HOUSE REPUBLICAN STAFF ANALYSIS ______________________________________________________________________________ Bill: Committee: Date: Staff: Members:
House File 2274 (formerly HSB 519) Ways And Means February 14, 2012 Dustin Blythe (1-3452) Representative Sands, Kaufman and Helland
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Governor’s Proposed Property Tax Reform House File 2274 – relates to property taxation and local government budgets by establishing and modifying property tax assessment limitations, provides for certain property tax replacement payments, and establishes budget limitations for counties and cities.
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Summary of Action Passed House Ways and Means Committee 15-10 Passed the House 59-40 _____________________________________________________________________________________
Section by Section Analysis Division I – Education Finance Section 1 Starting with budget year July 1, 2012, and the budget year commencing July 1, 2103, the regular foundation base per pupil is increased from 87.5% to 100% of the regular program state cost per pupil. July 1, 2013 July 1, 2014 July 1, 2015 July 1, 2016 July 1, 2017 July 1, 2018 July 1, 2019 July 1, 2020 July 1, 2021
87.50% 89.60% 90.63% 92.19% 93.75% 95.31% 96.83% 98.44% 100%
Special Education Support
For each budget year, the special education support services foundation is 79% of the special education support services state cost per pupil. Section 2 For the budget year beginning July 1, 2008, and succeeding budget years beginning before July 1, 2021, the department of management shall annually determine an adjusted additional property tax levy and a statewide maximum adjusted additional property tax levy rate, not to exceed the stateside average. For budget years beginning before July 1, 2019, the district shall receive adjusted additional property tax levy aid in an amount equal to the difference between the adjusted additional property tax levy rate and the statewide maximum adjusted additional property tax levy rate, as applied per thousand dollars of assessed valuation on all taxable property in the district Section 3 Allocations for maximum adjusted additional property tax levy rate calculation and adjusted additional property tax levy aid. For fiscal years beginning before July 1, 2021, the department of management shall allocate from the amounts appropriated: For the budget year beginning on July 1, 2006, six million dollars For budget year beginning on July 1, 2007, twelve million dollars For budget year beginning on July 1, 2008, eighteen million dollars For budget year beginning on July 1, 2009, and succeeding budget years beginning before July 1, 2019, twenty –four million dollars. If, however, the state foundation base percentage is 100%, the department of management shall deposit those remaining funds in the taxpayer’s trust fund. Section 4 For fiscal years beginning before July 1, 2021, there is appropriated annually all moneys in the fund to the department of management for the purposes of section 257.15 Except provided in subsection 4, and notwithstanding section 8.33, any moneys remaining in the property tax equity and relief fund at the end of a fiscal year shall not revert to any other fund but shall remain in the property tax equity and relief fund for use as provided in the this section for the following year. Section 5 New subsection is added: Any moneys remaining in the property tax equity and relief fund on June 30, 2021, shall be deposited by the department of management in the taxpayers trust fund created in section 8.57E. Section 6 Moneys available in the secure an advanced vision for education fund (SAVE) shall be distributed by the department of revenue. Moneys collected in a fiscal year beginning before July 1, 2019, that are in excess shall be credited to the PTER fund. Moneys collected after July 1, 2019 that are in excess shall be distributed to the taxpayer’s trust fund.
Division II – Property Tax Exemption and Assessment Limitations – Property Tax Replacement Section 7 The amount paid to each school district for the commercial and industrial property tax replacement claim shall be regarded as property tax. The portion of the payment which is foundation property tax shall be determined by applying the foundation property tax rate to the amount computed under section 441.21A, and such amount shall be prorated if applicable. Section 8 New subsection 13A is created. Carry out the duties relating to the calculation and payment of commercial and industrial property tax replacement dollars. Section 9 New subsection 13B is created. Carry out the duties relating to the calculation and payment of commercial and industrial property tax replacement dollars. Section 10 New subsection 25A is created. Carry out the duties relating to the calculation and payment of commercial and industrial property tax replacement dollars. Section 11 New subsection 38 is created. Commercial and Industrial Property. (Railroads not included in exemption) a. Property that is not located in an urban renewal area for which an ordinance providing for a division of revenue was adopted before January 1, 2012, and is in effect on the date of assessment t and that is classified for property tax purposes as either commercial or industrial. For assessment years beginning on or after January 1, 2013, but before January 1, 2018, the exemption provided under this subsection is limited to an amount of actual value of the property equal to 15% of either 400,000 or the actual value of the property, whichever is less. For assessment years beginning on January 1, 2018, the exemption is limited to 10% of either 400,000 or the actual value of the property, whichever is less. For assessment year beginning on January 1, 2019, the exemption is limited to 5% of either 400,000 or the actual value of the property, whichever is less. The assessment years and exemption base schedule is below: Assessment year
Exemption base
Percentage
January 2013 January 2014 January 2015 January 2016 January 2017 January 2018 January 2019
400,000 400,000 400,000 400,000 400,000 400,000 400,000
15% 15% 15% 15% 15% 10% 5%
b. If the property that is eligible for the exemption under this subsection also receives a property tax exemption under another provision of law for the same assessment year, the amount of the exemption shall be reduced by the amount of the other exemption. c. Wind energy conversion property defined in section 427B.26 is not eligible for the exemption. d. The county auditor shall calculate the amount of each exemption and shall enter the exemption amounts into the county system.
Section 12 Continues the tie of agriculture and residential, and limits to 2%, the annual assessment increase limitation on residential and agriculture property (down from 4%). In addition, inserts a provision that valuations as of January 1, 2013, that residential shall not exceed commercial in the percentage of actual value at which property is assessed. Section 13 For valuations established on or after January 1, 2013, commercial property not located within an urban renewal area shall be assessed in the following manner, under these subsections. The percentage of actual value as equalized by the director of revenue at which commercial and industrial property shall be assessed is as follows: Assessment year
Assessed value
January 2013 January 2014 January 2015 January 2016 January 2017 January 2018 January 2019 January 2020
95% 90% 85% 80% 75% 70% 65% 60%
Section 14 Property Tax Replacement Fund – lays out the backfill schedule to local governments as follows:
Fiscal Year 2015 2016 2017 2018 2019
Backfill Amount $100 million $150 million $180 million $210 million $240 million (every year thereafter)
If an amount appropriated for a fiscal year is insufficient to pay all replacement claims, the director of revenue shall prorate the disbursements from the fund to the county treasurers and shall notify the county auditors of the pro rata percentage on or before September 30.
On or before July 1 of each fiscal year beginning on or after July 1, 2014, the assessor shall determine the total assessed value of all commercial property, industrial property, and property assessed by the department of revenue for taxes due and payable and shall report the valuations to the county auditor If the assessed value of all commercial property, industrial property, and property assessed by the department of revenue is less than the assessed valuation pursuant to chapter 434 for the current assessment year, there is not tax replacement for that taxing district for the fiscal year. The commercial and industrial property tax replacement claim for each taxing district, for fiscal years beginning on or after July 1, 2014, the replacement claim is equal to the amount determined in paragraph “a” and multiplied by the tax rate specified in paragraph “b”. For the purposes of computing replacement amounts, that portion of an urban renewal area shall not be considered a taxing district. The county auditor shall certify and forward one copy of the statement to the department of revenue no later than September 1 of each year. The replacement claims shall be paid to each county treasurer in equal installments in September and March of each year. Section 15 This division of this Act, pursuant to section 4.13, does not affect the operation of, or prohibit the application of, prior provisions of section 441.21, or rules adopted under chapter 17A to administer prior provisions of section 441, 21, for assessment years beginning before January 1, 2013. Section 16 Implementation Section 25B.7 shall not apply to this division of this Act. Section 17 Applicability – the division of this Act applies to assessment years beginning on or after January 1, 2013. Division III Telecommunications Property Tax Section 18 Inserts Telecommunications Property Tax, property assessed by the department of revenue pursuant to sections 428.24 to 428.29, or chapters 434, 437, 437A and 438. Section 19 433.4 Assessment The director of revenue shall on or before October 31 each year, proceed to find the actual value of the property of these companies in this state used by the companies in the transaction of telegraph and telephone business. The property so included in the assessment shall not be taxed in any other manner than as provided in this chapter. All of the following is exempt from taxation and shall not be assessed for taxation under this chapter: Central office equipment Transmission equipment Qualified telephone company property
However qualified telephone company property shall be valued and included in the company’s assessment for the assessment years on or after January 1, 2013 but before January 1, 2020. For assessment years beginning on or after January 1, 2013, but before January 1, 2020, the director of revenue shall include as part of the actual value determined under paragraph “a” for the applicable assessment year, the following:
Assessment Year January 2013 January 2014 January 2015 January 2016 January 2017 January 2018 January 2019
Qualified Telephone Property $5 million $25 million $50 million $75 million $100 million $125 million $150 million
For the above, the amount equal to the actual value of the company’s qualified telephone company property that exceeds those amounts is what the director of revenue is to include as part of the actual value for the applicable assessment year. Section 20 Adds new definitions for: Central Office Equipment Qualified Telephone Company Property Transmission Equipment Section 21 Section 476.1D, subsection 10, Code Supplement 2011, is amended by striking the subsection Section 22 Effective date, this division takes effect July 1, 2012. The section of this division of this Act amending section 476.1D takes effect July 1, 2019. Section 23 Except as provided in subsection 2, this division of this Act applies to assessment years beginning on or after January 1, 2013. The section of this division of this ACT amending section 476.1D applies to assessment years beginning on or after January 1, 2020.
Division IV – County and City Budget Limitation Section 24 The performance of an activity listed in section 331.424, inserts as a service which a county include in its budget. Section 25
Relates to regional transit budgets. Counties with less than 300,000 people, the amount of the regional transit district levy shall be deducted from the maximum amount of taxes authorized to be levied by the county.
Section 26 Deals with licensing and permit fees. Section 27 Section 218.99 is amended – Counties to be notified of patients personal accounts Relates to the administrator in control of a state institution shall direct the business manager of each institution under the administrators’ jurisdiction - strikes “which is mentioned in section 331.424, subsection 1, paragraph a, subparagraph (1) and (2)”. Section 28 Section 331.263, (2) is amended The governing body of the community commonwealth shall have the authority to levy county taxes and shall have the authority to levy city taxes to the extent the city tax levy authority is transferred by the charter to the community commonwealth. Strikes reference to rate and inserts amount – and defines the maximum amount of taxes authorized to be levied. Section 29 Relates to the board of supervisors – they may credit funds to a reserve for the purposes authorized by subsection 11 of this section, but strikes sections 331.424, subsection 1, paragraph (a). Section 30 Section 331.421, subsections 1 and 10 is amended by striking the subsections. Section 31 Section 331.421 is amended by adding a new subsection 7A. “Item” means a budgeted expenditure, appropriation, or cash reserve from a fund for a service area, program, program element, or purpose. Section 32 Property Tax dollars – maximums: For counties, the board on an annual basis shall determine the tax levy limits to pay for general county and rural county services in accordance with this section. The board shall not raise property tax dollars that exceed the amount determined in this section. Adds the following definitions: “Annual growth factor” - Means an index, expressed as a percentage, determined by the department of management by January 1 of the calendar year in which the budget year begins. In determining the annual growth factor, the department shall calculate the average of the preceding twelve-month percentage change, which shall be computed on a monthly basis, in the Midwest consumer price index, ending with
the percentage change for the month of November. The department shall then add that average percentage change to 100%. In no case shall the annual growth factor exceed 104%. “Boundary adjustment” – means annexation, severance, incorporation, or discontinuance as those terms are defined. “Budget year” – is the fiscal year beginning during the calendar year in which a budget is certified “Current fiscal year” – is the fiscal year ending during the calendar year in which a budget is certified “Net new valuation taxes” - means the amount of property tax dollars equal to the current fiscal year’s levy rate in the county for general county services or for rural county services, as applicable, multiplied by the increase from the current fiscal year to the budget year in taxable valuation due to the following:
Net new construction, excluding all incremental valuation that is released in any one year from an urban renewal area. Additions or improvements to existing structures. Remodeling of existing structures requiring a building permit. Net boundary adjustment A municipality no longer dividing tax revenues in an urban renewal, to the extent that the incremental valuation released is due to new construction or revaluation on property newly constructed, additions or improvements to existing property, net boundary adjustment, or expirations of tax abatements, all occurring after the division of revenue begins. That portion of taxable property located in an urban revitalization area on which an exemption was allowed and has now expired.
When a TIF district finally ends, that the increased value is released to the county.
Maximum property tax dollars that may be levied for general county services in an amount equal to the sum of the following: The annual growth factor times the current fiscal year’s maximum property tax dollars for general county services The amount of net new valuation taxes in the county Maximum property tax dollars that may be levied for rural county services is an amount equal to the sum of the following: The annual growth factor times the current fiscal year’s maximum property tax dollars for rural county services The amount of net new valuation taxes in the unincorporated area of the county For general county services “Current fiscal years maximum property tax dollars” – shall mean the total amount of property tax dollars certified by the county for general county services for the fiscal year beginning July 1, 2011. For rural county services “Current fiscal years maximum property tax dollars” – shall mean the total amount of property tax dollars certified by the county for rural county services for the fiscal year beginning July 1, 2011. Property taxes certified for deposit in mental health, mental retardation, and developmental disabilities services fund, emergency funds, debt service fund and any capital projects fund established by the county
for deposit of bond, loan, or note proceeds, and any temporary increase approved are not included in the maximum amount of property tax dollars that may be certified for a budget year in subsection 3. The department of management, in consultation with the county finance committee, shall adopt rules to administer this section. The department shall prescribe forms to be used by counties when making calculations required in this section. Section 33 Ending Fund balance - Counties: Budgeted ending fund balances for a budget year in excess of 25% of budgeted expenditures in either the general fund or rural services fund for that budget year shall be explicitly reserved or designated for a specific purpose. A county is encouraged, but not required to reduce budgeted, unreserved, or undesignated ending fund balances to 25% of the budgeted expenditures and transfers from the general fund and rural services fund. In a protest to the county budget, the county shall have the burden of proving that the budgeted balances in excess of 25% are reasonably likely to be appropriated for the explicitly reserved or designated purpose. Section 34 Authority to levy beyond maximum property tax dollars: The board may certify additions to the maximum amount of property tax dollars to be levied for a period of time not to exceed two years if they proposition has been submitted at a special election and received a majority of the votes cast. Board must give at least 32 days’ notice to the county commissioner of elections that the special election is to be held. In no case, however, shall a notice be given to the county commissioner of elections after December 31 for an election on a proposition to exceed the statutory limits during the fiscal year beginning in the next calendar year. Notice of special election shall be published in at least one newspaper and notice shall appear as early as practicable Section 35 Directs the county auditor and the board of supervisors to reduce the amount of the levy for certified services fund by the amount of property tax relief to be received. Section 36 Amends section 331.347 (3) paragraph 1 – dealing with services listed in section 331.424, subsection 1, Code 2011, and section 331.554 Section 37 Amends section 331.428 (2) paragraph d – dealing with services listed in section 331.424.
Section 38 This is language suggested by Fiscal. This would outline what cities are required to report in regards to their budget. This would also put the Department of Management back in charge of the forms they would use as well. Section 39 Section 373.10 is amended –deals with the taxing authority of a metropolitan council and the maximum amounts of taxes authorized to be levied. Section 40 Property Tax Dollar Maximums – Cities Cities shall certify taxes to be levied by the city on all taxable property within the city limits, for all city government purposes. Annually, the city council may certify basic levies for city government purposes, subject to the limitation on property tax dollars provided in this section. Adds “annual growth factor” to the definitions. Means an index, expressed as a percentage, determined by the department of management by January 1 of the calendar year in which the budget year begins. In determining the annual growth factor, the department shall calculate the average of the preceding twelvemonth percentage change, ending with the percentage change for the month of November. The department shall then add that average percentage to 100%. At no time could a city annual growth factor exceed 104%. “Boundary adjustment” – means annexation, severance, incorporation, or discontinuance as those terms are defined. “Budget year” – is the fiscal year beginning during the calendar year in which a budget is certified “Current fiscal year” – is the fiscal year ending during the calendar year in which a budget is certified “Net new valuation taxes” - means the amount of property tax dollars equal to the current fiscal year’s levy rate in the county for general county services or for rural county services, as applicable, multiplied by the increase from the current fiscal year to the budget year in taxable valuation due to the following:
Net new construction, excluding all incremental valuation that is released in any one year from an urban renewal area. Additions or improvements to existing structures. Remodeling of existing structures requiring a building permit. Net boundary adjustment A municipality no longer dividing tax revenues in an urban renewal, to the extent that the incremental valuation released is due to new construction or revaluation on property newly constructed, additions or improvements to existing property, net boundary adjustment, or expirations of tax abatements, all occurring after the division of revenue begins. That portion of taxable property located in an urban revitalization area on which an exemption was allowed and has now expired.
When a TIF district finally ends, that the increased value is released to the city.
Maximum property tax dollars that may be levied for deposit in the general fund is an amount equal to the sum of the following:
The annual growth factor times the current fiscal year’s maximum property tax dollars for the general fund The amount of net new valuation taxes in the city
Property taxes certified for deposit in the debt service fund, trust and agency funds, capital improvements reserve fund, or any funds established by the city for deposit of bond, loan, or note proceeds are not counted against the maximum amount of property tax dollars that may be certified for a fiscal year in subsection 3. The department of management, in consultation with the county finance committee, shall adopt rules to administer this section. The department shall prescribe forms to be used by counties when making calculations required in this section. Section 41 Ending Fund balance Cities: Budgeted ending fund balances for a budget year in excess of 25% of budgeted expenditures from the general fund for that budget year shall be explicitly reserved or designated for a specific purpose. A city is encouraged, but not required to reduce budgeted, unreserved, or undesignated ending fund balances to 25% of the budgeted expenditures and transfers from the general fund for that budget year unless a decision is certified by the state appeal board ordering a reduction in the ending fund balance of the fund In a protest to the city budget, the city shall have the burden of proving that the budgeted balances in excess of 25% are reasonably likely to be appropriated for the explicitly reserved or designated purpose. Section 42 Section 384.12, subsection 20 is amended by striking the subsection Section 43 Authority to levy beyond maximum property tax dollars: The city council may certify additions to the maximum amount of property tax dollars to be levied for a period of time not to exceed two years if they proposition has been submitted at a special election and received a majority of the votes cast. The council must give at least 32 days’ notice to the county commissioner of elections that the special election is to be held. In no case, however, shall a notice be given to the county commissioner of elections after December 31 for an election on a proposition to exceed the statutory limits during the fiscal year beginning in the next calendar year. Notice of special election shall be published in at least one newspaper and notice shall appear as early as practicable. The special election shall be conducted by the county commissioner of elections in accordance with the law.
Section 44 This is language suggested by Fiscal. This would outline what cities are required to report in regards to their budget. This would also put the Department of Management back in charge of the forms they would use as well. Section 45 For the purposes of a tax protest filed under this section “item” means a budgeted expenditure, appropriation, or cash reserve from a fund for a service area, program, program element, or purpose. Section 46 Operation Tax: A city may establish a self-supported improvement district operation fund, and may certify taxes not to exceed the rate limitation as established in the ordinance creating the district. May be used for administrative expenses, personnel salaries, planning costs, consultation fees, engineering fees and legal fees and all other expenses reasonably associated with the administration of the district. Section 47 Capital Improvement Tax: A city may establish a capital improvement fund for a district and may certify taxes not to exceed the rate established by the ordinance. The purpose would be for the financing or payment of a part or all of the costs of any improvement or self-liquidating improvement. However, parcels of property which are assessed as residential property for property tax purposes are exempt from the tax levied under this section except residential properties within a duly designated historic district. A tax levied under this section is not subject to the limitations in section 382.1 or 384.7 Section 48 Sections 331.425 and 331.426 are repealed Section 36 This act applies to fiscal years beginning on or after July 1, 2013. _____________________________________________________________________________________ Amendment Analysis Amendment H-8014 by Jacoby: Strikes our entire bill – then inserts last year’s Senate Democrat plan. (Lost) Amendment H-8015 by Hall: Strikes our entire bill – then inserts just Division I of our bill - Education Finance. (Lost) Amendment H-8016 by Thomas: Strikes our entire bill – then inserts just Division III of our bill – Telecommunications Property Tax. (Lost) Amendment H-8017 by Sands: Under the telecommunications section – adds definition of intangible property. This includes but is not limited to goodwill associated with the company. (Adopted) Takes the trust and agency funds for cities and puts them under the limitations of their general fund. (Withdrawn) Amendment H-8018 by Petersen: Inserts Division V to the bill - Earned Income Tax Credit. Raises the earned income tax credit to 13% of the federal earned income tax credit, currently the EITC is 7% of the federal credit. (Withdrawn)
