Given the great amount of discussion about property tax relief and the potential for a special session to address the issue, our factoid this month will try to put things into perspective.

First, what are we really talking about regarding property taxes for public schools? There are several categories of property tax levies that school districts impose. Bond levies to build or renovate facilities, emergency levies to address unforeseen enrollment increases, and supplemental levies to bridge the gap between other support and district needs. But by far the largest impact on property taxes is from the Maintenance and Operation levy.

Maintenance and operation (M&O) levies are set by statute at 0.3% of previous year’s market value. In the time span from which valuations are set and the levies are established, property values may have changed again. As the value of property increases or decreases in this time span, the actual levy may be more or less than 0.3% when property tax bills are sent out in December.

One of the unique features of the M&O levy is that it will always hover around 0.3% of market value. Other property tax levies move up or down depending on market values and budget increase limitations. For example, if a taxing entity needed $10,000 to operate and the total market value was $10 million, the levy rate would be 0.1%. If the market value increased 20%, the taxing entity would still only need $10,000 and therefore the levy rate would decrease to 0.083%. For an M&O tax, the levy rate remains the same and therefore the amount collected from taxpayers increases by the 20% increase in market values.

In addition, M&O taxes are imposed without a vote of the people. Other property tax levies, with the exception of emergency levies, are voted on by the patrons of the school district. In the case of emergency levies, the board of trustees of the school district may impose the additional levy but only for one year. So the troublesome aspect about maintenance and operations levies is that they increase as property values increase and the school district imposing the tax and the persons paying the bill do not have a say in the amount imposed.

Generally speaking this is not a negative situation since the funds raised locally are providing for the education of the children and grand children of the taxpayers. Where things start to get funky is when you throw in the process of equalization. Equalization is the concept of using state resources in the public school budget to aide districts that may not have the market value wealth of other districts. The legislature establishes an amount of spending per classroom unit and makes sure through equalization that property poor districts receive more state dollars than property rich districts. The end result for school districts with rapid market value increases is more money from the local property tax and less money from state support with no change in the resources available to the district.

The process of property valuation, local government budgeting, and setting levy rates is an extremely complex and challenging task. The hope is that this factoid can shed a little light on one aspect of that process.

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