Property Tax Reform Update 2 15 19

A major property tax reform proposal, HSB 165, was introduced in the House on Wednesday by Representative Hein, the chair of the Ways and Means Committee. The bill removes the General Basic and Rural Basic levy rate caps and eliminates the General and Rural Supplemental levy authority, and puts in place a cap on property tax revenue increases. The bill would go into effect July 1, 2020, so for FY 2021 the property tax revenue cap for General County Services would be equal to the total property tax dollars budgeted in FY 2020 for General County Services multiplied by the annual growth factor plus the taxes generated by net new valuation. The same would be true for Rural County Services separately. General County Services means General Basic plus General Supplemental and Rural County Services means Rural Basic plus Rural Supplemental. Property taxes certified for mental health and disability services, emergency services, debt service, capital projects, and supplemental levies would not be included in the two general services amounts. The annual growth factor is the percentage change in the median family income in the Midwest Census Region between the two most recent calendar years for which the information is available. This percentage change is added to 100 percent for the multiplier, but the multiplier cannot be less than 100 percent in a given year. Net new valuation means the amount of property tax revenue that would be generated using the current fiscal year’s levy rate multiplied by the taxable valuation added due to new construction, additions or improvements to existing structures, remodeling that requires a permit, boundary adjustments, and valuation that was released from a division of revenue or exemption. For subsequent years, the property tax revenue cap for the next year would be calculated using the same multiplier and additions above and the maximum property tax dollars that could be levied in the current fiscal year for General and Rural Services respectively.

The General Supplemental and Rural Supplemental levy authority would be replaced with the authority to levy beyond the maximum allowed under the above-mentioned provisions. The proposal would be subject to public notice and public hearing, and if a petition is filed the question of levying beyond the maximum would be subject to a special election. The threshold for a petition would be signatures from the lesser of two thousand or 20% of the number of voters for the office of president in the last applicable election. The authority to hold an election for a special levy in excess of basic levies and the authority to exceed basic levy limitation in unusual circumstances under current code would both be repealed.

The bill would also require that budgeted ending fund balances in excess of 25% of budgeted expenditures and transfers shall be explicitly reserved or designated for a specific purpose, and counties are encouraged to reduce budgeted, unreserved, or undesignated ending fund balances to 25% of budgeted expenditures and transfers. Budgeted ending fund balance and reserved funds would also become an item that a citizen could protest in a county budget. For counties with an ending fund balance below 25% of expenditures and transfers as of the end of FY 2019, extra levy authority is granted to bring the fund balance up to 25%.

As we continue to analyze the bill and expect the Senate to come out with a property tax reform proposal soon, we strongly encourage you to consider the impact your current budget decision making for FY 2020 could have for years to come if this legislation or something similar were enacted and FY 2020 became the base year for future growth limitations. This applies to both property tax revenue generated and ending fund balances.