5, 000 $10, 000 $40, 000 $50, 000 $20, 000 $30, 000 $50, 000 $30, 000 $20, 000 $50, 000 $40, 000 $10, 000 $50, 000 $ 0 $50, 000 33

Starting To Come Together More local property value per member means less aid from the state. Less local property value per member means more aid from the state. Key Concept in the Equalization Aid Formula 34

Number of Children to Educate $1, 000 $2, 000 $3, 000 $4, 000 $5, 000 10 $100, 000 10 10 $200, 000 $300, 000 10 $400, 000 20 $250, 000 Notice how “wealth” changes after incorporating the number of children to educate. 35

Equalization Aid Formula Takes into account property value AND number of children to educate. Property Value per Member District A: $400, 000 ÷ 800 = 500, 000 District B: $400, 000 ÷ 1, 000 = 400, 000 All other factors being the same, District B will receive a greater proportion of its costs reimbursed as state aid even though they have the same total property value base. 36

Property Tax Yield Because property values vary so greatly across the state, the resources districts can raise from just their tax base also vary. A student should not be unfairly disadvantaged as a result of where he or she lives. Property Tax Base 200, 000 300, 000 400, 000 500, 000 750, 000 Property Value Per Member 1, 000 2, 000 37

Equalization Aid Equalizes Resources Districts with less property value per member are aided at a higher percentage than districts with higher values per member. Equalization Aid Property Tax Base 200, 000 300, 000 400, 000 500, 000 750, 000 1, 000 2, 000 Property Value Per Member 38

Aid Formula: Two Basic Questions Last year… 1. What did you spend “per pupil, ” compared to the state as a whole? 2. What was your property value “per pupil, ” compared to the state as a whole? Remember: In school finance “pupil” means membership – resident kids educated on your district’s dime! 39

“Shared Cost” ü Most school costs are shared between general state aids and local property taxpayers ü Your “shared cost” this year drives your Equalization Aid next year ü Costs funded by the federal government, targeted (“categorical”) state aids, fees, etc. are excluded 40

Statewide School Costs 2016 -2017 [CATEGO RY NAME] [PERCEN TAGE] [CATEGORY NAME] [PERCENTAGE ] Shared Costs (in green) were 81% of statewide school costs

$1 0, 00 0 $1 1, 00 0 $1 2, 00 0 $1 3, 00 0 $1 4, 00 0 $1 5, 00 0 $1 6, 00 0 $1 7, 00 0 $1 8, 00 0 $9 , Lowest Highest $8, 296 $26, 122 State Average $10, 810 42

“Equalized Value” ü Local communities have different property assessment practices ü We need apples-to-apples numbers for fair distribution of taxes & funding ü Department of Revenue takes local assessments and determines a comparable “equalized value” for each local unit of government 43

$1 0 , 2 50 , 0 00 $1 , 5 00 , 0 00 $1 , 7 50 , 0 00 $2 , 2 50 , 0 00 $2 , 5 00 , 0 0 $1 , 0 00 00 0 $7 50 , 00 0 $5 00 , 00 0 $2 50 , Lowest Highest $188, 337 $14, 059, 804 State Average $594, 939 44

Where Do You Live? It is very important to know where your district is “positioned” in the Equalization Aid formula to understand how the formula impacts your district. • “Positive Aid” districts that increase shared costs see an increase in state aid, while … • “Negative Aid” districts that increase shared costs see a decrease in state aid! (all other factors being equal) 45 45

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Get Out Your Aid Worksheet District Sign My District And Stand Up! 47

Equalized Value Per Pupil 48

Line up around the room by your Equalized Value Per Pupil Lowest Highest 49

Percent Aided by Aid Tier 50

Raise your hand if ANY of your Percent Aided by Tier numbers are negative 51

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QUESTIONS? 53

For More Information Joins us for more Equalization Aid discussion: A Deep Dive into School Finance Thursday, January 24 – 8: 45 AM Wisconsin Center, 201 AB Presented by WI DPI and School Business Managers 54

Revenue Limit to Tax Levy • Dan Bush, Consultant, DPI School Financial Services Team 55

Basic Funding Equation Revenue Limit Authority (-) General Aid U (=) Local Property Tax Levy O Y 56

Important! The Revenue Limit is about how much you can levy… …but how much you do levy is a local political decision 57

Who Adopts the Levy? Ø 4 types of school districts in Wisconsin ØCommon: K-8 or K-12, consolidated out of rural/small town districts decades ago ØUnion High School: 9 -12, overlay a group of K-8 common districts that feed into it ØUnified: K-12, usually based around cities ØFirst Class City: Milwaukee Public Schools Ø Tax levy process varies by type 58

Who Adopts the Levy? Ø Common & Union High School Districts ØAnnual Meeting has the power to vote a district’s taxes (s. 120. 10) ØBudget hearing at same time & place (s. 65. 90 (4)) ØSchool Board has the duty to levy a different amount if what the Annual Meeting voted is not sufficient (s. 120. 12 (3) & (4)) ØThe Board can overrule the Annual Meeting…but does that mean you should? 59

Who Adopts the Levy? Ø Unified School Districts ØSchool Board holds the powers & duties of an Annual Meeting (s. 120. 44 (2)) ØBudget hearing still required (s. 65. 90) ØBoard has power to tax (s. 120. 44 (1)) Ø First Class City (MPS) ØHas its own state statutes (ch. 119), beyond our scope today 60

Levies Inside the Limit Ø General Fund (Fund 10) ØMain fund for educational operations Ø Non-Referendum Debt (Fund 38) ØEnough to pay principal & interest payments on debt issued without a referendum Ø Capital Expansion Fund (Fund 41) ØSet aside for long-term capital improvements 10 levy + 38 levy + 41 levy ≤ Max Allowed 61

Levies Outside the Limit Ø Referendum-Approved Debt (Fund 39) ØEnough to pay principal & interest on debt issued with a referendum Ø Community Service Fund (Fund 80) ØCommunity programs & services Ø Uncollectable Taxes 62

Debt Service Levies Ø Best Practice: Adopt separate levies for Fund 38 & Fund 39 Ø Board has a duty to levy “amount necessary” for debt obligations (s. 120. 12 (4)) ØCurrent year principal & interest payments ØAccelerate or “defease” future payments More information: dpi. wi. gov/sfs 63

Fund 80 Levy Ø Tax outside the Revenue Limit for allowable community programs & services Ø Legislature has tightened restrictions over the past several years Ø Unallowed expense = Revenue Limit penalty Ø Questions about a new program? Avoid future headaches—talk with DPI first! 64

Levy vs. Mill Rate • 65

Imagine 2 Districts… 500 identical homes $1 million each $200, 000 each Total value: $500 million Total value: $100 million 66 Image credit: Wikimedia Commons

Imagine 2 Districts… Tax levy $1. 5 million Mill rate $1. 5 million levy ÷ $500 million value × $1, 000 Mill rate $1. 5 million levy ÷ $100 million value × $1, 000 = $3. 00 = $15. 00 Image credit: Wikimedia Commons 67

Imagine 2 Districts… One homeowner’s share $1 million ÷ $500 million = 0. 2% One homeowner’s share $200, 000 ÷ $100 million = 0. 2% Their tax bill $1. 5 million × 0. 2% = $3, 000 Image credit: Wikimedia Commons 68

3 Choices for Boards 1. “Levy to the Max” – Use your full taxing authority under the Revenue Limit 2. “Underlevy” – Use less than your full taxing authority 3. Referendum – Ask your community for more revenue authority Note the word choice, we’ll explain in a bit… 69

A Note on “Underlevy” Ø Different kinds of authority under the Revenue Limit have different consequences if you don’t use them Ø Work with your business official to understand the consequences for your district if you’re considering using less than your full taxing authority 70

Referenda Issue Debt ØBorrow a specific amount of money for a specific purpose ØWording of the question is important! ØRevenue authority: Whatever you need to make debt payments ØWon’t know until you actually issue the debt ØWork with financial advisor to forecast impacts 71

Referenda Operating (Exceed Revenue Limit) ØIncrease your allowed revenue (Equalization Aid plus property taxes) in one or more years ØRecurring: Ongoing increase Year 0 Year 1 Year 2 Year 3 Recurring Referendum Year 4 72

Referenda Operating (Exceed Revenue Limit) ØIncrease your allowed revenue (Equalization Aid plus property taxes) in one or more years ØNon-Recurring: Time-limited increase Year 0 Year 1 Year 2 Year 3 Non-Recurring Referendum Year 4 73

A Note on Referenda Ø 2017 -2019 biennial budget (2017 Act 59) added significant restrictions: ØLimit of 2 questions per calendar year ØOnly held with scheduled regular elections ØEven years: April and November ØOdd years: April only Ø Careful referendum planning and wording even more important than before! 74

Referendum Impact Ø State Aid is a year behind Revenue Limits Ø Aid impact based on how funds are spent: ØYear 1: Spending increase all on the levy ØYears 2 to ? : Depends where you live in the Equalization Aid formula ØPositive Aid: New spending generates aid ØNegative Aid: New spending reduces aid ØPrimary/No Aid: No impact 75

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Positive Aid @ 36% Next $1 spending → 64¢ levy 77

Negative Aid @ – 25% Next $1 spending → $1. 25 levy 78

Referendum Impact Ø State Aid is a year behind Revenue Limits Ø Year 1: Increase is all on the tax levy Ø Years 2 to ? : Depends where you live in the Equalization Aid formula This is why we say a referendum grants revenue authority, not taxing authority! 79

Referendum Impact Ø Work with your business official & financial advisor on projections Ø BUT… ØBe clear they are projections! ØBe conservative in your assumptions ØTomorrow’s reality won’t match today’s projections—be ready to explain 80

Statewide Trends vs. Your Levy Ø Your district vs. statewide average ØSpending per resident student ØProperty value per resident student Ø Policy changes ØMore money in the state aid formula ØWho’s included (e. g. vouchers)? Ø Bottom line: Your state aid—and thus your levy—fluctuates regardless of what you do 81

Voucher Expansion & You Ø Statewide voucher expansion continues under current law Ø Funding model ØState pays vouchers to private schools ØState withholds aid for your residents receiving vouchers ØYou can levy this year for the loss ØYou count them for state aid next year 82

Voucher Expansion & You Ø Impact of funding model ØYear 1: New vouchers 100% on your levy ØYear 2: You get to count voucher students and may generate some aid to make up part of the loss (assuming you get state aid!) ØThe new aid you get in year 2 comes from all the other districts who get state aid Ø Bottom line: Voucher expansion is being funded indirectly through property taxes 83

3 Takeaways Ø Board has 3 basic taxing choices Ø“Levy to the max” Ø“Underlevy” ØReferendum? Ø Referenda grant revenue, not taxes ØUsually: $1 on the ballot ≠ $1 tax increase ØState trends and policies can affect your levy as much as your own choices 84

QUESTIONS? 85

For More Information Joins us for more discussion: Impact of Voucher/Charters on Wisconsin Public Schools Wednesday, January 23 – 8: 00 AM Wisconsin Center, 102 C Presented by WI DPI and School Business Managers 86

From School Tax Levy to Property Tax Bill • Steve Summers Business Manager, Waunakee Community School District 87

Assessed Valuation • Determined by municipalities – Consequently, equivalent properties in different municipalities may not be valued equally (Assessment Ratio) • Not required to be updated each year 88

Why Equalized Value Is Used To Distribute Levy distribution based upon equalized value • Treats all municipalities as though they had been revalued during the year • Offsets variances in assessment practices between municipalities • Updated annually by the State Department 89 of Revenue

Distribution of Levy Among Municipalities A municipality’s total equalized value in school district (divided by) The total equalized value for all municipalities in school district = the municipality’s share of school district levy 90

Distribution of Levy Among Municipalities (2017 -18) 91

Distribution of Levy Among Municipalities (2018 -19) 92

Distribution of Levy Within Municipalities Property Owner’s share of = school district levy Property Owner’s total assessed value in municipality (divided by) Total assessed value for all taxable property in the municipality 93

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Levy and Assessed Value The effect of a re-assessment on the school district’s tax levy or their ability to generate revenue is $0 95

Tax Incremental Districts The effect of a tax incremental district on the school district’s ability to generate revenue is $0 There is an effect on the tax distribution 96 of the school district levy

Example Property Tax Bill 97

QUESTIONS? 98

For More Information Joins us for more discussion: A Deep Dive into School Finance Thursday, January 24 – 8: 45 AM Wisconsin Center, 201 AB Presented by WI DPI and School Business Managers 99

Additional Resources • • • DPI Finance Team - dpi. wi. gov/sfs WASBO – WASBO. com WI Department of Revenue - revenue. wi. gov/ Legislative Fiscal Bureau - legis. state. wi. us/lfb/ Wisconsin Policy Forum - wispolicyforum. org 100

Thank you for joining us today. 101