School tax levies on roller coaster South Dakota property owners need to understand why school tax levies went down so much this year, state Education and Cultural Affairs Secretary Ray Christensen said March 16, and what tax levies they can expect for the next two years on agricultural property and owner-occupied homes.
"When it's all over, the property tax levies for general funding of schools should be significantly lower," Christensen said. "For taxes payable this year (2001), those levies are way down. For taxes payable next year in 2002, they'll be back up part of the way. For 2003, they should be back down part way and then become stable into the future.
"The bottom line is that taxes payable in 2003, the general school levy will be about 20 percent lower than for taxes paid last year, based on current estimates, and about 34 percent lower than for taxes paid in 1997," he added.
The abrupt changes being felt by property owners this year and coming the next two years are caused largely by a problem of timing. Property tax levies run on a calendar year basis, from January through December, while school funding from the state is distributed on the state's fiscal year basis, from July through June.
"We're going through a shake-out period," Christensen said. "What's suddenly happening is a roller-coaster effect we hadn't experienced before. It's because of a combination of things all hitting at the same time."
Those factors include the final installment of property tax relief, property valuations coming into line and leveling off lower than predicted, the continued increases in state funding for education, and the fact that state government runs its budget year differently than when local schools receive their property tax dollars.
To bring more predictability, the state Legislature, at Gov. Janklow's urging, passed House Bill 1187. It changes the method used by the Legislature to calculate the annual tax levies used for general funding of K-12 schools. The calculations in the future will be based on two years of data instead of one, which should smooth out the year-to-year changes.
Last year, the Legislature sharply reduced the school general-fund levies for taxes payable in 2001. The levies are the amount of tax per $1,000 of taxable value on a piece of property. For agricultural property, the levy was cut from $4.70 for taxes payable in 2000, to $3.33 for taxes payable in 2001. For owner-occupied homes, the levy was cut from $7.56 to $5.36.
Those steep reductions for taxes payable in 2001 resulted from additional property-tax relief funded by the Legislature and from adjustments to keep local tax effort in proportion to state aid, as required by state law. Known as the "Cutler-Gabriel amendment," this law requires that basic funding for schools be split proportionately between state aid and local property taxes, regardless of how much state aid changes or how much property values change.
The current ratio is 54 percent from state aid and 46 percent from property taxes.
For example, the levy for agricultural property for property taxes payable in 2001 was reduced from $4.70 to $4.05 due to "Cutler-Gabriel" and then to $3.33 because of property-tax relief. For owner-occupied homes, the levy was reduced from $7.56 to $6.52 due to "Cutler-Gabriel" and then to $5.36 because of property-tax relief.
The levies will swing back up next year for taxes payable in 2002 and back down the following year for taxes payable in 2003. That's because of the complexities of applying the "Cutler-Gabriel" amendment to a funding system where state aid is distributed from July through June (the state's fiscal year), while property taxes are collected for schools during the normal calendar year. The result is an over-correction each year, with the levies swinging up high one year and swinging down low the next year in order to produce the necessary average.
During this year's legislative session, lawmakers raised the school general-fund levies for taxes payable in 2002 in order to meet the "Cutler-Gabriel" requirement. They will rise to $4.04 for agricultural property and $6.50 for owner-occupied homes.
For taxes payable in 2003, the state Department of Education and Cultural Affairs estimates the levies will swing back down, dropping to about $3.77 for agricultural property and to about $6.06 for owner-occupied homes. Those estimates are preliminary based on current information. The actual levies would be set by the Legislature next year, and the amounts could differ from current estimates.
House Bill 1187 should smooth away those sharp swings starting in 2003 and beyond, as legislators begin using two years of data rather than one in making the "Cutler-Gabriel" adjustment.
Property taxes levied for schools' general funding represented 40.7 percent of all property taxes (county, school, city, etc.) in 2000, according to the state Department of Revenue.