Tax Cap Information
As you may know the state legislature approved a new law limiting the amount that a school district can increase its' tax levy. Below is some information regarding the new law and exactly what it allows school districts to plan for in the next year. Please read the information and familiarize yourself with how this law really works.
Misconceptions:
- There is a 2% tax cap. Fact: The new law created a set of thresholds that are used to determine how much a district can increase its' tax levy. In reality, a district can increase its' levy by any amount if more than 60% of the voters approve the proposed budget.
- An individual tax bill can only go up by 2%. Fact: The new law only regulates how much a tax levy can increase. If a homeowners assessment increases substantially, their tax bill will also increase substantially. In many cases this will result in a tax bill that increases by much more than 2%.
- The voters are only approving the proposed tax levy. Fact: Voters will continue to approve only the proposed budget, not the tax levy.
Click here to review the new tax law and how it directly affects schools.
Important Terms
During the school budget development process, the Board of Education and Administration will refer to three terms: tax levy limit, the maximum allowable levy, and the proposed tax levy. Each of these terms are described below.
The tax levy limit is the number calculated by a state-dictated formula that takes into account inflation (2 percent or the current Consumer Price Index, whichever is less), any PILOT payments (payments in lieu of taxes) a district receives, and prior year exemptions.
The maximum allowable levy is the tax levy limit plus the state-approved exemptions for the coming school year under the law, such as capital local expenditures, certain pension payments, and certain court orders/judgments.
The proposed tax levy is the amount of money the school needs to raise in taxes to fund its proposed budget. Schools get funding from two major sources: state aid and property taxes. On the third Tuesday of May each year, residents vote on the proposed school district budget in their communities — meaning, voters decide on the overall district spending plan, not on the specific tax levy figure.
Exemptions
The “cap” or threshold that determines whether a district needs a simple (50 percent plus 1) or super (60 percent) majority to pass a school budget is based on the tax levy limit. However, it is possible for a district to propose a school budget that requires a tax levy that is above the limit and still only need a simple majority for the budget to pass. The new law allows certain exemptions to be excluded from the tax levy limit.
Those exceptions currently include capital local expenditures, certain court orders/judgments, and certain portions of employee retirement costs.
Capital tax levy is the tax levy necessary to support capital local expenditures. Capital local expenditures are the local taxpayer-supported portion of the capital tax levy. It is budget expenditures resulting from the construction, acquisition, reconstruction, rehabilitation or improvement of a district capital facilities or equipment, including debt service and lease expenditures and transportation capital debt service that are funded by the taxpayers.
The Court orders/judgment exemptions are the tax levy necessary for expenditures resulting from court orders or judgments arising out of tort actions for any amount that exceeds 5 percent of the total taxes levied in the current school year. This excludes tax certioraris. Pension contribution cost increases that exceed two percentage points are also exempt. For example, if employer pension contribution costs increase from 14.6 percent of payroll to 16.8 percent — a 2.2 percent different — only the funding for 0.2 percent of the increase is exempt.
Once those exceptions are added to the tax levy limit, the result is the maximum allowable levy a district can propose for which only the approval of a simple majority of voters (more than 50 percent) is required. Any proposed tax levy amount above this limit will require budget approval by a super majority (60 percent or more) of voters. Refer to the Sample overview of Tax Law and Calculation document above for a brief review of the formula and how exemptions are used.
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