Brace yourself for a nasty shock when you open your property tax bill. The primary tax rate for the Payson Unified School District will jump a whopping 49 percent and the rate for bond issues and overrides will jump by 60 percent.
That means that a Payson resident living in the average $136,000 house will pay $446.75 in property taxes to fund the 2,400-student school district. That includes about $341 on the primary rate and $105 on the secondary rate.
But wait. It gets worse.
The tax rate will soar — but the beleaguered school district will actually get much less money. The district’s budget this year dropped 9 percent to $12.9 million thanks to declining enrollment and dwindling state support.
Fortunately, most homeowners won’t end up paying 50 percent more in property taxes, since the total tax depends on a home’s assessed value. The Gila County appraiser determined that the average home in Payson declined in value by 11 percent this year.
Once the smoke clears on all the arcane formulas and automatic triggers and reappraisals — the local property tax will raise an extra $3.7 million, but the school district’s budget will decline by $1.3 million.
Perhaps equally frustrating — the school board doesn’t even set the property tax rate, which emerges mysteriously from all the state, local and county calculations.
“People think that because they see their taxes went up significantly that we’re getting more to spend,” said Kathie Manning, the district’s newly hired finance director. “But our budget is $12.9 million — last year it was $14.2 million. So the budget has gone down significantly. The taxes are going up, but we’re not getting more budget to spend.”
The maddening Catch 22 of the property tax rates stems from a bewilderment of factors. Those include a decline in state support, the Legislature’s adjustment in property tax rates to reflect a 20-percent drop in assessed values statewide and the district’s own flawed estimates about both revenues and expenditures in prior years.
The district gets most of its money from the property tax based on state formulas. In addition, the state provides a certain amount of money for each student. Last year, the state provided $3.3 million. This year, it will provide $3 million — with the shortfall essentially shifted to the property tax.
The school district’s tax bill includes the primary rate for basic operating costs and a secondary rate to pay off bonds for school improvements plus the voter-approved budget override.
The 50-percent increase in the primary rate to $3.94997 stems from two major shifts.
First, the Legislature adjusted the “qualifying tax rate” for every district in the state to compensate for a 20-percent decline in assessed values statewide this year. That means homeowners in Payson effectively saw an 11-percent decline in home values — but a 20-percent increase in rates to reflect the statewide average.
“So that was not good for us,” said Manning. “What happens is for homeowners whose assessed value went down by 20 percent, the rate went up and it maintains a consistent tax amount. Since our assessed values decreased less — Payson homeowners end up picking up a larger share of the increase.”
That adjustment in the state formula accounts for about 28 percent of the increase in the primary tax rate, Manning estimated.
The rest of the increase in the district’s primary tax rate stems from inaccurate estimates when it came time to finish up last year’s budget. The district always faces a nearly two-month gap between when it has to adopt a budget and calculate a tax rate and when it receives final payments from the state and final bills to pay. So the year-end budget always involves an element of guesswork.
But this year, the estimates were off by about $1.2 million. The district covered the money with a line of credit from a bank, but now has to boost the property tax rate enough to make up for the deficit, said Manning.
“On June 30, based on June 30 balances, you have to project what the cash balance will be on August 31 and that’s very hard to project when the state is rolling over equalization payments —there are a lot of factors you’re projecting,” said Manning. “But we ended up with a negative cash balance and we had to get out of the hole” with an extra large increase in the primary tax rate.
A different set of miscalculations and bad breaks resulted in a 60-percent jump in the secondary tax rate that’s set at $1.2361.
The secondary tax rate generates $2.5 million to pay off voter-approved bonds for new school facilities plus the $1.2-million voter-approved budget override.
That rate automatically rose when the assessed value declined by 11 percent, to guarantee payments to bond holders.
But the rate also rose sharply because of the timing of the construction projects.
Previously, the district had accumulated extra, unspent bond money that was sitting in a bank earning interest. That resulted in a lower than expected secondary property tax rate for several years. Now, the district has spent all that money — plus the interest. So the bond payments have jumped sharply, said Manning. That shuffle of funds added about $1 million to the amount the secondary rate had to generate this year.
The district will continue to pay off the bond money from now until 2028. The bond payments will increase roughly 3 percent annually — or about $100,000 — each year until 2022, when they will level off.
If property values start to rise again, that could wipe out the increase and actually result in future declines in the secondary tax rate, explained Manning.