Property tax, education reform negotiations begin

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Lawmakers have a little more than two weeks to resolve differences between the House and Senate proposals to address the session’s top priorities laid out by state leadership in January.

After months of hearings, amendments, drafting and debates, both chambers have passed versions of HB 3, the education finance reform bill, and SB 2, the property tax reform bill. The latter passed the House last week and the education bill passed the Senate on Monday. Mirroring a provision added to SB 2 in the House, the Senate made passage of education reform into law contingent on passage for property tax reform, inextricably linking the two measures into what is effectively a single proposal.

Here’s what that proposal looks like on the Senate side: increased funding for all students, with more going towards economically disadvantaged students. Even more would go to early education initiatives for students from low-income backgrounds and more money for post-high school readiness programs.

Funds for the last two are partly outcome based; while districts will get more money to improve third grade reading achievement for low-income students and send more prepared graduates into college, the military or the workforce, they’d also get bonus money for every student that meets state standards. It includes a $5,000 pay raise for all public school teachers and librarians, and would give districts the option of implementing an effectiveness-based pay scale, where the best teachers can be identified and paid higher salaries.

For property taxes, the bill would lower local school rates by 10 cents per $100 valuation and would implement a 2.5 percent rollback rate for annual tax increases. Any more than that and voters in the district would have to sign off. To pay for it, the Senate approved a diversion of oil and gas taxes, an estimated $2.3 billion, that would otherwise go into the rainy day fund into a new fund created for the purpose of property tax reduction.

Combined with $2.7 billion in the budget already set aside for property tax relief, a change in the way the online sales taxes are collected and other funds, the bill contains a total of about $5.6 billion in property tax relief. A House proposal to lower property taxes even further by increasing the state sales tax rate one cent and dedicating that revenue to property tax reduction failed to garner enough support, most likely ruling that option out for this session.

The bills are fairly close generally but there are some key differences between the two chambers. The House bill includes a smaller, formula-based pay raise but would apply it to all full-time public school employees and provides for future raises when the state increases education funding. It would compress local school tax rates by four cents, but adds two cents to recapture-exempt local enrichment in formula funding. There’s also a difference in the basic allotment, the principal variable in calculating per-student funding, with the House at $6,030 compared to the Senate’s $5,880. Both are well above the current basic allotment of $5,140.

As far as property tax reform, the chambers are in the same place on a number of transparency and taxpayer-friendly reforms as well as a municipal rollback rate of 3.5 percent. The Senate would apply that to cities, counties, and all other local taxing entities while the House version exempts hospital and community college districts. The Senate version would leave smaller taxing entities, those with less than $15 million in annual collections, at the current 8 percent rollback rate, but would give voters living in those districts the chance to opt in to the bill’s provisions next May. The House version includes a rate-banking provision, allowing districts that don’t raise taxes as much as a rollback rate to apply that difference to future rate increases above 3.5 percent for up to five years.

If lawmakers can sort out these differences, a simple majority in each chamber can send the final, unified proposal on to the governor for his signature. Should that happen, it will be the first time in decades that the Legislature has passed sweeping education finance reform absent a court order.

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