WASBO – Accounting
Budgeting Committee
Local Levy & State LEA –
A History and Overview
January 2013
Topic Outline
•
•
•
•
•
Levy Overview
Levy History
Levies Today
Local Effort Assistance (LEA)
A Brief Review of Ross Hunter’s Levy Swap
Proposal
• Questions & Answers
2
School Levies
OVERVIEW
3
Maintenance and Operation Levy
• The State Constitution (Article VII, Section 2)
gives school districts authority to levy local
property taxes provided the voters of the district
approve the levy by a 50 percent “Yes” vote in a
district-wide levy election. Such local levies are
sometimes called “excess levies” because the levy
is in excess of the statutory 1 percent limit on
property tax. They are also referred to as “special
levies“ because they require voter approval.
4
Levy Limit
•
The current structure allows a district to raise up to
a calculated amount based upon a district’s “levy
base” (loosely defined as most prior year state and
federal revenues), times 28 percent or higher if
grandfathered.
5
Levy Frequency
• Local school boards may submit levies for initial
voter consideration on state primary, state general,
or standardized election dates as provided by law.
• School districts may run a levy only two times in a
calendar year. Unsuccessful levies may be
resubmitted in subsequent years.
6
Local Levies - Statistics
• Local levies made up about 20 percent of total
school district maintenance and operations (General
Fund) revenues for the 2010-11school year.
Districts differ significantly in their dependence on
local levies.
• In 2011, 281 of the state’s 295 school districts
passed General Fund M&O levies. The average
revenue per FTE student statewide was $1,954
7
Levy Lid
• Current Levy Lid
• Under the current law, a school district’s levy lid
equals:
• (Levy Base x Levy Authority Percentage) ±
Transfers - Maximum LEA
• A district’s levy base includes most state and
federal revenues for the prior school year.
• This base is further increased by the percentage
increase in state basic education funding per pupil
between the prior and current school years and
divided by 55 percent.
8
School Levies
HISTORY
9
Levy Origins
The failure of Seattle School District’s excess levy in 1976
resulted in the Doran decision which created the current
levy structure.
• Prior to 1977:
– No limit on amounts school districts could raise from
local levies.
– Seattle School District levy failed in 1976, prompting a
law suit against the state.
• 1977 Doran Decision:
– State must define and pay for basic education through a
regular and dependable tax source instead of a heavy
reliance on local excess levies.
10
Doran Decision and The Place of Levies
While there were a numerous legal principles established in the Doran
decisions, some of the more significant include:
 Education is the “paramount duty” of the state and takes precedence
over all other state financial obligations.
 Local school operations levies may be allowed as long as they enrich
programs outside of the legislative definition of basic education, and
are not used to reduce the state’s obligation to fund basic education.
11
Along with enacting the Basic Education Act and
increasing state funding for education, the
Legislature passed legislation limiting local levies.
• 1977 Levy Lid Act:
 Beginning in 1979, limited most school district
levies to 10 percent of a district’s basic education
allocation.
 Grandfathered above 10 percent those districts that
historically relied heavily on M&O levies; planned
phased down of grandfathered levy authority to 10
percent by 1982.
 Plan to bring grandfathered districts down to 10
percent was eventually abandoned.
12
After the Doran decision, excess levies as a
portion of school district general fund
revenues dropped dramatically… for a short
period.
.
Levy as % Of Total School District Revenues
35.0%
30.0%
Seattle School
District Levy
Fails
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
13
Ten years later, the Legislature increased the
amount districts could raise through local
levies and created the local effort assistance
program.
• 1987 Legislature:
 Doubled the levy lid to 20 percent of state and
federal revenues to districts beginning with the 1988
collections. Many districts were still grandfathered
at higher levy lids.
 Adopted levy equalization program. The formula
equalized to 10 percent of state and federal revenues
to districts.
• This principal of equalizing to one-half of the levy
lid remains to this date.
14
Throughout the 1990s, the Legislature continued
to increase the amount districts could raise
through local levies and increased levy
equalization.
• 1993: Increased levy authority by 4 percent for
1994 and 1995.
• 1995: Extended the 4 percent increase in levy
authority for 1996 and 1997.
• 1997: Increased levy equalization to 12 percent for
74 districts with the highest property tax rates
beginning in 1999.
• 1999: Increased levy equalization to 12 percent of
state and federal revenues for all qualifying districts
beginning in 2000.
15
Today
• Continued state funding shortfalls and
requests from school districts resulted in the
legislature raising the levy lid to 28% in
2010 with a corresponding LEA rate of
14%.
• 91 districts remain grandfathered at rates
higher than the 28.0%. Highest rate is
37.90%
16
While the legislature has increased the levy
lid they have also increased the base that it is
applied to.
• 1977 - Base included only basic education.
• 1979 - Base was expanded to included state categorical
funding.
• 1987 - Base was expanded to include selected federal
revenues and state block grants.
• 2005 - Base increased to include unfunded increases in
I-728 funding and I-732 salary COLAs. “Ghost
Monies”
• 2010 - Base increased once again to include K-4
staffing enhancements that were eliminated in the
budget.
• These base changes have the cumulative impact of
increasing the 2012 levy base from $5 billion to $8.3
billion.
17
So Summarizing The Impact…
• Had no changes been made in the levy rate or the
levy basis as implemented in 1977 act the 2011
levy authority would have been approximately
$510 million.
• The actual 2011 levy authority was $2.26 billion
18
How Has This Affected Tax Rates For Levies?
Levy Rate $/1,000
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$75
79
83
87
91
95
99
03
07
19
11
How Are Levies Being Used??
• While the state defined accounting system does not
specifically trace expenditures back to the use of
levy and LEA dollars, using 2008-09 information
OSPI compared the basic ed funding to the actual
results reported by districts.
• The result provided the most objective answer
available to how districts are using levy/LEA
dollars.
20
Are Levy Dollars Being Used For Basic Ed??
Program and Expenditure Purpose
1 Levy, LEA, & Misc. discretionary revenue
2 Extra curricular / community
Levy Funds Expended in Millions $ 2,083.1 (85.5)
‐4.0%
(130.8)
‐6.1%
(77.2)
‐3.6%
5 NERC
(502.6)
‐23.3%
6 Add’l BE/CTE classified staff
(168.5)
‐7.8%
7 Add’l BE/CTE instructional staff
(195.0)
‐9.0%
8 Market salary (classified staff)
(210.7)
‐9.8%
9 Market salary (administrative)
(169.7)
‐7.9%
(608.8)
‐28.2%
(11.7)
‐0.5%
3 Pupil transportation
4 State special education
10 Market salary (instructional)
11 Food Nutrition
12 Total
$ (2,160.5)
‐100.0%
Based upon OSPI analysis of 2008-09 state funding, S-275 and F-196 accounting
21
School Levies
LOCAL EFFORT ASSISTANCE
22
The purpose of the Levy Equalization
Allocation (LEA) is stated in statute.
“
The purpose of these funds is to mitigate the effect
that above average property tax rates might have on
the ability of a school district to raise local
revenues to supplement the state’s basic program of
education.
These funds serve to equalize the property tax rates
that individual taxpayers would pay for such levies
and to provide tax relief to tax payers in high tax
rate school districts. These funds are not part of the
district’s basic education allocation.”
RCW 28A.500.010
23
The formula equalizes the property tax rate
necessary to raise an amount equal to 14
percent of a district’s levy base.
• LEA is based upon ½ of the state levy percentage.
• If the tax rate necessary for a district to raise an
amount equal to 14 percent of its levy base is
greater than the statewide average tax rate, the
district is eligible to receive LEA.
• To qualify for an allocation, a district must have a
voter approved levy.
• The maximum levy authority amount for a district
is decreased by the amount of LEA it receives.
24
Local Effort Assistance – Example
Average District
14% of Levy Base = $3.5 million
District "A"
14% of Levy Base = $ 3.5 million
Assessed valuation = $ 2.7 billion
Assessed valuation = $ 1.2 billion
Tax Rate needed to raise $3.5 million
$1.27 per $1,000
Tax Rate needed to raise $3.5 million
$3.00 per $1,000
$ 1.49 million = Amount that can be collected with the average levy rate of $ 1.27 per $ 1,000
$ 3.5 million = Amount collected from local taxpayers with rate of $ 1.27 per $ 1,000
$2.01 million = Amount received in local effort assistance. Equivalent to $ 1.73 per $ 1,000
25
Over 70% of school districts are receiving levy
equalization funding this year.
• 221 districts are receiving levy equalization in CY 2012.
• 72 percent of the students are in districts receiving LEA.
• Of the 74 districts that aren’t receiving LEA, 13 are
eligible but do not qualify because they did not pass a levy.
220
200
180
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
160
140
120
100
19
90
Number of Districts
Number of School Districts Receiving Levy
Equalization Funding
Calendar Year
26
School District Eligibility for LEA
LEGEND
Receiving LEA
Not Eligible
.
Eligible, No M&O Levy
27
The Costs of LEA Have Grown Significantly
$350.0
$300.0
State Costs in
Millions
$250.0
$200.0
$150.0
$100.0
$50.0
$89
92
95
98
01
04
06
08
28
11
The Costs of LEA As A Percent of Levy
Revenues Has More Than Tripled.
LEA % Of Levy Authority
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
89
92
95
98
01
04
06
08
29
11
Levy Swap Refresher
Ross Hunter’ Levy Proposal
• Rising local levies are
almost back to the late
seventies, the levels that
prompted the original
lawsuit.
• System is inexplicably
complicated.
• Large variations in system
are based upon arbitrary
reasons.
Levy / LEA
Levy as a Percentage of Budget
(SY2010-11 GF Budget)
80
70
60
72
Number of
Districts
73
53
50
36
40
30
20
10
20
20
14
7
0
Increasing
Inequity
Amount Per Student
140
123
Number of
Districts
120
100
100
80
60
55
40
20
13
4
0
Variation of
Levy per
Student
Levy authority varies widely
between districts, often for
arbitrary reasons
250
205
200
# Districts
150
100
50
37
13
13
27
0
= 28% >28% >30% >32% >35%
and
and
and
and
<=30% <=32% <=35% <=38%
Systemic
Inequity
Districts Receiving LEA
250
221
200
163
150
100
50
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
0
LEA – A
Growth
Industry
• New system should be
– Fair
• Basic ed funded by State, not
locals
• Larger % of taxes collected
statewide, not locally
– Adequate
• Meet basic ed responsibility
• If not today, then ensure a growth
path that does
– Reliable and Stable
• More money protected as Basic Ed
• Levies not subject to elections
every 4 years
What To Do
- Just Fix It
• Increase Common School
Levy $1.17 to $3.20.
• Projected amount $1.09
Billion
• Provide money to districts
via basic ed formula.
• Offset local levy rate for the
increased state funding
amount provided to district.
Proposal
Overview
1. Revenue-Neutral swap of local
levies for common school levies
Use new basic ed model to drive out
new money.
2. Allow growth greater than 1%
as we recovery from recession.
3. Reset levy caps at $2,500 per
student.
4. Make levies reliable by making
them permanent.
Proposal:
Local Levy
Swap
• State - Common school levy works
better than LEA.
• More money is basic ed – protected.
• Growth starts to pay for
constitutional requirement of ample
funding.
• Eliminates all grandfathering, a
huge problem among Puget Sound
districts.
WHY??
Proposal - Reactions From Districts
• Funding through the basic ed formula – No details
provided as to which factors would change.
• Original proposal was silent on LEA – not clear
that LEA would continue.
• Proposed changes to local levies would impair
district’s ability to receive LEA. In some cases
actual eliminate all LEA to a district.
• Tax burden on the Pugetopolis population would
increase with little to no improvement in the local
school district revenues. A difficult sell politically.
$2,500 cap may have to increase significantly to
sell it in King County.
40
QUESTIONS
&
ANSWERS?