Stunned by a 50-percent jump in the Payson Unified School District’s property tax rate, board members Monday grilled administrators on how it happened.
However, many ended the session still sounding muddled.
“As a board member, I’m really disappointed that we’re facing this huge increase this year,” said Kim Pound. “This is an extra $172 on a $150,000 home. This is a heck of a tax increase. With unemployment so high, we’re taxing people to death.”
Board President Barbara Underwood sympathized with the administration’s challenge in calculating the tax rate, but hastened to point out that despite the huge increase in the rate — the district’s budget continues to shrink.
“Even though the rate is going up, we as a district aren’t getting more money,” she said.
The school district this year cut its budget by about a million dollars, closing Frontier Elementary School and laying off teachers. The increased local property tax will not provide any additional money to the district, because it will lower the amount of state equalization money the district receives.
“Is this because we didn’t set the tax rate properly last year?” asked Board Member Matt Van Camp, giving voice to the persistent confusion of board members who didn’t know about the rate increase until after district administrators had set the rate in consultation with the county assessor.
Kathie Manning, the district’s chief financial officer, said that the county set the rate based on information provided by the district — but that the Legislature sets the formulas that really control the rate.
She said the need for the huge jump in both the primary and secondary tax rates stemmed from overlapping problems.
First, the Legislature essentially boosted rates to compensate for a 20-percent statewide drop in assessed value last year — even though Payson’s assessed value declined by just 11 percent, said Manning
In addition, the district underestimated its year-end cash balance last year, requiring a larger boost to catch up this year.
“It’s an unfortunate situation,” said Manning. “It’s not a good place to be. But it is prescribed by law.”
Board member Barbara Sheperd replied, “But if it’s prescribed by law, how was it that we set the rate too low last year?”
“It’s difficult to calculate and our ending cash balance didn’t come to fruition,” said Manning. In fact, district officials set the tax rate too low last year by about $1.7 million, forcing the district to draw on a $3 million line of credit with Chase Bank. This year, the rate has to generate enough money to cover that shortfall.
“So are we going to be in this same position next year?” demanded Pound.
“I feel confident with these figures,” said Manning, who recently replaced the district’s longtime finance manager and so played no role in the apparently mistaken revenue estimates from previous years. Manning indicated the district’s spending remained close to the adopted budget, but the revenues lagged.
“So basically, you just need a crystal ball,” to set the rates accurately, said Van Camp.
“We need accurate information,” said Manning.
Superintendent Casey O’Brien said “part of it is the complexity of the rollovers” in school funding by the Legislature. He said the Legislature fiddled with the formulas in mid-year, without giving districts a chance to adjust their tax rates — making it hard to predict year-end cash balances.
“What happens if we can’t make the payments?” on the line of credit, asked Sheperd.
Manning said Chase Bank officials met with the district last week to double-check its figures and projections.
“But how did we get in this position?” asked Pound.
“Basically, it came from last year setting the rate too low,” said Manning.
“Because we provided the county with the wrong figures,” persisted Sheperd.
“In my opinion,” said Manning, “that was part of it.”
“So if we had set the right numbers last year, we wouldn’t have such a big increase this year,” said Pound.
In effect, the fact that Payson’s assessed value declined only half as much as the state average effectively increased its property tax rate due to the state formulas.
Several years ago, a lawsuit forced the state Legislature to equalize state funding so that property-rich districts didn’t have a lot more to spend on each student than property-poor districts. That resulted in the creation of an “equalization” formula that gave the lower-value districts extra money. Some districts with high property values don’t get any equalization funding at all.
Payson this year will get more than $3 million in equalization aid from the state — nearly a quarter of its $12.7 million operations and maintenance budget. Because Payson property declined in value less than average, the district will end up getting less of this extra, equalization assistance.
The district also boosted its secondary tax rate by about 60 percent, money that goes to pay off bonds for various school construction projects.
In that case, the district in past years had delayed spending the bond money — which accumulated interest. However, the district spent that accumulated interest on the bond projects last year, which magnified the rise in the secondary tax rate this year — once the extra money was gone.
Board member Pound asked whether the district could use a so-far-unspent $500,000 grant from the federal government to reduce the projected increase in the tax rate, as county officials had suggested.
Manning said the federal grant was not included in the base calculations for the district’s operations and maintenance budget or for its revenue. Therefore, the district did not have any way to include that federal grant in the state-established formula that determines the tax rate.
Instead, the district plans to hold onto the federal grant and use it in the 2012-13 budget to make up for the loss of roughly $500,000 in grants from the Forest Service.
For the past two years, the Forest Service has boosted the amount of money it gives to school districts that have a large amount of non-taxable, federal land. That provided a windfall for the district as part of federal economic stimulus efforts. However, the Forest Service has warned the district that it will lose the extra money next year. The separate, $500,000 federal stimulus grant may avert teacher layoffs next year.