Measuring the Impact of Tax and Expenditure Limits on Public School

Property Taxes

http://coloradofutures.colostate.edu/

Colorado Continues to Face a Structural Imbalance

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FY 13-14 FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30

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TABOR refunds SB 228 HUTF and CC Reserve

K-12, HCPF and Corrections Additional GF for Medicaid SUBTOTAL all other depts

Revenue less rebates and exps and less EITC

Source of the Structural Imbalance

113.33%

206.28%

95.27%

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Cumulative Growth Rates from FY 13-14 through FY 29-30

Education HCPF Revenue

TABOR and Sales Tax Changes Provide an Almost Complete Short-Term Solution

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Gap Eliminate TABOR Refund ST on Services

Closing the Remaining Gap

• Requires addressing school finance

• Address local share of school funding

• Address the structure of the property tax system

• Options will require

• Better balancing state/local partnership for funding schools

Or

• Developing a replacement funding model for schools

System of Financing K-12 Education Remains Broken

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1993-94

1993-94 Mills

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2012-13

2012-13 Mills

The Dynamics Behind the Declining Levies The 2 school district limits of TABOR: 1. the property tax revenue limit 2. the mill levy limit

Scenario 1, Fluctuating Enrollments, Stable Tax Base

• Mill levy can’t increase during periods of enrollment increase due to mill levy limit • State picks up the tab for program cost growth

• Mill levy must decline during periods of declining enrollment due to property tax revenue limit reduction • In most cases, total program cost does not decline as fast as property tax

revenue (due to increases in formula funding factors) so the state must make up the difference

• The bottom line is that for these districts, state share increases while mill levies are reduced

Scenario 2, Stable or Mildly Fluctuating Enrollments, Wildly Fluctuating Tax Base

• During periods of rapid tax base growth, mill levies must be reduced due to property tax revenue limit

• During subsequent periods of tax base decline, levies can’t be increased due to mill levy limit • Lower local share means that the state needs to backfill more of the total

program plus absorb the cost of funding formula increases

• During later periods of tax base growth, mill levies are again forced to be reduced while maintaining the same state/local split

• Mild enrollment fluctuations exacerbate the dynamics for these districts over time

Scenario 3, Substantial Tax Base Growth Not Accompanied by Enrollment Growth

• Steady growth in tax base occurs in areas affected by recreational, gaming, and extractive industries.

• The growth in tax values does not correspond to enrollment growth

• Mill levies must be reduced due to the property tax revenue limit • To the extent the PSFA formula produces funding levels growing faster than

the property taxes allowed by the limit, the state must make up the difference

• Mild enrollment fluctuations can amplify these dynamics over time

Colorado Now Has 21 Districts Levying Fewer than 10 Mills; Eight in Top Quintile for Median Household Income

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Decline in Property Tax: Districts Under 10 Mills

2014-15 Property Tax on $100,000 residence (RAR = 7.96) 1993-94 Property Tax on $100,000 residence (RAR = 12.86)

* State share increased from 1993-4 to 2014-15

Our Current Research Focus: TEL Related Distortion to School Property Taxes

•We investigated: • Distributional changes in effective tax rates • Changing incidence of the school property tax • District spending disparities; the use of override levies • Whether TABOR has limited taxes for all taxpayers

RESEARCH FINDINGS

Finding 1. As measured by effective tax rates, local property tax burdens to support the school finance act have become more unequal since the passage of TABOR.

Change in Effective Tax Rates on the Median Household, 2000-2014

This Has Resulted in the School Property Tax Becoming More UNEQUAL

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Maximum Effective Rate Minimum Effective Rate Spread Standard Deviation

Median Taxpayer Effective Tax Rates - PSFA mills

1990 2000 2009 2014

Finding 2. As measured by effective tax rates, the local property tax to support base school programs has become more regressive.

All Levies Except for Override Levies Have Become More Regressive

Progressivity Coefficient of the PSFA Mill levy Progressivity Coefficient of the override mill levies Progressivity Coefficientof total school mill levies

1990 0.009 0.022

2000 0.005 0.003 0.014

2009 0.002 0.003 0.010

2014 0.001 0.004 0.008

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Progressivity Coefficients of Major School Mills

1990 2000 2009 2014

Finding 3. District level funding disparities increased as the use of local override levies became increasingly prevalent in districts with falling effective property tax rates for base school programs.

Use of Override Levies Uneven Statewide

Is the Uneven Use of Override Levies Related to TABOR?

Dependent Variable: MILLS_OR_2014

Method: Stepwise Regression

Date: 05/14/15 Time: 10:28

Sample (adjusted): 1 176

Included observations: 170 after adjustments

Number of always included regressors: 1

Number of search regressors: 10

Selection method: Stepwise forwards

Stopping criterion: p-value forwards/backwards = 0.1/0.1

Variable Coefficient Std. Error t-Statistic Prob.*

C -1.273874 1.187191 -1.073015 0.2848

POP 2.68E-05 4.35E-06 6.146960 0.0000

ED_ATT 13.43090 2.786070 4.820733 0.0000

AV_PER_PUPIL_14 -2.81E-06 8.72E-07 -3.228421 0.0015

PSFA_MILL_CHG 0.205758 0.063091 3.261279 0.0013

CHG_EFF_RATE -250.3092 104.5744 -2.393598 0.0178

R-squared 0.370895 Mean dependent var 4.091959

Adjusted R-squared 0.351715 S.D. dependent var 5.171445

S.E. of regression 4.163850 Akaike info criterion 5.725413

Sum squared resid 2843.373 Schwarz criterion 5.836089

Log likelihood -480.6601 Hannan-Quinn criter. 5.770324

F-statistic 19.33753 Durbin-Watson stat 1.498900

Prob(F-statistic) 0.000000

Selection Summary

Added POP

Added ED_ATT

Added AV_PER_PUPIL_14

Added PSFA_MILL_CHG

Added CHG_EFF_RATE

*Note: p-values and subsequent tests do not account for stepwise

selection.

• The use of overrides is more prevalent in districts that: • Are LARGER in population

• Are MORE EDUCATED – as measured by educational attainment of head of household

• Have LOWER assessed value per pupil – likely a vestige of Gallagher

• AND HAVE SEEN THE LARGEST DECLINES IN EFFECTIVE TAX RATES SINCE THE PASSAGE OF TABOR

Finding 4. As a result of TABOR, taxpayers in 74 of the state’s 178 school districts (81% of taxpayers) currently pay more in school property taxes than they would if TABOR were never enacted.

How Can a Limit Result in 81% of Coloradans Paying MORE in Property Taxes?

THIS TAKES

SOME EXPLAINING…

The Explanation is Distributional

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State Share vs. Modeled Uniform Levy, 2014-15

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State Share vs. Current Levies, 2014-15

Geographic Distribution of TABOR’s Distortion

Ten Districts Most Adversely Affected by TABOR’s Redistribution

Amount TABOR’s redistribution is costing the median household

Cheyenne Mountain School District 12, Colorado $ 135.97 Elizabeth School District C-1, Colorado $ 105.83 Academy School District 20, Colorado $ 101.06 Poudre School District R-1, Colorado $ 81.63 Windsor School District RE-4, Colorado $ 77.38 Strasburg School District 31J, Colorado $ 70.80 Northglenn-Thornton School District 12, Colorado $ 70.67 Jefferson County School District R-1, Colorado $ 70.18 La Veta School District RE-2, Colorado $ 68.96 Douglas County School District RE-1, Colorado $ 68.34

The Top Ten Beneficiaries of TABOR’s Redistribution and the Median Household Impact

Steamboat Springs School District RE-2, Colorado $ (525.20) Durango School District 9-R, Colorado $ (477.48) Eagle County School District RE 50, Colorado $ (403.17) Garfield School District RE-2, Colorado $ (375.26) Norwood School District R-2J, Colorado $ (365.12) Telluride School District R-1, Colorado $ (364.15) Ridgway School District R-2, Colorado $ (353.75) Bayfield School District R-10-JT, Colorado $ (344.22) Plateau Valley School District 50, Colorado $ (247.37) Silverton School District 1, Colorado $ (229.96)

Steamboat ranks 28th in state in household median income (ACS 2009-13 5 year survey)

Summary of Findings

• School base program property taxes now more unequal

• School base program property taxes now more regressive

• TABOR contributing to larger district disparity in the use of overrides

• As a result of TABOR, 81% of Coloradans are paying more in base program school property taxes

Conclusion: Property Tax and the Financing of K-12 Education

• 2013 Lincoln Institute Conference Proceedings in Education Finance and Policy

• Major themes • Unintended consequences on education finance from state level legislation

• Potential for school finance and property tax policies to introduce distributional inequities into the system of public education finance

• Importance of the property tax in the financing mechanisms for K-12 education

• School finance in Colorado is a microcosm of phenomena occurring at varying degrees across the US.

http://coloradofutures.colostate.edu/

Thank You

This research was supported by a grant from the Lincoln Institute of Land Policy