March 9, 2018

Special Report: School Levies Edge Higher

School general fund levy increases about one-third of one percent**

Special education – smaller levy increases 7%**

** See note at end of article

Looking for a way to get out of a bad dinner?  All it takes is explaining how property taxes are calculated while dwelling on the intricacies of the school funding formula, especially the highlight of all geeky discourse . . . the state-aid formula.  Not only will you be on your way in short order, you won’t have to worry about ever being invited to return!

Joking aside, one of the most significant issues that each legislative session determines is the property tax levies that raise money for all school districts’ general funds and special education levies.  This is one of the final calculations of every session and was concluded yesterday (Thursday).

Capitol-ism has a long history of analyzing the general fund levy, which has been declining for long time and will increase slightly for taxes payable in 2019.  New to this year’s report is a look at the levy that funds special education throughout the state.  The special education levy has increased in recent years and will increase again for taxes payable in 2019.

Was that taxes payable next year?  Yes.  In South Dakota, residents pay property taxes one year in arrears – so the tax bill that is determined this year (2018) doesn’t get paid until next year (2019).  Thankfully, restaurants don’t work that way or the population might be even more rotund. 

In another oddity, school general fund tax rates are not set by the local school boards, they are set by the legislature because they provide only a portion of a school’s operating revenue.  The balance of the money for schools is provided by the state government via the “state-aid” formula.  State control of tax rates is also applied to funding special education in South Dakota.

General Fund – After a big drop last year (nearly 10%), levies see miniscule increase

During the 2017 Legislative Session, the school general fund levy was set for taxes paid this year (2018).  School general fund levies are the only property taxes that are applied at different rates depending on the classification of property.  For taxes being paid this year, the general fund tax levies are:

• Agriculture – 1.507 mils or “dollars-per-thousand”
• Homeowner – 3.372 mils or “dollars-per-thousand”
• Commercial – 6.978 mils or “dollars-per-thousand”

To show the actual taxes that are paid from these levies, Capitol-ism uses different classes of property with the same taxable value of $500,000.  Admittedly, this value represents a very nice home; a mostly modest business and a really scrawny farm/ranch (kind of a “half-a-hat” ranch-ette).  Using the levies above, the taxes that are owed this year for a property with a $500,000 taxable value would be:

• Agriculture - $753 (1.507 “dollars-per-thousand” x 500)
• Homeowner - $1,686 (3.372 “dollars-per-thousand” x 500)
• Commercial - $3,493 (6.978 “dollars-per-thousand” x 500)

The 2018 legislature has set the levies for taxes payable next year (2019) slightly higher at about one-third of one percent.  Here is a look at next year’s levy/taxes compared to this year’s tax rate/taxes.

Property Class          Levy Comparison                 Tax Payment               $ / % increase

Agriculture                 1.507 / 1.512                            $753 / $756                     $3 / 0.4%

Homeowner                3.372 / 3.383                            $1,686 / $1,691               $5 / 0.3%

Commercial                6.978 / 7.001                            $3,493 / $3,500              $7 / 0.2%

Bonus Round – Special Education Levy

Capitol-ism has not reported on another statewide property tax levy which is the levy that provides extra funding for special education in recognition of the higher costs of providing that service.  The special education levy is applied at the same rate for all classes of property so agriculture, homeowners and commercial property all pay the same rate.  For taxes being paid this year that rate is:

Special Education Levy = 1.461 “dollars-per-thousand”

Applied to the sample property with a taxable value of $500 thousand dollars, this levy produces taxes of $730.  Adding this levy to the taxes payable this year brings the total tax payments for both levies to:

• Agriculture - $753 (1.507 “dollars-per-thousand” x 500) + $730 = $1,484

• Homeowner - $1,686 (3.372 “dollars-per-thousand” x 500) + $730 = $2,416

• Commercial - $3,493 (6.978 “dollars-per-thousand” x 500) + $730 = $4,224

Special Education Levy to Increase

 For taxes payable in 2019, the special education levy will increase to: 

• 1.567 mils or “dollar-per-thousand” 

Once again, applying this levy to the property with a taxable value of $500,000 results in a tax bill of:

•  $783 and increase of $53 or 7.2%

Putting it all together – looking at the total tax bill difference

Class Property             General Fund              Special Ed Taxes        Total                 $/ % Increase

Agriculture                 $753/ $756                  $730/ $783                  $1,484/ 1,539      $55/ 4%

Homeowner                $1,686/ $1,691            $730/ $783                  $2,416/ 2,474      $58/ 2.4%

Commercial                $3,493/ $3,500            $730/ $783                  $4,224/ 4,284     $60/ 1.4%

Note:

This special report has focused on only two levies - the general fund levy and the special education levy, also used for school funding.  These are not the total levies for schools and are far from being the entire property tax bill for property owners.

Other school levies include: capital outlay levy and in some school districts a bond levy for building or renovating school buildings and for fewer districts yet there are “opt out” levies to provide additional funds beyond the state-aid formula.

In addition to the levies for education, there are levies for counties, cities, townships and special districts such as weed and mosquito control. 

Capitol-ism has found that telling people that one understands these facts is never considered to be bragging.  It is also never considered to be interesting either.

David Owen will soon be starting his post-legislative tour presentations to explain what happened during session and how legislative actions may impact the business community.  Confirmed dates appear on the website or check with your local chamber for details.

Thank you for your support of the South Dakota Chamber of Commerce and Industry!