Summary of the research and findings of the Arizona Legislature's special session on school finance and taxation

              firizona s t a t e pegielature







I I







LEO CORBET PRESIDENT OF T H E SENATE







FRANK KELLEY SPEAKER OF THE HOUSE







A SUMMARY OF THE RESEARCH AND FINDINGS OF THE ARIZONA LEGISLATURE'S SPECIAL SESSION ON SCHOOL FINANCE AND TAXATION







F i n a l R e p o r t S u b m i t t e d i n F u l f i 1l m e n t o f a NCSL-NIE GRANT SCHOOL FINANCE RESEARCH COST-SHARING AWARD







p r e p a r e d by t h e s t a f f o f t h e ARIZONA STATE SENATE, HOUSE OF REPRESENTATIVES and J O I N T SELECT COMMITTEE ON TAX REFORM AND EDUCATION FINANCE







u n d e r t h e d i r e c t i o n o f the P r e s i d e n t o f the S e n a t e , Leo C o r b e t a n d t h e S p e a k e r o f t h e House, F r a n k K e l l e y July, 1 9 8 0







CONTENTS I. 11. PREFACE.. INTRODUCTION







............................







i







A.







The Need f o r Reforms







1. 2. 3.



B. The







1. 2.



111.







..................... Government S p e n d i n g . . . . . . . . . . . . . . . . . . . T a x a t i o n Reform . . . . . . . . . . . . . . . . . . . . . E d u c a t i o n Finance Reforms . . . . . . . . . . . . . . . . S p e c i a l S e s s i o n on Tax Reform and School Finance . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . Researchoutline . . . . . . . . . . . . . . . . . . . .







RESEARCH EFFORT







A.







A n a l y s i s of Major Tax I s s u e s







1. 2.







................. I n t r o d u c t i o n - C r i t e r i a f o r E v a l u a t i n g Tax A l t e r n a t i v e s . PropertyTaxIssues. . . . . . . . . . . . . . . . . . .



a.







b.



c. d.







H i s t o r i c Development of t h e Arizona P r o p e r t y Tax B u r d e n . D e s c r i p t i o n of t h e C u r r e n t P r o p e r t y r ax' System D e s c r i p t i o n of P r o p e r t y Tax Models Data A n a l y s i s on P r o p e r t y Tax V a l u a t i o n s and P r o p e r t y Tax Burden



i.







.................... ... ......... ................



The Arizona s c h o o l f i n a n c e simulator Summary of computer r u n s performed







Appendix 1: Appendix 2:







ii.







............ ............







a.







D e s c r i p t i o n of E x i s t i n g Income Tax System



i.







.....







Appendix 1: Appendix 2: Appendix 3 :







ii.



iii.







Adjustmnts t o federal adjusted income t o a r r i v e a t Arizona a d j u s t e d g r o s s income I t e m i z e d d e d u c t i o n s , exemptions and a d j u s t m e n t s Income t a x c r e d i t s







...... ......... ........







4.







. . . . . . . . . . . . . . . . . . . . . . . . 85 i. Appendix 1: F i l e d e s c r i p t i o n . . . . . . . . . 87 ii. Appendix 2 : P o p u l a t i o n weight t a b l e . . . . . 93 iii. Appendix 3 : Program sample . . . . . . . . . . 94 i v . Appendix 4 : F i l e index . . . . . . . . . . . . 115 v. Appendix 5: S i m u l a t i o n r e s u l t s . . . . . . . . 116 S a l e s and Use Taxes . . . . . . . . . . . . . . . . . . .132 a. D e s c r i p t i o n of E x i s t i n g S a l e s Tax System . . . . . . 132 b. T h e F o o d S a l e s T a x I s s u e . . . . . . . . . . . . . .147 i. Background . . . ; . . . . . . . . . . . . . . 147 ii. .Data and s i m u l a t i o n t e c h n i q u e s . . . . . . . .147 iii. F i n a l r e p o r t - The S a l e s Tax on Food: Options f o r Reducing t h e Tax Burden . . . . . . . . . . I 6 5



a.







b.







C o l l e c t i o n and u s e of t h e I n d i v i d u a l Income Tax File







Appendix 1: Appendix 2:







b.







Methodology Impacts Methodology Impacts







. . . . . . . . . . .202 - Equity . . . . . . . . . . .214







-







Revenue







B.







C.







. . . . . . . . . . . . . . . . . . . . . . . . .223 1. Background . . . . . . . . . . . . . . . . . . . . . . .223 2. Framework f o r a n E x p e n d i t u r e L i m i t a t i o n . . . . . . . . 224 3. Elements of a D a t a B a s e . . . . . . . . . . . . . . . .240 4. A n a l y s i s o f t h e I s s u e s . . . . . . . . . . . . . . . . .246 A n a l y s i s of Education Finance I s s u e s . . . . . . . . . . . . .246



'







A n a l y s i s of I s s u e s R e l a t i n g t o Spending L i m i t s f o r Local Government s







1.



IV.







Appendix 1:







E d u c a t i o n a l Finance Assumptions







. . . . . .2 54







SUMMfSRY OF RESULTS OF THE SPECIAL SESSION



A.







B.



C. D.







Introduction E x p l a n a t i o n of P r o p e r t y Tax Reforms E x p l a n a t i o n of Food S a l e s Tax Repeal Conclusion and Summary of t h e Ten B a l l o t P r o p o s i t i o n s







V.







POSTSCRIPT







257 . . . . . . . . . . . . . . . . . . . . . . . . ' 258 . . . . . . . . . . . . 273 ............. . . . .274 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277



'







PREFACE







At the time when the Arizona Legislature was preparing for its recent Special Session on Tax Reform and Education Finance, the National Conference of State Legislatures issued a memorandum offering cost-sharing grants to applicants who were interested in conducting research in the areas of school finance and property tax reform. The Arizona Legislature applied to NCSL for a cost-sharing grant and received an award of $33,800 in May of 1978. The award was to help finance the development of computer models which were to be used to simulate the impacts of tax reform proposals developed prior to and during the Special Session. This document is submitted in fulfillment of the grant requirements outlined in the original agreement between NCSL and the Arizona Legislature. The document contains background information on the factors that led to the Special Session, outlines the research efforts undertaken in preparation for the Session, and describes the reforms that are the end product of the Session and were ratified by the voters on June 3, 1980. exercise in the future. It is hoped that this document will serve as a useful source of information for other states preparing to engage in a similar







INTRODUCTION A. THE NEED FOR REFORMS In early 1978, the Arizona Legislature began making plans to undertake a wide-ranging reform of the state's taxation and education finance systems. A special Legislative session was scheduled for the fall of 1979 to deal exclusively with the following issues: 1.



2.







Local government spending limits. Taxation reforms (primarily property tax reforms). Education finance reforms.







3.







The need for extensive changes in these areas was precipitated by a series of social and economic events that impacted heavily on Arizona's existing systems of taxation and education finance. following sections. The impact of these events is discussed in the







GOVERNMENT SPENDING



Perhaps the single largest economic concern of the 1970's was inflation. During the period 1975-1979, the Phoenix metropolitan consumer price index As goods and services became increased at an average annual rate of 9.3%.







increasingly expensive to consumers relative to nominal income, public attention







-







inevitably focused on ways to reduce marginal expenditures in order to maintain real income levels. Taxes and government spending were obvious targets. Unfortunately,inflation also affects government, increasing the cost of government purchases that go into the goods and services provided to the public. The effect is an overall increase in the level of government spending. In addition, a state like Arizona, with a rapidly expanding population, must provide services to more and more people. This increase in population also translates into increased levels of government spending. In view of these increases in demand and in the cost of government services, Arizona governments have generally been reluctant to voluntarily curb their expenditures. Between N 1970 and 1978, the state's General Fund operating budget increased at an annual rate of 14.6%. The General Fund budget grew from 4.7% of total state personal income in FY 1970 to 5.1% in FY 1978. Similarly, total county expenditures grew by 17% on an annual basis between 1970 and 1978. School district expenditures increased at an annual rate of 9.8% between FY 1975 and FY 1979.







In response







to







the







rapid







growth







of







state spending, Arizona voters Proposition 101







overwhelmingly approved Proposition 101 in November of 1978.







amended the State Constitution to limit the expenditures of the state government (General Fund and Nan-General Fund) to 7% of total state personal income.L1 A copy of the limitation appears on page 7. While Proposition 101 addressed the spending ~olicies of the state, it did nothing to limit the fiscal activities of local governments. controls were Although existing laws imposed limited budget controls on county and city governments,y these largely regarded as ineffective due to the large number of expenditures excluded from the limits. Thus, the development of adequate spending limits for local governments became a primary objective of the Special Session. TAXATION REFORM Although reforms to the state's sales tax and income tax systems were considered during the Special Session, the demand for tax reform initially centered on the state's property tax system. One reason for the focus on property taxes is the relatively heavy dependence on property tax revenues by Arizona's local governments. The property tax accounted for 66% of total local government's own source revenues in 1977. Thus, rapid increases in local government expenditures result in related increases in the amount of property taxes that must be collected to support local governments. In addition, Arizona taxpayers have a long history of disenchantment with the property tax. This disenchantment can be attributed to several factors. Foremost among these factors is the impact of inflation on the tax liability of property owners. In Arizona, the current market value of real property and improvements is the basis for levying property taxes. While the general price index rose by 43.4% between 1975 and 1979, home values increased on the order of 110%. Although rising property valuations will not result in increased tax bills if the tax rate is comensurately reduced, local governments have traditionally demonstrated a general reluctance to significantly reduce tax rates.







11 -







Appropriations subject to the 7% limitation during FY 1979-80, the fiscal year of implementation, totaled $1.44 billion, or 6.99% of total state personal income.







21 -







Fiscal controls on county and city governments in Arizona have been in effect since 1934.







Compounding this problem is the recent change in the demographic composition of the state. With an expanding number of individuals retiring in Arizona, an increasing portion of the state's population is living on fixed incomes. With inflation increasing the value of property that is subject to taxation, the tax burden soon becomes unaffordable to these individuals. In addition, many of the services demanded communities. by these individuals are provided by local retirement Consequently, these individuals do not rely heavily on public







services that are funded with property tax revenues (i.e. primary and secondary education). As a result, the property tax is not popular among this section of the population. Another problem that is associated with Arizona's property tax is the tax's built-in tendency toward inequitable treatment of individual taxpayers. Because the property tax is based on the appraised value of properties, differences in the level of appraisal can result in unequal tax burdens for similar properties. Recent studies prepared by the Legislature indicate that wide disparities in 11 appraised values exist throughout the state- . The disparities are caused, in part, by the variety of appraisal techniques employed throughout the state and the inherent difficulty in accurately estimating the market value of all properties on an annual basis. A final factor that contributed to the dissatisfaction with the property tax system in Arizona, is the use of a classified property tax system. Prior to the Special Session, the Arizona property tax system classified property into nine separate categories. Each of these categories is shown below with its corresponding assessment rate.







11 -







Internal Association of Assessing Officers, Analysis of Valuations Uniformity and Evaluation of Mass Appraisal Techniques in the State of Arizona, February







1978; and,



Price Waterhouse and Co., Findings and Recommendations from the Management Audit: Arizona Department of Revenue, Property and Special Tax Division.







Assessment Class Property Type Flight property; private car company property; producing mines and timber Railroads Telephone and telegraph company property; gas, water and electric company property; pipeline company property General Commercial and industrial property Agricultural property and vacant land Residential property; non-profit handicapped or elderly care facilities Rental residential property Historic property Producing oil and gas company property In Arizona, the assessment rate determines the portion of property value that is subject to taxation for properties within the class. "discriminates" against properties. Because the assessment rate is higher for commercial and industrial properties, the property tax these types of properties in favor of residential The assessment rate also varies among classes of industrial and Rate







commercial properties. This means that a larger relative tax burden is borne by selected types of industries relative to other types of commercial and industrial properties. Owners of commercial and industrial properties have long opposed the classified tax system on the basis that the additional taxes are passed forward to final consumers and simply result in hidden taxation. In recent years the Legislature has attempted to make the property tax more palatable to taxpayers by enacting a number of relief measures that are designed to offset escalating property values. These measures, which reduce the impact of inflation on property tax assessments, include: inflation indzxing of property values, a truth-in-taxation law, and a sizeable property tax reduction program for 1 homeowners- / .







1/ -







In fact, Arizona homeowner tax bills have remained remarkably stable during the 1970's due to tax reductions authorized by the Legislature.







Unfortunately, these relief programs are generally viewed by the public as temporary solutions to a problem in need of a more long-term solution. The failure of these relief measures to elicit significant support from taxpayers prompted the Legislature to give top priority to major property tax reforms during the course of the Special Session. EDUCATION FINANCE REFORMS The education finance system in the state of Arizona is closely linked with the property tax system. The local property tax is a major revenue source for Increases in the cost of education have This increased reliance on local school districts and community colleges. property finance







placed increased demands on the property tax.







tax revenues has limited the ability of the Legislature to make







modifications to the property tax system without severely impacting education







.







In order to limit school districts' reliance on local property tax revenues, the Legislature, in 1974, passed a package of reforms to the education finance system. The package provided an increased level of state support for education and established limits on the growth of expenditures in the general education budget. -This school finance plan only partially solved the problem of property tax reform, however. Although the limitations on budgeted expenditures applied to all districts, districts with above-average per pupil expenditures were required to finance their expenditures in excess of the average with local property tax revenues. As a result, the property tax burden borne by these districts increased relative to other districts. In addition, spending in unrestricted areas of the budget, such as







transportation, budgeted capital outlay, special education (later limited), and override allowances, was financed primarily or entirely with local property tax revenues. Expenditures in these areas increased tremendously during the last half of the 1970's. For example, transportation expenditures in the state alone grew by approximately 17.7% per year from 1974-75 to 1978-79. Budget override amounts were unlimited and, once approved, were included in the district budgets and tax rates for all subsequent years. Because of the increases in all of these areas, local property tax levies continued to grow at uncontrolled rates and created unequal property tax burdens throughout the state.







Community college districts in Arizona also experienced significant growth during the 19701s, both in student population and operational expenditures. Expenditures increased by approximately 12% per year from 1973-74 to 1977-78. The revenue from local property taxes levied in support of community colleges grew by approximately 17% per year during the same period. Unlike school districts, the community college districts had no state imposed budget or expenditure limitations.







In order to meet school district and community college expenditure needs while reforming the property tax system, it was necessary to consider a shift away from the local property tax in financing education. For this reason, education finance reform also became a major issue in the 1979 Special Session.







APPENDIX 1 STATE SPENDING LIrlITATION







Art. 9,s







16







CONSTITUTION







Proposed by 1.nn.a 1966. I1.C.R. No. 10. tiled Aoril 22. 1966. Law Revlew Commentaries J'rop~rty t n x clna~lflrn(lonr. conalltu110nnIIty. 1 3 r \ r l ~ . L P ~ iWv. 5:s



(1911).







1 17. Economic estlrnatet commlsslon; approprlatlon Ilrnltatlon; powors and



dulles of comnllsslon Section 17. T h c ccor~orriiccstinlntcs col~~nrlssion s1111llI r c~tnhllslietlby Inw, with n mcl~lbcrsl~ip not to csrrrtl tl~r: I I I ( . I I I ~ ~ nr~tlsl1:11I e l c t c r r n i ~ ~ r of ~. nnd pui~llsliprior to Fcbril:try I of c : ~ r iycnr tllc cstinlntc.tl tot111n c r r o ~ r ~ ~ l ~ IllcolnC f o r the Sollowing fisr:rl ycnr. 1 %April 1 o f pitcfr ycilr tllc coo4111issin11 ~ sllnll . dctcr~liirrcnncl lrrrblisl~ n f i ~ l n l rvtinlate of tllc totrti ~rcrsou:~lI I C O I I I for the ~ ~ follo~ving fisc111y e r r , \VIIICII C S ~ I I I I : I ~ C ~11:iIl I I S C ~iri r o r ~ ~ p ~ ~ t i r ~ g be tlrc nl>~~rc)printions limlt for thc 1cgisl:tturc. For the pl~qroscs l this scctlor~."totnl l~crsorlnl o ' illco~nc" nlcnns tlic dollnr nnlount that \\.ill bc re;)ortccl 81% t o t ~ t lirlror~leby persons for tllc stntc of Arizon:l by the L. S. d c p n r t l n r t ~ t cumlrlcrcc or Its ' of successor ngcncr. For purposes or this section. "stntc t t ~ s rcvcnues" sllnll be .defined by Invi. T h c lcgislsture shnll not, by npproprtntion f o r nny fiscnl gcnr. cnrlsc t h e Cxpenclltllrc of s t a t e t n s rcvcllrlcs for tllnt fisc:11 y c : ~ rto esccecl scvcri per ccnZ ' of the total pcrsonal incon~cof t l ~ c t ~ i t c suci: fiscal ycnr ns dctcrr~~irrctl s for by t h e cconon~lc estinli~tcs commissioli, cuccpt rlpon nffirrr~:ltivc vote oil c:icl~S I I C ~ I appr0pri:il ion of two-tlrirtls of tllc r ~ ~ c n r k r b i t of c ~ ~ cilollrc of the 1cgisl;lture. ip li In ordcr t o pcrnilt tllc t r a n s f c r c ~ ~ c c ~ w r e r n ~ ~ ~ rfllnctiorlr bt\vcc3c~ h e of ntnl t fw1cr:ll nrttl stntc gorer~l~nctrts I)ct\rcc~ltllc s t a t c ~ n v c r n t a c o t:111tl its ponntl ' flticnl ~ a b d i ~ i s i o \ritliout.al~ritl~i11:: r~s tile p~irposc this ucctiot~to litnit stntC of spct~dlngto n percciit:lgc of tot:11 pcrsnn:~l ititnn!~, thc I r g i s i : ~ t l ~ r~11:1i1 proc Vldc for n d J ~ ~ s t r n c ~ i t stlre c c o n o ~ l ~cstilll;ttc.i C O I I I I I I I ~ S ~ ~of t l r ~ I)? ic II :~pl)rnpri:iti0n perccntngc fi~iiitnfton totnl llcrsonnl illconle consistcat \\-itit t h e folio\\'of Ing principles: 1. If. by ordcr of nny collrt or by Icgislnti\-c cnnc-ttrrcnt. the costs of n PrOprntll nre tnirrbfcrvrti fro111 11 pc~litic:~l ~ ~ l r c l i r i s i ~this st:tte to tlrc st:~te, ~ of r l , h e approprintion pcrrcatngc lifl~it:ltior~ I I : I ~ 11v C O I I I I I I C ~ I S I I ~ Irrcrc:rscd t I :~~~~~ Provided tlrc t n s rcvcrrtrcs of tlrc nffcctcit po1itlc:il s u b t l i v l s i o ~ ~n r e coms mcllsumtcly tlccrcnscd. 2. If. by order of any collrt o r by 1c~isl:ttirccn:~cttuct~t. costs of n protllc . Erfinl Ore tr:itlsfcrrctf frorli t11c s t : ~ t cto :I ~~tditic:rl sc~lttlivi:;io~~ this st:ttc, of ,the nl)froprtntio~~ otlrwntago I i ~ ~ r i t r ~ t lul~:~,Il cor>rr~~c~~u~crntc-l>. on IIC clr*crt~:tsctl. and t l ~ ctiis rntcs of the ~ ~ o l i t i a slrl~di\*isionnl:iy k c o n r ~ n c ~ ~ s ~ ~ r In-c' l y tl nl crc:1sCl1. 3. I f fctlrrnl tnscs n w rctl~fcrtlon co~~tlitinli tli~rt~ I I C st:ttr I t ~ c r e : ~ s c CS~ l t ( l i t l l by ~ I I I I I ~ I I I I~ t l e ~ i v ~ o l ~ i ~~ + t l ~ r :t ~ lt l ~ ~ ~ t i o ~ i , r ~ 1111 ~ t ~ t11c f t r~ ~c :i{)i~roprintl011 jwrcvrtnx~* Iir~~it:~tiort I I ~ I I I ( - ~ I ~ : I ~lry I~1tc11I I I O I I I I ~ . III IT ~I II . 4. I f tllc c o w of 11 ~rro:rnn~ nre tr:tr~sfvrvt~tl fror~rtile s t n t c to tllc -fctlcrl~l Aovcrnnrcnt. thc :tpprol~riirrlni~ l)crrcul:lgc lil~~ir:ttitr~i sl1:11I bc c o ~ ~ r r i ~ r ~ ~ s u r n t c l y dccrcnscd. - 5 , TItc n d f ~ t ~ t t ~ ~ ~ * ~ i t prnvltlr~lfor 111 tlllri sc.rtloll sllnll IH? nlc~tlc111 tlrc flrst fisc~ilycrtr of t r r ~ r ~ s f iov n~)c.rlttio~~. r SIITIIa c l J t ~ r t ~ ~s11:tll~ R t I I I ~ I ~I11~ 01~c~ rI f ~ for cnch s t ~ l ) - . ( ~ ( ~ ~ IrStC ~I~)'PIIT. AildVd. ~ ' l f f t i o ~ ~ 17, 197s; ~ ) ~ O C ~ I I I I I I ~ t ~ 'I I t SOV. tlon dritc--.\'ov. ':!I, 1DiB . .. .� .







.







-







:







'9







.







... .







..







(Enacted by a vote of the people of Arizona on Nov. 17, 1978)







B.







THE SPECIAL SESSION ON TAX REFORM AND EDUCATION FINANCE 1. BACKGROUND In order to address the many complex issues of tax reform and education finance, legislative leaders outlined the basis for a special legislative session to deal with these issues. The special session was scheduled for the fall of 1979. In February 1978, the Legislative Council Committee established the Joint Select Committee on Tax Reform and School Finance. Members were appointed by the Speaker of the House and the President of the Senate, and a staff was assigned to the Committee. The staff was comprised of existing House and Senate research staff members, as well as individuals drawn from other state agencies and new personnel hired expressly for the project. The charge of the Joint Select Commitee ( J . S . C . ) and its staff was to assemble data and background information for use in the study of tax and education finance reform and to prepare reform alternatives.



2.







RESEARCH OUTLINE Following organization of the JSC, a research program was designed. The research program emphasized the collection of detailed taxation and education data and the construction of computer models for use in analyzing legislative alternatives. The specific models required to complete the project were determined based on the reform objectives outlined by the Committee. A list of the Committee's objectives and the corresponding data and information requirements is shown on page 10. In general, the following models formed the basis of the analysis: 1. Property tax models



2. The individual income tax model







3. The sales tax model 4. The tax burden model 5. The education budget simulation model 6. City and County expenditure models







The development and use of these models is described in detail in the Research Effort Section of this report. In order to develop all of the necessary data and complete the analysis of reform alternatives in time for the Special Session, the Joint Select Committee staff constructed a timetable for the completion of research projects. The research schedule outlined for the education finance project group is shown in Exhibit I on page 11. The research schedule outlined for the tax reform project group is shown in Exhibit I1 on page 12. It should be noted that these research schedules were highly optimistic and the research program actually extended from January 1979 to early 1980.







Joint Select Committee on Tax Reform and School Finance Objectives







-







Data and Information Requirements







A.







General Considerations in Constructing a Taxation System: The Principles of Taxation 1. Relate taxes to ability to pay 2. Relate taxes to benefits received 3. Provide equity and fairness (vertical and horizontal equity) 4. Maximize total revenues 5. Simplify administration 6. Encourage economic development 7. Provide social equity 8. Maximize tax exportation







-







Review public finance literature and develop concept paper which defines and describes the principles of taxation and provides an analysis of various types of taxes as they relate to the principles. Historical profile of state and local revenues. Reliance comparison: state and local taxes







-







B. Specific Goals and Considerations







1. Property Taxation a. Reduce reliance on property taxes at state and local level and stabilize the problem b. alter the property classification system c. lower property taxes on homeowners d, improve horizontal equity e. institute measures to make the system more related to ability to Pay



2. Other Areas of Taxation a. develop replacement revenues to compensate for shift away from property taxes. The principles of taxation should be used as governing criteria b. modification to the income tax system c. modification to the sales tax system d. modification of user charges







Construct computerized data abstracts and impact models Legal Class Abstract Use Code Abstract Class 5 Abstract







-







Prepare income tax system tests Prepare corporate income tax system tests Construct tax burden model Construct sales tax data base prepare sales tax tests and







Prepare list of state and local user charges; source of authorization; analyze levels Education Finance a. provide equal education opportunities for all students b. maintain local administrative control of school districts c. stabilize costs of education d. equalize tax burdens for educa- tional costs among districts e. expand equalization program to other or all areas of school district financing f. consolidation of school district boundaries for funding







-







DOE equalization project data Prepare update of DOE equalization project Obtainlprepare school district budget abstracts Prepare inventory of school buildings







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trvltu.3 u o o r n ~J n~way) I C Dnlold







RESEARCH EFFORT 1. INTRODUCTION







-







CRITERIA FOR EVALUATING TAX ALTERNATIVES







The stated objective of tax reform is to produce a tax structure that is an improvement over the current system. In order to achieve this objective, it is Because these criteria important to establish criteria that can be used to evaluate both the current tax structure and any new alternatives under consideration. serve as a basis for determining whether a given tax will better meet the demands of the taxpayer, it is important to identify exactly what it is that the taxpayer expects from a tax and incorporate these demands into the criteria. 1)



2)







Basically,







these demands can be narrowed to the four major objectives outlined below: Revenue Generation Social Equity







-







The revenues produced by the tax should be







sufficient to pay for the services demanded by the taxpayer.







-







The tax should be fair and should not become too great a







burden to the individual taxpayer.







3)







Ease of Administration







-







The tax to be paid by the individual taxpayer







should be easy to determine.







4)







Consistency with State Goals within the state.







-







To the greatest extent possible, taxes







should be exported and should promote a rational pattern of development Taking each of these in turn, it is helpful to identify the characteristics which a tax must possess in order to meet the objectives outlined above.







.







Revenue Generation In the case of revenue generation, a tax must satisfy two characteristics in order to consistently produce enough revenues to pay for the service demanded by the taxpayer. First, the revenues produced by the tax must expand as the demand for services increases. A good illustration of a tax which possesses this characteristic is the local property tax. Ordinarily, property taxes are levied at the local level for the purpose of financing school expenditures. New families with school age However, the children that move into the district will raise the total level of school expenditures, thereby increasing the need for additional revenues. in-migrant families frequently require new housing, thereby adding property value to the tax base and generating additional revenues. The individual income tax, on the other hand, does not possess this characteristic. to follow different cycles. With the income tax, increases in the demand for government services and increases in the tax base tend During a recession, for example, the level of unemployment will increase and the number of individuals demanding income assistance is likely to expand. At the same time, however, the level of taxable







income may be falling and the amount of revenues produced by the income tax declining.







A second characteristic a tax must possess in order to continually produce



enough revenues to pay for the services demanded by the taxpayer is that the revenues must increase as the price of the service demanded increases, The sales tax is a good example of a tax which possesses this characteristic. Because a sales tax is levied on the gross receipts from the sale of goods, a general increase in the price of goods will generally result in an increase in the revenues produced by the sales tax. This increase in revenues can then be used to pay for the higher cost of providing government services, which is also associated with a general increase in the price of goods. A good example of a tax that does not possess this characteristic is the fuel tax. Currently, the Arizona fuel tax is collected based on the number of gallons of gasoline purchased, not on the gross receipts from the sale of gasoline. Therefore, a general increase in the price of goods (including gasoline), which will increase the cost of government services, will not necessarily result in an increase in revenues from the fuel tax. Social Equity In the case of social equity, three characteristics must be present if taxes are to be fair and are not to become too great a burden to the individual taxpayer. First, the tax burden borne by the individual taxpayer should be affordable from current cash flow without undue hardship. The best example of a tax that possesses this characteristic is the individual income tax. Because a percentage of income is withheld from each individual's paycheck at the time of receipt, the bulk of the individual's total tax liability is automatically paid from current cash flow. The property tax, on the other hand, may not possess this characteristic. If an individual who owns property is unemployed at the time when property taxes become due, he will be liable for payment of the tax regardless of the fact that he may be unable to pay the tax from current cash flow.







A second characteristic that a tax must possess in order to meet the objective outlined for social equity is that the tax burden borne by individuals with common circumstances must be equivalent. Again, the individual income tax is a good example of a tax that possesses this characteristic. Because income is generally regarded as a fairly good measure of circumstance and individuals falling within the same income range are taxed at the same rate, it is relatively safe to assume that individuals with common circumstances have roughly equivalent income tax burdens. The school district property tax is a prime example of a tax which does not possess this characteristic. Because the tax rate levied on a given property depends upon the level of school expenditures and in particular on the total amount of property valuation subject to tax within the district, two parcels of equal value located within separate school districts may have totally different tax burdens. Differences in appraisal techniques may also result in two property parcels of comparable value being subjected to different tax liabilities. The third characteristic that taxes should possess if they are to be considered equitable, is that, all other things being equal and given that an individual can afford to pay a tax, the taxpayer receiving more services should be taxed at a higher level. "benefits of taxation." Economists refer to this tenet of taxation as the Some caution must be used in evaluating taxes according to







this characteristic because of the difficulty of identifying specific benefits that are derived from the levy of a given tax. Particularly in the case of taxes which are designed to raise large amounts of general revenue, it is difficult to determine the relationship between costs to the taxpayer and benefits received. The fuel tax is a good example of a tax that possesses this characteristic. Receipts from fuel taxes are generally used for road maintenance and construction. We can probably assume that individuals who travel a greater number of miles will ordinarily demand more road construction and maintenance services. Because the fuel tax is levied on gallons of gasoline sold, these same individuals will likely pay greater fuel taxes as well, as the number of gallons purchased increases. Conversely, the individual income tax does not possess this characteristic. Ordinarily, individuals with lower incomes require more government services (income assistance, indigent health care, etc.). These individuals will not be required to pay greater income taxes to finance these services, because the income tax is designed so that individuals with lower incomes will pay lower income taxes.







Ease of Administration Basically, only one characteristic must be present if a tax is to satisfy the objective outlined for ease of administration relatively easy to determine. The sales tax is a good example of a tax which possesses this characteristic. The sales tax is a direct tax on the gross selling price of a good. Because this price is fixed prior to sale, no discretion is permitted in determining the value of the tax base. The property tax, on the other hand, is levied on the assessed valuation of a If the property has not been sold recently, no direct measure of the current market value of the property will be readily available and therefore, the exact value of the tax base will be somewhat difficult to determine. Consistency with State Goals The final criteria established for evaluating taxes is consistency with state goals. If a tax is to meet the objective outlined for this criteria, two characteristics will ideally be present. First, a substantial portion of the total tax levy will be paid by the property which is based on the property's current market value.







- the value of the tax base should be







A good example of a tax which possesses this characteristic is the sales tax on hotels. Because hotels are normally frequented by the residents of other states and these individuals will pay the price of the accommodations, a substantial portion of the sales tax on hotels will be paid by non-residents. The individual income tax is a good example of a tax which does not possess this characteristic. Non-residents are taxed on income only to the extent that this income is derived from sources within the state.



residents of other states. In addition to this characteristic, a tax should not inhibit the growth of business or discourage new businesses from locating in the state, if it is to be consistent with state goals. A good example of a tax which possesses this characteristic is the estate tax. This tax is levied on the personal possessions of deceased individuals and therefore, has no direct effect on the growth of business. Other taxes such as the unemployment insurance tax, are paid directly from the proceeds of businesses subject to the tax and, therefore, may serve to inhibit the growth of the business if they become excessive.







Conclusion Although it is unlikely that any given tax will satisfy all of the above criteria, it is nevertheless helpful to evaluate tax alternatives in terms of these criteria in order to identify strengths and weaknesses of the options under consideration. In so doing, it may be possible at times to eliminate elements of a tax that are contrary to the objectives of the taxpayer. By levying the fuel tax on gross receipts from the sales of fuel instead of levying the tax on gallons sold, for example, it may be possible to assure that revenues from the fuel tax will expand over time as prices of government services continue to increase. It is also possible that a tax which satisfies a given set of criteria may be more suitable for certain purposes, and evaluating all tax alternatives in terms of a standard set of criteria will provide some basis for selecting the best tax for the purposes at hand. For example, if a tax is needed for the primary purpose of raising large amounts of general revenues, it might be a good idea to select a tax which is affordable to the individual taxpayer from current cash flow, because the larger the revenue requirements, the more likely it becomes that payment of the tax will represent a hardship to the individual. Thus, the income tax might be the best tax to levy when large amounts of general revenues are required. In the case of a general tax reform, evaluating the alternatives under consideration in terms of a standard set of criteria, will serve as a basis for developing a mix of taxes that satisfies all of the criteria to the greatest degree possible in order to produce a tax structure that more fully meets the demands of the taxpayer. In order to evaluate each alternative in terms of these criteria it is necessary to have accurate information on the impacts that the alternative will have on tax revenues and individual tax burdens. It is also helpful to consider the administrative aspects of the alternative and its potential impact on state growth and development. The following sections outline the techniques that were used to generate this information for each of the major tax reform alternatives considered by the Arizona Legislature during the Special Session. The sections are divided by property tax issues, income tax issues, and sales tax issues. Each section contains a summary of the current system of taxation, a description of the techniques used to simulate the impacts of proposed tax alternatives and an example of the types of data that were generated using these simulation techniques.







2.







PROPERTY TAX I S S U E S







A i n other s t a t e s the property tax in Arizona i s levied on the s







taxable assessed valuation of properties within the s t a t e .







Perhaps d i f -







fering from other s t a t e s , Arizona has a c l e a r separation between the concepts of full cash value and assessed valuation. The full cash value of property i s the market value of the property as appraised by the County Assessor or the De~artmentof Revenue. Assessed valuation i s equal t o a







percentage of the f u l l cash value, and represents t h a t portion of the value subject t o taxation. The property tax base, or the assessed valuation system i n Arizona i s unique in t h a t i t i s defined by several classes of property. For any







parcel of property, the percent of f u l l cash value that i s subject t o taxation will depend on the use t o which the property i s p u t and the subsequent c l a s s i f i c a t i o n of t h a t use. Each c l a s s has a separate assess-







ment r a t i o assigned t h a t defines the percentage o f f u l l cash value that i s subject t o taxation. Classification allows the s t a t e t o t r e a t the several types of property d i f f e r e n t l y f o r taxation, thereby influencing the proportion of taxes paid by each c l a s s of property. To date, only eight s t a t e s , including Eighteen other







Arizona, have adopted comprehensive c l a s s i f i e d tax systems. s t a t e s have implemented p a r t i a l c l a s s i f i c a t i o n schemes.







In Arizona, there are nine c l a s s i f i c a t i o n s o f property f o r taxation as shown below:



S







PROPERTY CLASSIFICATIONS FOR TAXATION







I I I I I







Class







Assessment Ratio







Property Types f l ight property; producing mines and timber telephone and telegraph company property gas, water, and e l e c t r i c company property; pipeline company property commercial and industrial property agricultural property residential property; non-profit handicapped or elderly care faci 1it i e s rental residential property private c a r companies, railroads h i s t o r i c property producing 011 and gas company property







I process two issues continued t o surface - the level of appraisal the I c l a s s i f i c a t i o n of property. I a. 1 . Historically, the appraisal of property was a very a r b i t r a r y process I and dependent upon the discretion of the local appraiser. Prior t o s t a t e hood in Arizona, the county s h e r i f f was authorized as the tax assessor I and collector. Under the early system, each property owner was responI s i b l e f o r f i l i n g an a f f i d a v i t of his property with the county sheriff, The resultant l i s t of propert:ivaluesv~ithin the county comprised the I property tax base. In 1912, the year of statehood, the State Tax Commission was formed I t o supervise the collection of property taxes. All similar properties were I



T h i s system i s the r e s u l t of an e v o l u t i o n p r o c e s s t h a t was undertaken in Arizona froel the early days of statehood. Throughout t h i s developnent



and







t o be valued equally a t f u l l cash value.







The Tax Commission was authorized







t o appraise a i 1 producing nines, railroads, telegraph and telephone companies, express companies and private car companies in the s t a t e . Appraisal of a l l other properties was charged t o the counties. The f i r s t Tax Commission discovered t h a t property appraisals varied widely across the s t a t e , ranging from 25% t o 70% of f u l l cash value. In







an attempt t o equalize appraisals, the Commission ordered t h a t a l l property be assessed equally a t 50% of i t s f u l l cash value. Altliough an e f f o r t was made t o comply with t h i s order, which resulted in a substantial increase i n assessed valuation, not a l l counties conformed f u l l y . To give







the State Tax Commission the power t o supervise the county boards of equalization, an amendment t o the Constitution was presented t o the voters in the 1912 election. The amendment passed, and i n 1913 the State Tax Com-







mission was granted broader powers. B 1913, statutory classes existed f o r express companies, private car y companies, banks and general property. were treated d i f f e r e n t l y . Properties in each of t h e s e c l a s s e s







Express companies were taxed on gross proceeds Private car companies were also s u b j e c t t o a Banks were taxed on capital







in l i e u of ad valorem taxes.







separate tax in l i e u of the property tax.







stock, and general properties were assessed and taxed under general law. Each taxing mechanism and c l a s s i f i c a t i o n was selected f o r purposes of simplicity and convenience. In 1933, the Intangible Property Tax Act created seven classes of intangible property, each bearing a d i f f e r e n t tax r a t e . This law repre-







sented the f i r s t attempt to use the c l a s s i f i c a t i o n system t o modify the burden of taxes among taxpayers. In the following year, however, the







a c t was struck down by the State Supreme Court on the grounds t h a t the c l a s s i f i c a t i o n system that was established was a r b i t r a r y and t h a t there







was no meclianism for taxpayers' appeals. It is interesting to note however, that although the act was declared unconstitutional, the court did rule that a classification system was constitutional as were different tax rates for different classes. In 1950, the Legislature distinguished between manufactories and other types of property, and as a result modified the tax burden of businesses. The 1950 act provided that machinery used in the operation and maintenance of any manufactory could be assessed for tax purposes at 50% of its book value. Excluded from the definition of a manufactory were businesses engaged in the following activities:







I I I I







-







-







mining, smelting, quarrying, etc. furnishing utilities to consumers telephone or telegraph service pipeline operations publication job printing or advertising slaughtering contracting







Thus, while the State Tax Commission was trying to establish uniformity of assessments, the state was providing for differences.in the treatment of properties by altering the assessment ratios applicable to different types of property. Differences in assessments persisted, thereby altering the relative property tax burden, both between and within counties, and between classes of property. In 1959, the Southern Pacific Railroad challenged the property tax assessment system in court on the grounds that the railroads were being assessed higher than other properties. The Arizona Supreme Court ruled that the system was discriminatory and must be prohibited in the future since it was not provided for in statute. The legislature, concerned by the decision, ordered a reappraisal of all properties within the state in preparation for reform. The revaluation was to be conducted by the newly established Division of Appraisal and Assessment Standards which .. became the Department of Property Valuation in 1967.







I I I







I



I I







In 1968, a f t e r the revaluation was completed, the l e g i s l a t u r e began research t o develop a c l a s s i f i c a t i o n system which would e s s e n t i a l l y preserve the existing tax burden. The property tax r o l l s were divided into four



A separate assess-







classes, each c l a s s t o be appraised a t f u l l cash value.







ment r a t i o was then applied t o each c l a s s i f i c a t i o n to determine assessed valuation. The four c l a s s i f i c a t i o n s of property established in 1967 and







t h e i r assessment r a t i o s a r e as follows: Class 1: Assessment r a t i o - 6 0 % Flight property, private car companies, rai 1 road properties used in the continuous operation o f the l i n e , producing mines, and standing timber Assessment r a t i o - 40% Telephone and telegraph companies, gas water and ' e l e c t r i c u t i l i t i e s and pipelines Assessment r a t i o 25% Commercial or industrial property other than t h a t included in Class 1 , 2 o r 4, including residential rental property 18% Assessment r a t i o Agricultural property and a l l other property not included i n Class 1 , 2 or 3







Class 2 :







Class 3:







-







Class 4:







This c l a s i f i c a t i o n system was protested by the railroads t o the Arizona Supreme Court in 1969. c l a s s i f i c a t i o n system. Legislation in 1968 required t h a t the county assessors update property valuations annually. personnel and budgets. This was found t o be very expensive in terms of The Director of the Department of Property Valuation The Supreme Court, however, upheld the







wanted t o update one-third of a l l properties each year, thus revaluing each piece of property every three years.



An Attorney General's opinion







concluded t h a t such a system would be permissable. uation was challenged in court, however, on







The three-year reval-







the grounds t h a t i s was unfair







t o those taxpayers revalued i n the f i r s t and second years, and was found t o be unconstitutional



i n 1975.







.







The case, however, was appealed and overturned







Prior t o the time the case was overturned however, the Department of







Property Valuation made a major e f f o r t t o i n s t i t u t e annual reappraisals of property. To do t h i s , the department adopted a sales comparison multi-







1inear regression model t o estimate residential' property values.







The f i r s t use of t h i s technique was f o r the tax year 1973.







The







new system produced values t h a t were approximately 25 percent higher than those derived under the old system. To compensate the homeowner f o r the







sudden increase in values, the l e g i s l a t u r e began the homeowner r e b a t e -tax



program.







I I I I







Since 1973 the l e g i s l a t u r e has continued t o a l t e r the original four c l a s s system. Presently i n Arizona there a r e nine formal classes of







property d i f f e r e n t i a t e d i n t h e i r tax treatment by t h e i r usage. The Arizona property tax system has always had an additional c l a s s of property; t h a t i s , property exempt from taxation. The Constitution







e i t h e r provides or allows the l e g i s l a t i r e t o grant property tax exemptions for the following categories: 1) Federal, s t a t e , county and municipal property; 2 ) Property of c h a r i t a b l e , education and r e l i g i o u s organizat i o n s which i s not held or used for p r o f i t ; 3 ) Household goods owned by the user and used s o l e l y for noncommercial purposes; . 4) Inventories; 5 ) Property belonging t o c e r t a i n widows and widowers*; 6 ) Property belonging t o c e r t a i n honorably discharged members of t h e armed f o r c e s ; 7 ) Property belonging t o c e r t a i n disabled individuals*.



*The exemptions f o r widowers and disabled persons i n 1 9 8 0 a s a r e s u l t of the s p e c i a l session on tax reform and school finance.







I I I I I I I I I







b.







Description of the Current Property Tax System







After the appraisal of a l l property and the adoption of budgets by j u r i s d i c t i o n s , a l l taxing jurisdictions t h a t have the power t o levy a tax establish t h e i r tax rates. The r a t e s e t t i n g procedure f o r each jurisdiction i s e s s e n t i a l l y the same. The tax r a t e i s expressed as do1 l a r s per $100 of assessed valuation.







The tax r a t e when applied t o assessed valuation should produce adequate







funds t o meet the revenue requirements of the taxing jurisdiction. revenue requirements a r e known from the proposed budget.







The







Revenues from







any source other than the property tax a r e subtracted from the revenue requirements t o determine the necessary property tax levy. assessed valuation per jurisdiction i s a l s o known. The amount of







Because the tax r a t e







i s established as d o l l a r s per-one hundred dollarc of assessed valuation, the assessed valuation i s divided by 100. This number i s then divided







into the net revenue requirements of the jurisdiction t o determine the tax r a t e . In summary, the property tax r a t e i s s e t i n the following manner: Total Revenue Requirements - Funds Property - Other Than Tax Levy Tax Necessary Property Necessary Property Tax Levy Assessed Valuation f' 100



A parcel of property may f a l l within several p o l i t i c a l jurisdictions







t h a t have the power t o levy a property tax.







For example, a property owner







i s l i a b l e f o r taxes levied by the s t a t e , the county, a c i t y , a school d i s t r i c t , a community college d i s t r i c t , and perhaps, one or more special districts. There are approximately 15 types of special d i s t r i c t s in







Arizona, formed f o r the purpose of supplying a locally needed f a c i l i t y or service. Types of special d i s t r i c t s include:







Anti noxious (weed) d i s t r i c t s Electrical districts Fire districts Flood c o n t r o l d i s t r i c t s Hospital d i s t r i c t s Improvement d i s t r i c t s Irrigation districts I r r i g a t i o n and w a t e r d i s t r i c t s Library di stri c t s Road d i s t r i c t s Sanitation di stri c t s S t r e e t l i g h t i n g and improvement d i s t r i c t s Si dewal k d i s t r i c t s Water di stri cts Water c o n s e r v a t i o n d i s t r i c t s To determine t h e p r o p e r t y t a x 1 i a b i l i t y o f a p a r t i c u l a r parcel s u b j e c t t o d i f f e r e n t 'taxing j u r i s d i c t i o n s , a t a x a r e a code i s a s s i g n e d . The t a x a r e a







code r e p r e s e n t s a s p e c i f i c geographic boundary i n which s e v e r a l t a x j u r i s d i c t i o n s exist. The t a x a r e a code i s used t o i d e n t i f y t h e t a x r a t e s appl i c a b l e t o







t h e assessed value o f a property. The t a x r a t e may vary s u b s t a n t i a l l y between t a x i n g a r e a s . In 1978, f o r







example, f o r a l l school d i s t r i c t s comprised o f both an elementary and a high s c h o o l , the high t a x r a t e was $22.05 i n Union No. 62 i n Maricopa County, and t h e low r a t e was $2.825 f o r Morenci Unified D i s t r i c t No. 18 i n Greenlee County. The t a x r a t e i s a f u n c t i o n o f the budgeted needs o f t h e community, and t h e amount and t y p e o f p r o p e r t y i n t h e d i s t r i c t s . Total c o l l e c t i o n s from the p r o p e r t y t a x during 1977-78 amounted t o $778



m i 11 ion.







I I I I I I







The di s t r i b u t i on o f p r o p e r t y t a x col 1ecti ons among t a x i n g d i s tri c t s







I







i s shown below:



Amoun t State* Counties Cities School D i s t r i c t s Communi t y Col 1e g e s Special Districts Unorgan i zed T e r r i t o r y TOTAL



% o f Total







395,961,952 56,457,874 18,830,759 1,775,431 $778,416,825







*The s t a t e r e b a t e d $57.5 mi1 1 ion back t o homeowners during 1977-78.







I







A significant portion of the total tax levied on property owners is never collected or is returned to taxpayers because of the effects of several tax relief programs. The relief programs fall essentially into two categories, property tax relief through the income tax system and the homeowner's rebate program. Property Tax Relief through the Arizona Income Tax has essentially three components: Homeowners Property Tax Deduction - When computing Arizona income tax liability, property taxes paid are a deductible expense from adjusted gross income. Property Tax Credit - for homeowners age 65 or older, with sole income of less than $3,750 or a joint income of less than $5,000, there is a property tax credit that is dependent upon the level of income. The maximum credit as set forth in statute is $225. Renters Credit - each renter may receive an income tax credit of ten percent of rent paid, or $75, whichever is less. The property tax credit and the renters credit have been inflation indexed since 1978. Currently the maximum amounts of credit are $276 and $92 respectively. The homeowners property tax reduction program originated in 1973 when legislation was enacted to relieve homeowners from the effects of significantly increased property valuations caused by the statewide revaluation of residential property under the MLR appraisal system. As the program currently operates, monies are appropriated to the county treasurers to pay a portion of the school district property tax levy which would otherwise be paid by homeowners. The homeowners property tax reduction was originally made possible by revenues received from the Federal Revenue Sharing Program. Total fundsappropriated for this purpose are shown below for each year in which the program has been in effect.







Property Tax Reduction Totals







In addition t o these programs the l e g i s l a t u r e has attempted t o retard the inflationary increases i n property valuations by using the concept of deflators. In 1978 the l e g i s l a t u r e mandated t h a t a l l valuations be reduced In 1979 the process was repeated w i t h







by dividing valuations by 1.05. a 1.15 deflator.







I t was hoped t h a t these adjustments would reduce property







tax levies because local o f f i c i a l s would be hesitant t o commensurately increase t h e i r tax rates. A though i t cannot be substantiated, i t i s widely 1







believed t h a t the program was a success. c. Description of t h e Property Tax ~ o d e l s Early in the planning stages f o r the special session i t was recognized







I I I I I







t h a t the major e f f o r t of the session would be directed toward the property tax system in Arizona. Leadership and s t a f f both f e l t t h a t major e f f o r t s







should be undertaken t o develop a computerized property tax data base and simulator. The planning f o r the data base and the simulator revolved around three basic a c t i v i t i e s ; identifying the simulations and display requirements ; , identifying, collecting, and editing the data required for the display, and sirnulati on



;







I I I I







designing the simulators.







-v







This section of the report w i 11 describe these a c t i v i t i e s .



1.







Identifying the simulation and display requirements







This a c t i v i t y was undertaken very early in the process and consisted of --es a thorough analysis by s t a f f and l e g i s l a t o r s of p a s s i b l e chaaA, made in the property tax system. t h a t could b







The process consisted of analysing the components of the property tax system and possible changes t h a t could be made in each. The process included







l i t e r a t u r e searches, review of previous l e g i s l a t i v e i n i t i a t i v e s , discussions with i n t e r e s t groups and lobbyists and ultimately w i t h a s e r i e s of public hearings held throughout the s t a t e . From these sources of input,a broad range of alternatives were analysed. I t was concluded t h a t the session would address the property tax in one o r more of the following areas and the simulator designed should have the capacity t o address any of them.



1. 2. 3. 4. 5. 6. 7.







The areas i d e n t i f i e d were:







taxlevies tax r a t e s f u l l cash value levels class composition assessment r a t i o s assessed valuations education finance system







Some examples of the alternatives and simulations t h a t were hoped t o be analysed in each of these areas included:



1. Tax levies:







levy 1imitations; changes in levy composition ( i . e . , transference of funding responsib~ i t i e s j I projection of 1evy requirements. r a t e ceilings f o r jurisdictions o r taxpayers; s p l i t t i n g r a t e s by c l a s s ; adjusting rates by sales r a t i o and analysis. adjusting by sales r a t i o reports; controlling i ncreases ; reducing re1 ation t o market value; projecting future increases . restructuring of classes. changing r a t i o 1evel s ; reducing number of r a t i o ; weighing r a t i o s by sales r a t i o s . adjusting by sales r a t i o s ; controlling increases; reducing re1 ation t o f u l l cash value through increased exemptions or homestead exemptions ; projecting valuation 1evel s







2.







Tax r a t e s :







3.







Full cash values:







4.



5.



6.







Class composition: Assessment r a t i o :







Assessed valuations:







.







7.







Education finance system:







changing s t a t e aid distribution formula; equalizing rates; changing budget constraints ; projecti ng requi rements f o r tax levies and s t a t e aid.







These alternatives, which were primarily quantitatively oriented, were supplemented by nonquantitative alternatives such as "truth in taxation" laws, reversing the function of rates determining levies, mandating stronger equity measures and adjustments in the assessing process, and specifying specific valuation formulas. Once t h i s range of options was established, identifying the requirements for display of the alternatives was considered.



I t was determined t h a t the







results of the simulations had t o be presented in essentially two manners:



1) by jurisdiction and by type of jurisdiction, and







2 ) by taxpayer i n specific







locations.







I t was further determined t h a t each of these displays should be







cross tabbed by county and by class of taxpayer.



2.







Identifying, Collecting and Editing Data







After completing the process of identifying the simulator and display requirements, staff began to identify a n d col l e c t the required data. In order t o build the simulator t o meet the contingencies outlined, the following data was determined t o be necessary for the major property tax model. Jurisdictional abstracts (secured roll , secured and unsecured roll )information needed - identifiers ; jurisdiction name, authority number - v l a i n y parcel counts, full cash value, au to b exemption amounts, assessed valuations, adjusted assessed valuations



2.







I I I I I I I I I







Area code abstracts (available for secured roll only) information needed - identifiers: area code number, county of 1 ocati on, jurisdictions composing area code (authority number and name) - valuations by legal class parcel counts, full cash value, exemption amounts, assessed valuations, adjusted assessed valuations Jurisdiction tax rates - information needed jurisdiction name, authority number - t a x rates







3.







-







identifiers







4.







Homeowner Reduction Amounts & Rates information needed - i d e n t i f i e r s j u r i s d i c t i o n name, a u t h o r i t y number - reduction r a t e s and d o l l a r amounts







5.







Bond p r i n c i p l e , i n t e r e s t & redemption charges information needed - i d e n t i f i e r s j u r i s d i c t i o n name, a u t h o r i t y number - land payment amounts - t o t a l payments per year and sources of revenue used f o r repayment - bond tax r a t e s - i f a v a i l a b l e Valuations used i n levying information needed - i d e n t i f i e r s j u r i s d i c t i o n name, a u t h o r i t y number - valuation amounts Sales Ratio Reports information needed - i d e n t i f i e r s j u r i s d i c t i o n name, a u t h o r i t y number - s a l e s r a t i o reports by legal c l a s s Class f i v e valuation a b s t r a c t (secured r o l l ) information needed - i d e n t i f i e r s j u r i s d i c t i o n name, a u t h o r i t y number divided i n t o $100 increments w i t h amount c l a s s valuations of valuation t o t a l f a l l s between t h e brackets of valuation







.







7.







8.







-







-







9.







Other Information information needed







-







-







teacher retirement and OASI costs of counties superior c o n s t r a i n t s of r a t i o s







After i d e n t i f i c a t i o n of data needs, s t a f f i d e n t i f i e d potential data sources and began t h e c o l l e c t i o n process. I t was determined e a r l y on t h a t Primary among







c e r t a i n components of the data requi rements were unavai 1abl e. these elements were t h e s a l e s r a t i o r e p o r t s .







Information regarding s a l e s r a t i o a n a l y s i s was not s u f f i c i e n t l y re1 iabl e o r precise t o be u t i l i z e d as t h e basis f o r adjustment of tax r a t e s , f u l l cash values , assessment r a t i o s o r assessed val uations. Of the information t h a t was avai lab1 e , i t was determined t h a t i t could and would be obtained from the following areas:







DATA -







SOURCE







METHOD







- Abstracts -







( j u r i s d i c t i o n a l legal c l a s s and use code)







DOR







Computer Transfer







Jurisdictional tax r a t e s Class f i v e valuation abstract rates Legis. Staff Jurisdictions



U/A







- Homeowner reduction



Sales r a t i o reports







Bond Principle and i n t e r e s t







Survey







Other budget information







County Budgets







Review and fol 1ow-up







Concurrent w i t h the planning of the special session, the S t a t e Department of Education undertook the development of a school finance simulator. This simulator, to be driven by student counts, budget information and assessed valuation was evaluated by l e g i s l a t i v e s t a f f in the summer of 1978. From t h i s evaluation, i t was determined t h a t the two models, the education simulator a n d the property t a x simulator, could be unified f o r analysis purposes. The education simulator represents the only major component of







the electronic data processing simulator t h a t was not constructed in-houseAn out1 ine of the model i s included in Appendix I.







Once the data was collected, edited and niountnzd i n an electronic form, construction of the models began. A t t h i s point in time, the a1 ternatives







examined i n the early stages of the research e f f o r t were reviewed and three basic pol icy decisions were made by Leadership. The f i r s t decision i s t h a t there would be no restructuring of the compos i t i o n of the property tax c l a s s i f i c a t i o n s . This meant f o r example, no







consideration would be given to removing certain general commerci a1 properties



( 1 i ke warehouses) from the Class 3 c l a s s i f i c a t i o n f o r general commerci a1 ,







In







making t h i s decision i t became unnecessary t o manipulate the jurisdiction use code abstracts. ated. The information remained available b u t was not mani~ul







The second decision was t o not pursue the granting of general homestead exemptions. A in the case of the f i r s t decision, t h i s made i t unnecessary s







to devote s i g n i f i c a n t resources t o the programming of a homestead model, though the cl ass f i v e abstract of incremental val ues remained avai 1able. The t h i r d decision was t o not pursue any sortof adjustments based on sales r a t i o analysis since r e l i a b l e data was not available. After these decisions were made, s t a f f analysed the remaining requirements and eventually decided upon two basic processing models: and the area code model. The summary model







The models were o r i g i n a l l y designed and b u i l t t o







display the data that had been collected, a1 though eventually they were transformed into simulators. The summary model became the basic model in which data was t o be displayed and manipulated. I t s primary focus was jurisdictional i n nature. I t illustrated







taxpayer c l a s s tax payments and average payments, and levies by the various types o f jurisdictions. The primary data flowing into the mode1 were the







abstracts (by 1egal cl a s s ) , tax r a t e s , homeowner reduction r a t e s , 1and payments, and teacher retirement information. The display format adopted f o r the summary run i s depicted in Exhibit 1. A can be seen, t h i s format i s a summarization of a l l available information by s jurisdiction type and by legal c l a s s within a county. The upper display shows f o r Maricopa County in 1979.



A.







B.







Class i d e n t i f i e r The net f u l l cash value of each class. This i s a calculated amount derived through the f o l l owing formula:







FCV- (EAV S A d j S AR) = NFCV where FCV = f u l l cash value EAV = exemption (widows, veterans, re1 i gi ous , . pub1 i c building, e t c ) assessed value A J = adjustment factors f o r assessed valuation D



(1979=1.15)







AR = the assessment ratio NFCV= net taxable full cash value







C.







The adjusted assessed valuation of each class. This i s the net taxable assessed valuation reduced by the adjustment f a c t o r (1978=1.05; 1979=1.15; 1980=1.0) The gross tax dollars of each c l a s s . This i s a calculated amount derived by multiplying the adjusted assessed valuation of each c l a s s in each jurisdiction by the respective tax r a t e of the jurisdiction and summing the products. The percentage t h a t gross tax d o l l a r s are of net f u l l cash value of each class. This i s calculated in the same manner as gross tax dollars b u t each gross tax r a t e i s reduced by the bond tax r a t e (see below).







D.







E.







F. The operating tax dollars of each c l a s s .







G. The percentage t h a t operating do1 l a r s are of net f u l l cash value of



each class. The "bond dollars" or nonoperating d o l l a r s paid by each c l a s s . Originally t h i s was determined t o include only bond d o l l a r s , eventually a l l special d i s t r i c t levies were included under t h i s concept. Calculated in the same manner as gross tax dollars and operating do1 l a r s . The bond tax rates ( i f not s p e c i f i c a l l y levied f o r by the j u r i s d i c t i o n ) were calculated by dividing bond i n t e r e s t and redemption amounts (not a1 1ocated from earmarked revenue sources) by the valuations u t i l i z e d by the jurisdiction t o s e t i t s tax r a t e .







I.



m .







The percentage t h a t "bond" dollars are of net f u l l cash value of each c l a s s . The lower half of Exhibit 1 shows much the same information except i t was







s t r a t i f i e d by jurisdictional type.



A t minimum two runs were required f o r each of the actual tax years







(1978, 1979) f o r which data was collected.







T h e f i r s t of these runs was made







without regard t o the homeowner property tax reduction program and the second run was made reducing the payments of c l a s s 5 by the provisions of t h i s program. Exhibits 2 and 3 are examples of the display from the summary r u n which offered more d e t a i l of the information presented in Exhibit 1. Exhibit 2 depicts the payments to the various jurisdictional types by class of property within a county and exhibit 3 depicts the payments received from the various classes of property by jurisdictional types. In addition t o t h i s basic output from the summary depiction model, various detailed s e t s of output could be obtained. on individual jurisdictional 1eve1 s . Primary among these were information







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The area code model became the basic model f o r depiction of tax burden by specific taxpayer. unique tax r a t e s . jurisdictions. Exhibit 4 shows the basic index f i l e used in the area code run. It Area codes represent geographic l ocations containing







Unique tax rates a r e the r e s u l t of overlapping taxing







contains the county number (07 i s Maricopa), area code number, the authority numbers and names of the jurisdictions composing each area code, and the tax rates associated with each jurisdiction in the area code. This index f i l e when applied t o the area code legal c l a s s abstract would produce the r e s u l t s contained in Exhibit 5 or Exhibit 6 . i l l u s t r a t e tax burden by c l a s s . These exhibits







Exhibit 5 presents the information in abstract







form showing legal c l a s s , parcel count, net taxable f u l l cash value, and tax d o l l a r and percentage of f u l l cash value amounts by the three basic categories examined. Exhibit 6 shows essentially the same information in more







compact form and county number, area code, primary school d i s t r i c t , legal class



(8 being class 5 with rebate) parcel count,







gross tax dollars w i t h percentage







of net f u l l cash value, and operating tax dollars w i t h percentage of net f u l l cash value. Exhibit 7 i s a county-wide frequency distribution based on parcel count.







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After both of these depiction models were built and verified for tax







year 1980 with proposed l e g i s l a t i v e changes.



d. Data analysis on property tax valuations and property tax burden As mentioned previously, the summary model became the primary simulation







model.







The area code model was linked with the summary model to receive new







index f i l e s of simulated tax r a t e s to depict impacts of proposed changes made to the system. In the summary model three primary changes were made: value levels were projected, 2 ) 1 ) 1980 f u l l cash







changes i n jurisdictional levy composition and







controls were tested, and 3 ) tax rates were changed. Once these a l t e r a t i o n s were performed, r e s u l t s were fed into the area code run t o project impacts on taxpayers. 1 ) Projection of 1980 f u l l cash value levels The projection of 1980 f u l l cash value levels was performed with three separate methodologies, each using the best information available.



Locally Assessed Properties







With the cooperation of the Arizona Department of Revenue and several of the s t a t e ' s County Assessor's offices, i t was possible t o obtain preliminary 1980 loca11y assessed property abstracts. data used to project 1980 valuations. These January 1980 abstracts were compared with the January 1 9 7 9 a b s t r a c t s and a growth r a t e was determined. Before adopting t h i s growth r a t e , a comparison



'







These abstracts became the fundamental







was made between the January 1979 a b s t r a c t and the August 1979 secured abstract.



Ifthe deviation between these two abstracts was greater than 1074, the secured







August 1973 abstract was used to determine the growth r a t e with the 1980 January abstract.







T h e s e g r o w t h r a t e s were d e t e r m i n e d by c l a s s o f p r o p e r t y , by s c h o o l d i s t r i c t ( e l e m e n t a r y or u n i f i e d ) and by c i t y . Once a g r o w t h r a t e was d e t e r m i n e d by c o m p a r i n g n e t f u l l c a s h v a l u e s t o n e t f u l l c a s h v a l u e s , t h e r a t e was a p p l i e d t o t h e A u g u s t 1979 s e c u r e d a b s t r a c t s by c l a s s , by s c h o o l d i s t r i c t a n d c i t y . T h i s c a l c u l a t i o n p r o d u c e d a f o r e c a s t e d 1980 s e c u r e d a b s t r a c t w i t h n o c o n s t r a i n t s on v a l u a t i o n g r o w t h . T o t h i s amount was added t h e 1979 u n s e c u r e d p r o p e r t y a s i t was a d d e d ta t h e 1 9 7 9 r o l l by t h e D e p a r t m e n t o f Revenue. T h i s f i g u r e t h e n r e p r e s e n t e d a f o r e c a s t e d 1980 s e c u r e d and unsecured assessment r o l l ( f o r l o c a l l y assessed p r o p e r t i e s ) with no c o n s t r a i n t s on v a l u a t i o n growth. To f o r e c a s t t h e 1980 l o c a l l y a s s e s s e d r o l l w i t h t h e 1 0 % v a l u a t i o n i n c r e a s e l i m i t a t i o n , i t was n e c e s s a r y t o compare a v e r a g e p a r c e l v a l u e s by class, by s c h o o l d i s t r i c t a n d c i t y on t h e August 1979 s e c u r e d r o l l a n d t h e f o r e c a s t e d A u g u s t 1980 s e c u r e d r o l l . That procedure used t h e following s t e p s : 1. D e t e r m i n e a v e r a g e p a r c e l v a l u e by c l a s s , by s c h o o l d i s t r i c t a n d c i t y i n 1979. 2. D e t e r m i n e a v e r a g e p a r c e l v a l u e by class, by s c h o o l d i s t r i c t and c i t y i n 1980. 3. Determine r a t e o f change. 4. I f r a t e o f c h a n g e was l e s s t h a n l o % , u s e f o r e c a s t e d August 1980 v a l u a t i o n s , add 1979 u n s e c u r e d v a l u e and t h e r e s u l t i s t h e 1 9 8 0 s e c u r e d and u n s e c u r e d v a l u a t i o n . 5. I f t h e r a t e o f c h a n g e was g r e a t e r t h a n l o % , m u l t i p l y t h e 1980 p a r c e l c o u n t by t h e 1979 a v e r a g e p a r c e l v a l u e p l u s l o % , add 1 9 7 9 u n s e c u r e d v a l u e and t h e r e s u l t is t h e 1980 s e c u r e d and unsecured valuation. C e n t r a l l y A ~ s e s s e dP r o p e r t i e s C l a s s 2 P r o p e r t i e s I n f o r e c a s t i n g 1980 class 2 p r o p e r t y v a l u a t i o n s t h e c o o p e r a t i o n o f t h e s t a t e ' s t h r e e l a r g e s t e l e c t r i c u t i l i t i e s and l a r g e s t t e l e c o m m u n i c a t i o n u t i l i t y was s o l i c i t e d . T h e s e f o u r u t i l i t i e s c a l c u l a t e d t h e i r combined 1979 v a l u a t i o n by s c h o o l d i s t r i c t and c i t y and r e p o r t e d







I I







their combined valuation as a percentage of the total class two valuation in the school district and city. The 1980 valuation of the individual utilities was then forecasted by the participants--the electric utilities utilizing the proposed valuation formula contained in S.B. 1001, the telecommunication utility utilizing an unspecified methodology. The participants then reported a percentage increase in their combined full cash values between 1979 and 1980. The 1979 class 2 valuations were then broken down into two subsets: one set based upon the reported combined valuation of the entitites cooperating with the forecast; the other based upon the difference between actual 1979 valuation and that of the participants. The first subset of class 2 valuations then had the growth rates applied that were determined by the participants, the second had a flat 5% increase applied. The subsets were then added and placed onto the forecasted 1980 secured and unsecured rolls. Centrally Assessed Properties Class 1 and Railroads Since there would be an understandable reluctance on the part of other centrally assessed property owners to report expected increases in full cash values between 1979 and 1980, their aid in forecasting valuations was not solicited. Instead, conversations were held with individuals familiar with the class 1 and railroad valuation trends and single county wide growth factors were settled upon for these classes. These growth rates, by county and by class were:







County 1







$







Class 1 .978%







RR



1.050







County # 8







Class 1



1 .050







RR -







1.050







Results Once a l l of these projections were performed by c l a s s , by school d i s t r i c t and c i t y , the valuations of the elementary and unified school d i s t r i c t s were summed t o achieve county wide t o t a l s .



The t a b l e below presents the county wide net f u l l cash values by c l a s s in







1979, i n 1980 without valuation c o n s t r a i n t s , and i n 1980 w i t h the 10% valuation increase c o n s t r a i n t s . Once the 1980 f u l l cash value l e v e l s were projected, i t became r e l a t i v e l y simple t o p r o j e c t assessed valuations, i . e . apply the assessment r a t i o s . simulator was designed t o u t i l i z e any combination of assessment r a t i o s . The







NET FULL CASH VALUES



1980 \1/O C o n s t r a i n t s Apache 1980 W/ 10% C o n s t r a i n t







To t a 1 Cochise 1 2 3 4







.5



6







7



To t a 1 Coconino 1 50,388 451,731 ,181 198,119,558 136,759,170 352,610,673 57,364,713 20,905,509 1,217,541,190 52,002 481 ,770,985 223,798,793 154,411,440 41 0,404,896 62,215,944 21 ,950,784 31,354,604,845 52,002 481,770,985 21 3,636,038 145,330,659 405,853,292 62,138,854 21,950,784 1,330,732,614







2



3 4 5 6 7



To t a 1







Gi 1a







Total Graham 1







2 3 4 5 6 7



To t a 1.Greenlee 1 2 3







4 5 6 7



Total







1980 W/O C o n s t r a i n t s Maricopa 1 2 3 4



5







1980 W/ 10% C o n s t r a i n t







6



7







Total



Mohave 1 2



3 4







5 6 7



Total



Navajo 1 2 3 4 5 6







7



Tota 1



P i ma







1 2



3 4







Total







5 6 7



1 2



3 4







Pinal







5







6



7







To t a 1 Santa







1



2 3 4







Cruz







Total







5 6 7







Coun ty/C 1 ass



Yavapai







1980 W/O Constraints







1980 W/ 70% Constraint







1 2 3 4 5 6







To t a 1







7







State







1 2 3 4



5







6







7







2)







Changes in jurisdictional levy composition and controls







A policy decision was made during the session that the net operational







levies of counties, c i t i e s and community colleges should f a l l under s t r i c t levy limitation. As alluded to previously, the total 1978 and 1979 levies had For counties, the 1979







I I



I







been divided into operational levies and bond l e v i e s .







amount budgeted f o r teacher retirement and OASI costs were deducted from the operational levy to r e f l e c t a policy commitment to transfer these costs t o the state.







I visions of the so-called 7% levy limitation. I That limitation states that growth in property tax levies from the



The 1979 primary property tax levy was allowed to increase under the pra= 1979 base year t o 1980 will be limited t o 7% per year, b u t not to exceed the growth i n the assessed valuation.



A program was designed t o take the 1979 NFCV and apply any new assessment







r a t i o s under consideration, determine the r a t e of growth to the 1980 valuation using the same assessment r a t i o ( s e t t i n g a maximum of 7%) and increases the 1979 operation tax levy by t h a t amount.



3)







The 198n tax r a t e was then calculated.







I I I







Tax Rate changes







The tax rates could be changed f o r one of three reasons:



a)



b)







because of the levy controls contained in the preceding section,



or







because of determined revenue needs (as in the case of the s t a t e rate)







c ) because of the school finance formula adopted. In any of these changes the new rates impacts could be displayed in e i t h e r the summary run o r the area code runs.



Appendix I1 contains a listing of the computer runs which were available from the property tax model.







I I 1







THE ARIZONA SCHOOL FINANCE SIMULATOR



I.



Purpose of Simulator When talking about a change in a school financing system we need t o know the impact of that change. W e need







...







A.







An estimate of revenues available for expenditure for each district by source: 1. 2. 3. 4. 5. State aid District property t a x Federal aid Other revenues Total







These should be further broken down t o the areas where they will be expended, i.e., General Operations, Special Ed., Transportation and Capital areas.







B An estimate of what i t will cost the state in district aid. .



C.



D. E.



Ail estimate of the impact of change on the property tax levies of the various classes of property in t h e district.







An estimate of control effect. An estimate of the degree of equalization attained.



1.







2.







Did i t narrow tax rates? What did i t do t o spending levels?







I.







Types of School Districts in Simulator



A.







Unified (Type 02)



1 .







2.



0.







Elementary (02-E) High School (02-H)







'







Elementary not in a high school district (Type 03)







1. 2. C.







Elementary (03-E) High School (03-H)







Elementary (Type 04) 1. 2. Elementary (04-E) Teaching high school portion of elementary (04-H)







D.







High School (Type 5)



1 . 2.







Teaching elementary portion of high school (05-E) High School (05-H)







Simulation Output A. Assessed Valuation (Exhibit 1) 1. 1977-78 Actual A.V. by Class a. b. Capability t o simulate 1-10 classes. Six assessment ratio groups identified. (1) Oil producing A.V. included in Mines and Railroads. (2) Rented and Leased Residential included in Commercial and Industrial. (3) Salt River Project: net effective A.V. of exempt properties placed in Class 10.







2.







1977-78 Modified A.V.







a. b.



3.







Intended to reflect what class A.V. should have been if valuation techniques used by county assessor had been uniform and in accordance with the law. The ability t o use this feature depends on information from Department of Revenue.







1977-78 Adjusted A.V. Intended t o reflect policy change on assessment ratios, on classifications, and on district authority t o t a x specific property classes.







B.







Revenue Availability (Exhibit 2) 1. Although the time dimensions of t h e output example are:







a.



b .







c.







1977-78 Actual base year actual against which policy proposals can be compared. 1977-78 Proposed - t h e impact of proposed change in system if i t had been in e f f e c t during t h e base year. 1980-81 Projected - what the proposed program will be in anticipation of first year of implementation.







-







Any base year can be established by parameter input and any projected year can be established for t h e future, contingent on forecasting parameters. d. 1977-78 Adjusted Special Education because of unacceptably poor budgetary estimates, i t was necessary t o adjust t h e Special Ed. levy (see Section IV-B- 1-dl-(2)-(el for detailed explanation).







-







2.







Horizontally, revenue is listed by source categories, see Exhibit 3 for definition of data bank items that comprise revenue categories. The revenue is totaled for each fund and a revenue per ADM is computed.







C.







Tax Impact (Exhibit 4) 1. 2. Capability t o measure impact on 1-10 classes of property. Tax rate per $100







a. b.







c.



d.







1977-78 Actual t a x r a t e levied by district. what the tax r a t e would have been if finance 1977-78 Proposed proposal had been in effect. 1980-81 Projected estimated tax r a t e in projected year of implementation. 1977-78 Adjusted Special Education poor budget estimates required adjusting Special Education Levy. (See Section IV-B-l-d)-(2)-(e) for detailed explanation.)







-







-







-







3.



4.







Levy stated in thousands of dollars for each class of property for each fund. Grand Total plus change in rate and levy imposed by the s t a t e and levy impact from change in s t a t e property tax rate.







- reflects r a t e







IV.







Simulator Data Base These a r e the district data banks from which the simulator draws financial data for computation. A. The districts have been broken down into their component elementary and high school pieces by t h e following procedures. 1. General Fund (001)







a.



b. 2,







02, 04 and 05 proportional relationship established between elementary and high school BCL1s. Ratios applied t o combined budget t o obtain E and H components. 03 High school tuition expenses were established and then revenues were obtained t o meet these expenses.







-







-







Special Education (002)







- Applicable t o 02, 03, 04 and 05 District Types.







Proportional relationship established between elementary and high school weighted ADM1s. Ratios applied to combined budget data t o obtain E and H components.







3.







Pupil Transportation (004)







- Applicable t o 02, 03, 04 and 05 District Types.







Breakdown t o E and H components based upon telephone survey of school districts. They were asked t o give their district's percent split of Transportation expenditures between their E and H students.







4.







Capital Outlay (410)







- Applicable t o 02, 04 and 05 District Types.







Most Unified Districts have more than 500 students. So we assumed that there probably exists a relationship between these districts and t h e standalone Elementary and High School Districts whose ADM's exceed 500. Therefore, t h e Capital Outlay (410) Expenditures per ADM were established for t h e stand-alone districts. A ratio was established by dividing t h e average Capital Outlay Expenditure per Elementary ADM by the average Capital Outlay Expenditure per High School ADM. This ratio was applied a s a weight t o the High School ADM. Next a percent of total was established between t h e Elementary and weighted High School ADM1s. It was this percentage t h a t was then used t o allocate Capital Outlay between t h e E and H components. 5. Capital Levy (420)







- For 02 District Type only. - For 02 District Type only. - For 02 District Type only.







Half went t o t h e elementary component and t h e other half went t o t h e high school piece.







6 .







Adjacent Ways (430)







Half went t o t h e elementary component and t h e other half went t o t h e high school piece.



7.







Other Projects Funds (490)







Elementary and high school broken out by ratio of BCL's.



8.







Debt Service (500) For 02 District Type only. Elementary and high school broken out by ratio of BCL1s.







-







B.







Description of Data Base Elements used in the Arizona School Finance Simulator. The d a t a base elements a r e divided into two functional areas; those actually used in t h e process of simulation and other data maintained for statistical analysis. These data are arrayed in two files: the Master Fund Report (Exhibit 5) arrays all budaetarv data in accordance with the Fund, Function, and Object Code as delinedvby ~ r i z o n a ' s Uniform System of ~ i n a n c i a Recording, and the Master File l Reoort (Exhibit 6) contains other information necessary t o the operation of simulator which may not appear on a District's budget documentation. 1. Data Elements for Simulator Output







a.







Financial (Exhibit 5, except where noted otherwise.) (1) General Fund (001) Regular operations of a school district including Administration, Instructional and Operational teansactions. (a) Basic State Aid (4310) t o State Aid.







-







- a school district's actual entitlement







(b) Other S t a t e Aid (i) General Fund Other (4390) (ii) Special Education Other (4390) Bilingual (iii) Special Education Gifted (4330)







-







(c) Federal Aid the District's Fiscal Year Entitlement (i) P.L. 81-874 and P.L. 81-815 (4410) (ii) P.L. 73-167 (4420) (d) Levy - actual Levy, not collections (i) Real Estate Taxes (4150) (ii) Personal Property Taxes (4160) (iii) Payments in Lieu of Taxes (4170) (e) Other Revenue (i) Cash Balance (1100) a school district's beginning Fiscal Year cash balance (ii) Interest on Investments (4130) (iii) County School Fund (4210) (iv) Special County School Reserve Fund (4230) (v) Other Local (4190) other local receipts such a s rentals, sales of plant and equipment, special fees, intergovernmental agreements, etc.







-







-







-







(2) Special Education (002) Education instruction.







- Transactions related







t o providing Special







(a) Basic State Aid (4320 and 4310) (b) Other State Aid (4390) (c) Federal Aid (i) P.L. 81-874 and P.L. 81-815 (4410) (ii) P.L. 73-167 (4420) (dl Levy (i) Real Estate Taxes (4150) (ii) Personal Property Taxes (4160) (iii) Payments in Lieu of Taxes (4170) (e) Other Revenue (i) Cash Balance (1 100) (ii) Interest on Investments (4130) (iii) County School Fund (4210) (iv) Special County School Reserve Fund (4230) (v) Other Local (4190) (3) Pupil Transportation (004) - a fund used t o record transactions related to transporting students. (a) Basic State Aid (43 10) (b) Other State Aid (4390)







(c) Federal Aid (i) P.L. 81-874 and P.L. 81-815 (4410) (ii) P.L. 73-167 (4420) (dl Levy (i) Real Estate Taxes (4150) (ii) Personal Property Taxes (4160) (iii) Payments in Lieu of Taxes (4170) (e) Other Revenue (i) Cash Balance (1 100) (ii) Interest on Investments (4130) (iii) County School Fund (4210) (iv) S p e c i d County School Reserve Fund (4230) (v) Other Local (4190) (4) Capital Outlay (410) A record of all transactions relating to t h e acquisition of Capital Outlay items. (a) Other State Aid (4390)







-







(b) Federal Aid (i) P.L. 81-874 and P.L. 8 1-815 (4410) (ii) P.L. 73-167 (4420)



(c) Levy (i) Real Estate Taxes (4150) (ii) Personal Property Taxes (4160) (iii) Payments in Lieu of Taxes (4170) (d) Other Revenue (i) Cash Balance (1 100) (ii) Interest on Investments (4130) (iii) County School Fund (4210) (iv) Special County School Reserve Fund (4230) (v) Other Local (41 90) (5) Capital Levy (420) School Districts a r e allowed t o levy a supplemental tax up t o 30C: (60c for Unified Districts) per $100 of A.V. each year upon its taxable property. (a) Other State Aid (4390)







-







(b) Levy (i) Real Estate Taxes (4150) (ii) Personal Property Taxes (4160) (iii) Payments in Lieu of Taxes (4170)



(c) Other Revenue (i) Cash Balance (1100) (ii) Interest on Investments (4130) (iii) Other Local (4190)







(6) Adjacent Ways (430) record of transactions relating to special assessments t o finance t h e improvement of public streets, alleys, etc., which a r e adjacent t o school property.



(a) Other State Aid (4390)







-







(b) Levy (i) Real Estate Taxes (4150) (ii) Personal Property Taxes (4160) (iii) Payments in Lieu of Taxes (4170) (c) Other Revenue (i) Cash Balance (1 100) (ii) Interest on Investments (4130) (iii) Other Local (4190) Title I (1 10) Federal Aid (Exhibit 6) Title I Migrant (120)







-







- Federal Aid (Exhibit 6)







Johnson-OiMalley (Supplemental) (200) - Federal Aid (Exhibit 6) Title VI-B (210) Federal Aid (Exhibit 6) Title VII (Bilingual) (220) - Federal Aid (Exhibit 6) Vocational Education (240-270)







-







- Federal Aid (Exhibit 6) Title IV (Indian Education) (280) - Federal Aid (Exhibit 6 )







State Projects (Career Education) (320) other State Aid (Exhibit 6) State Projects (Other) (390) other State Aid (Exhibit 6 ) Debt Service (500) records the payment of interest and principal on all General Obligation debts. (a) Other State Aid (4390)







-







-







-







(b) Levy (i) Real Estate Taxes (4150) (ii) Personal Property Taxes (41 60) (iii) Payments in Lieu of Taxes (4170)



(c) Other Revenue (i) Cash Balance (1 100) (ii) Interest on Investments (4 130) (iii) Other Local (4190) b. Student counts used in simulation process (Exhibit 6) (1) General Fund (001) (a) Unadjusted Resident State Aid Avg. Daily Membership (ADM) (i) Kindergarten (ii) Grades 1-3 (iii) Grades 4-6 (iv) Grades 7-8 (v) Grades 1-8 (vi) Grades 9-12







(b) Grades 9-12 Vocational Education duplicated counts of Vocational Education equivalent enrollments, clustered by cost similarities, (i) 1 Enrollment Agriculture, and Trades and Industries (ii) 2 Enrollment Health Occupations (iii) 3 Enrollment - Distributive Education, Home Economics, Business and Office Education, and Diversified Occupations







-







-







(c) Regular Multi Grade Elementary in small districts where t h e classroom may include more than one grade, they report their ADM as Multi Grade. (d) Special Education Self-contained in many Special Education classes t h e concept of grade is not applicable, so these ADlM are reported as Multi Grade. (e) Enrollment Trend tendency of a District's ADM growth, based upon t h e District's last three years of ADM. (2) Special Education (002) unadjusted S t a t e Aid ADM by handicapping category. Each category is listed as ADM for Selfcontained, Resource and Tuition Out. (a) (b) (c) (dl (e) (f) (g) (h) (i)



(j)







-







-







-







-







Educable Mentally Handicapped (EMH) Emotionally Handicapped (EH) Hearing Handicapped (HH) Homebound (HBD) Multiply Handicapped (MH) Physically Handicapped (PH) Trainable Mentally Handicapped (TMH) Learning Disabled (LD) Speech (SPH) Visually Handicapped (VH)







c.







Assessed Valuations and Tax R a t e s (Exhibit 6 , except where noted otherwise) (I) All property in t h e S t a t e of Arizona is assigned t o a property class. Each legal class is defined by property use and is associated with a n assessment ratio which is multiplied by t h e full cash value of t h e property t o obtain t h e assessed valuation. (a) (b) (c) (dl (el (f) Class Class Class Class Class Class







1 2 3 4 5 10







- Mines and Railroads - Utilities - Other Commercial - Agriculture - Residental - Salt River Project







Used in Funds 001, 002, 004, 410, 420, 430 and 500







(2) Tax R a t e s a r e multiplied by the Assessed Valuation t o obtain each property class's levy payment (Exhibit 4) (a) (b) (c) (dl (e) (f) (g) General Fund (001) Special Education (002) Pupil Transportation (004) Capital Outlay (410) Capital Levy (420) Adjacent Ways (430) Debt Service (500) Levy payments calculated for Class 1, Class 2, Class 3 Class 4, Class 5, and lieu payment for Class 10







d.







Other Financial financial information necessary t o the operation of t h e simulator which may not appear on a district's budget documents (Exhibit 6 , except where noted otherwise). (1) General Fund (00 1) (a) BCL a District's Elementary and/or High School Budget Cost Level (BCL), t h e state mandated expenditure constraint.







-







-







(b) BCL Projected a District's BCL expanded t o t h e budget year under existing provisions of t h e law assuming a constant ADM.



(c) BCL Projected Alternate - a district's BCL expanded t o t h e projected year under existing provisions of t h e law and by forecasted changes in ADM. (dl S t a t e Aid 1 forecasted S t a t e Aid t o be used in projected year Hold Harmless option. (e) Ruralfurban - code used t o identify rural and urban districts t o be used in a funding scheme based on rural/urban cost differentials (Exhibit 5). (2) Special Education (002) (a) Allowable Special Education Cost mandated expenditure constraint.







-







-







-







t h e District's state







(b) Allowable Special Education Cost P J l - a District's allowable Special Education cost expanded t o the projected year under existing provisions of t h e law, assuming a constant ADM. (c) Allowable Special Education Cost P J 2 a District's allowable Special Education cost expanded t o t h e projected year under existing provisions of t h e law and by forecasted changes in ADM. (dl Special Education Aid 1 forecasted S t a t e Aid t o b e used in projected Hold Harmless option.



(e) Special Education Adjusted Levy







-







-







in developing their adopted revenue budgets, districts made such poor estimates of S t a t e Aid t h a t t h e district's levy was grossly over or understated. For this reason, i t was necessary t o adjust t h e levy.







-







2.







D a t a Elements for Statistical Analysis







a.



b.







All Simulator input and output is accessible for statistical analysis. Additional Revenue and Expenditure line items not used in t h e simulator but available for statistical analysis. ( I ) General Fund (001) (Exhibit 5). (a) Revenues (i) Tuition In (41 11, 41 12, and 41 13) - receipts received for t h e education of Nonresident students. (ii) Transfers from Other Funds (4700) within legal provisions, monies received from another fund within t h e school district.







-







(b) Expenditures (i) (ii) (iii) (iv) (v) Certified Salaries (5100) Classified Salaries (5200) These are listed by Employee Benefits (5300) function: 100-Administration Supplies and Materials (5400) Utilities and Communications 200-Instruction (5500) 300-Instruction (vi) Tuition (5600) Support (vii) Other Expenditures (5700) 400-Operation (viii) The above categories a r e further broken down into more specific items







(2) Special Education (002) (a) Revenues same a s General Fund (b) Expenditures same a s General Fund







-







-







(3) Pupil Transportaton (004) (a) Revenues same as General Fund (b) Expenditures same as General Fund plus Furniture and Equipment (5800)







-







4







Federal Projects 100-200 (100) total of all Federal Projects



(a) Revenues







-







(i) Cash Balance (100) (ii) Other Local (4190) (iii) Special County School Reserve Fund (4230) (iv) State Grants-In-Aid (4340) (v) P.L. 73-167 (4420) (vi) Federal Grants-In-Aid (4430) (vii) Transfers from Other Funds (4700) (b) Expenditures (5000)



5







-







all Object Codes summated t o single total







State and Other Special Projects (300) projects other than Federal Projects







- records







transactions of







(a) Revenues Other Local (4190) (b) Expenditures same as Federal Projects







-







-







(6) Capital Outlay (410) (a) Revenues same as General Fund (b) Expenditures same a s Federal Projects







-







-







(7) Capital Levy (420) (a) Revenues only transfers from Other Funds (4700) (b) Expenditures - same a s Federal Projects







(8) Adjacent Ways (430) s a m e as Capital Levy (b) Expenditures - same a s Federal Projects



(a) Revenues







-







(9) Other Projects (490) - transactions for Capital Projects other than those included under Capital Outlay, Capital Levy, and Adjacent Ways. (a) Revenues (i) Cash Balance (1 100) (ii) Interest on Investments (41 30) (iii) Real Estate Taxes (4150) (iv) Personal Property Taxes (4160) (v) Payments in Lieu of Taxes (4170) (vi) P.L. 81-874 and P.L. 81-815 (4410) (vii) P.L. 73-167 (4420) (viii) Federal Grants-in-Aid (4430) (ix) Transfers from Other Funds (4700) (b) Expenditures - s a m e as Federal Projects



(10) Capital Outlay (500) (a) Revenue - s a m e as General Fund (b) Expenditures s a m e as Federal Projects







-







c.







Additional Financial D a t a Elements (Exhibit 6)



(1) SSL t h e District's base year Gross S t a t e Support Level (SSL). The gross SSL is computed by taking t h e District's ADM and multiplying i t by t h e dollars of S t a t e Support for each student.







-







I







(2) Low Income Index intended t o be an index number reflecting a District's average family income (presently not computed).



d. Additional Student Counts (Exhibit 6) (1) General Fund (00 1) (a) ResidentjNon-Resident ADM - a District's estimate of anticipated resident and non-resident tuition in ADM, submitted in conjunction with their adopted budgets. (b) S t a t e Aid ADM a District's estimate of its S t a t e Aid ADM used in computing their adopted budgets. (c) Resident Attending a District's Unadjusted Resident S t a t e Aid ADM; includes Special Education Self-contained. (dl Resident Tuition Out a District's Unadjusted Resident S t a t e Aid ADM t h a t a r e Tuition Out; includes Special Education Selfcontained. (e) Non-Resident Tuition In - a District's Unadjusted Non-Resident S t a t e Aid ADM t h a t a r e Tuition In; includes Special Education Selfcontained.







-







-







-







-







(2) Pupil Transportation (004) t h e number of eligible students transported by t h e District on approved bus routes.







-







V.







The Simulator's Capabilities and Procedures A. Assessed Valuation (return t o Exhibit 1)







1.



2.







1977-78 Actual A.V. comes directly from Master File Report and is divided by ADM from Master File Report. 1977-78 Modified A.V.







a.



b.







Factors can be applied t o each property class of the 1977-78 Actual A.V. t o modify up or down actual A.V. of the class. These factors may be common t o all districts or district specific. A.V. per ADM derived with ADM from Master File Report.







3.







1977-78 Adjusted A.V. a. Factors can be applied t o each property class of the 1977-78 Modified A.V. t o adjust i t up or down. These factors a r e only common t o all districts. b. A.V. per ADM derived as above.







B.







Property Tax Impact (return t o Exhibit 4) 1. Computation of tax rates and class levies a. b. 1977-78 Actual obtain tax r a t e from Master File Report and multiply times each property class A.V. t o obtain levy for each class. 1977-78 Proposed (1) Total computed levy (see Section V (2-5 Levy) divided by 1977-78 Adjusted A.V. s t a x rate. (2) Tax rate times each property class A.V. t o obtain levy for each







-







-







class.







c.







d.







1980-81 Projected (1) 1980-81 Projected A.V. = factor times 1977-78 Adjusted A.V. or district specific factor is common t o all districts. (2) Tax Rate = total 1980-81 computed levy divided by 1980-81 Projected A.V. 3 Because of uncertainty of future of each individual class A.V., only t h e t a x rate and total levy are given. 1977-78 Adjusted Special Education (1) Tax r a t e = Special Education Adjusted Levy from Master File Report divided by 1977-78 Actual A.V. (2) Tax r a t e times each property class A.V. t o obtain levy for each class.







-







2.







Statewide Tax Rate a. This feature allows for an additional statewide r a t e that is a parameter input applicable only t o and common t o all elementary districts. b. 1977-78 Proposed add the s t a t e r a t e t o group total r a t e and multiply times each property class* c. 1980-81 Projected add the s t a t e r a t e t o the Grand Total R a t e and multiply times t h e total 1980-81 A.V.







-







-







C.







Revenue Availability and Control 1. Specified for General Fund and Special Education Fund only at this t i m e







a.







Basic Aid Equation is: District S t a t e Aid = W*(WADM)(SSL) - QTR(A.V.1 The major elements a r e intended t o be utilized as follows: (1) W* is the aggregate weight for a district t o reflect allowances for cost variations among districts. Examples include: district size (ADM), enrollment trend (declining), geographical location (isolation), senority of teaching staff (mix of teachers on salary schedule). W* = WSl + W*2 + W13 + W X 4 + WS5 where: (a) W* must not = 0 (b) W* is a control parameter; i t may be common t o all districts or district specific. (c) W*+S designed t o weight for cost differentials attributable t o size differences. It can be input as a parameter t h a t is common t o all districts or district specific. Or i t can be calculated by inputting parameters common t o all districts, whose computation would t a k e t h e form: 0 Dist. ADM Parameter Inputl = Weightl = Parameter Input Parameter Input



l=







Dist. ADM Parameter Input2 Weight2 = Parameter Input Dist ADM Parameter Input3 Weight3 = Parameter Input Dist. ADM = Weight0 ='0.00







Parameter Input*



=







.







Where Parameter Inputj







(dl W* is a location weight meant t o compensate for cost dif?erences attributable t o a n urban or rural location. It is common t o all districts or district specific. (el W* is an enrollment trend weight t o handle a funding scheme t h a t would account for enrollment trend problems. It can be common t o all districts or district specific. In addition, i t can be calculated automatically as common t o all districts by the following process: If If If If Enrollment Enrollment Enrollment Enrollment Trend Trend Trend Trend







-







0







= Weightl Para. Inputl = Weight2 Para. Input2 = Weightj Para. Input3 = Weight4







= = = =







Parameter Parameter Parameter Parameter







Input Input Input Input







where t h e enrollment trend is obtained from Master File Report. (f) Wt5 is an option t h a t allows t h e projection of ADM. It is a parameter input common t o all districts or district specific. Up t o this point both the General Fund and Special Education formulas a r e t h e same. (g) Although WXI-WX4 have been designated for specific weighting purposes, they can also be used as weights for purposes other than those specified.







b.







WADPvl is an aggregate district weight t o reflect existing or intended cost differentials among programs. (Programs a r e defined as grade level groups or specific program catagories) where: WADM = Wl(ADMl) + W2(ADM2). (1) General Fund WADM (a) WADM = Wl(ADMl) + W2(ADM2)







. . + Wi(ADMi)







(b) ADM 16 ADMZ5 a r e alternatives t o ADM6-ADMI5 so paramaters W6-W15 can be set against ADM16-ADM25. (2) Special Education WADM WADM = Wl(ADM1) = W2(ADM2).







-







... +W15(ADM15)







..+ W30 (ADM30)







c.







SSL is the dollar State Support Level per student in Average Daily Membership. It is fully flexible t o permit a base support level which is t o be adjusted by weights (W* and WADM) or is not, depending on the policy proposal. It is a parameter common t o all districts. Input is separate for t h e proposed and projected years. QTR is the Qualifying Tax R a t e that establishes the district's effort toward t h e support level. (1) It can be a parameter input common t o all elementary districts and separate but common for all high school districts for the proposed and projected years. It is a separate input for the General and Special Education funds. (2) It can be internally computed. In Section 2. c. below, alternative "methodsN of establishing levels of expenditures a r e discussed. In setting an allowable support level above or below the computed support level, there is a need t o modify the input QTR i a district's support f level is established above or below the level computed by the basic equation. As specified now, t h e input QTR is adjusted proportionately up or down with t h e district's allowable support level. QTR = (Factor) (.xxxx) (a) .xxxx is a t a x r a t e input common t o all elementary districts and separate but common for high school districts, Input separately for proposed and projected years. (b) Factor is computed separately for each district for proposed and projected years. It is t h e ratio of the allowable gross State Support Level, W*(WADM)(SSL) as finally determined by method and option in 2. c. below, t o t h e computed gross S t a t e Support Level, W*(WADM)(SSL) as computed in Method 1.







d.







e.







A.V. is the district's Assessed Valuation (1) 1977-78 Proposed = 1977-78 Adjusted A.V. (2) 1980-81 Projected = 1980-81 Projected A.V.







2.







The existing spending level of a district will generally nat correspond t o t h e computed gross S t a t e Support Level (W*(WADM)(SSL)) of t h e basic equation. The simulator allows for the selection of various "methods" and "options" within tfmethods" t o establish t h e support level which is t o be used t o compute S t a t e Aid for each district. These "methods" reflect different possibilities for expenditure control which in turn a f f e c t t h e property t a x levy requirement for e a c h district. Four different "methods" a r e available.







a.







Method I



(1) S t a t e Aid:







w* (WADM)(SSL)







All districts a r e supported at their computed







(2) Expenditure Control Provision (a) Option A: All districts required t o spend a t their computed W*(WADM)(SSL) (b) Option B: (i) Districts spending less than computed W*(WADM)(SSL) must increase t o this level. (ii) Districts spending more than their computed W*(WADM)(SSL) may continue t o expend at their existing level.







(3) Levy is tied t o Expenditure Control Provision: Levy = (Allowable Spending established by selected option) (Basic S t a t e Aid + Other Revenue computed for proposed and projected years).







-







(I) S t a t e Aid: (a) Option A: All districts will b e supported at their computed W*(WADM)(SSL) (b) Option B: All districts will be supported at W*(WADM)(SSL) or their BCL, whichever is less. ( 2 ) Expenditure Control Provision: All districts a r e constrained t o their existing spending level. (3) Levy is tied t o Expenditure Control Provision: Levy = (Allowable Spending established by selected option) - (Basic S t a t e Aid + Other Revenue computed for proposed and projected years).







c.







Method 111 (1) S t a t e Aid: (a) Option A: All districts will be supported at their computed W*(WADM)(SSL) (b) Option B: All districts where their computed W*(WADM)(SSL) 4 BCL will b e supported at their computed W*(WADM)(SSL). In those districts where W*(WADM)(SSL) BCL, t h e district can be supported at some level between their BCL and W*(WADM)(SSL).







>







(2) Expenditure Control Provision: (a) Existing Spending defined: (i) 1977-78 = Basic State Aid + Levy + Other Rev. (ii) 1980-81 = 1980-81 BCL + 1977-78 Authorized Spending in excess of t h e 1977-78 BCL.



(b) Where Existing Spending 4 W*(WADM)(SSL) (i) Option A: Allowable Spending can be established a t any level between BCL and W*(WADM)(SSL) (ii) Option B Allowable Spending = Existing Spending : (c) Where Existing Spending > W*(WADM)(SSL) (i) Option A: Allowable Spending = Existing Spending (ii) Option B: Allowable Spending can be established a t any level between W*(WADM)(SSL) and Existing Spending level.







(3). Levy is tied t o Expenditure Control Provision: Levy = (Allowable Spending established by selected option) - (Basic State Aid + Other Revenue computed for proposed and projected years).



d. MethodIV



(1) State Aid:







(a) Compute a Maximum Support Level t h a t is some specified percent in excess of W*(WADM)(SSL)







(b) If the district's BCL > Maximum Support Level, then Allowable Support Level = Maximum Support Level (c) If the district BCL( Maximum Support Level, then Allowable Support Level = BCL + some % of difference between Maximum Support Level and BCL (2) Expenditure Control Provision: (a) Existing Spending defined: (i) 1977-78 = Basic State Aid + Levy + Other Rev. (ii) 1980-8 1 = 1980-81 BCL + 1977-78 Authorized Spending in excess of 1977-78 BCL. (b) For those districts whose Exsiting Spending 7 Maximum Support Level, then they may spend a t Allowable Support Level. (c) For those districts whose Existing Spending ( Maximum Support level, then: (i) Option A: Allowable Spending = Existing Spending (ii) Option B: Allowable Spending may not exceed Maximum Support Level. (3) Levy is tied t o Expenditure Control Provison: Levy = (Allowable Spending established by selected option) (Basic State Aid + Other Revenue computed for proposed and projected years).







-







3.







Other special options for establishing t h e Support Level have also been built into the simulator for added flexibility.



a.







Negative Aid (Recapture) this allows State Aid t o be negative and these negative monies would flow t o t h e s t a t e t o be distributed t o those d i s t r i c t s b i t h positive aid needs. Impact Aid Deduction this option will allow a district's computed State Aid t o be reduced by some percent of its Federal 874 Impact Aid. Minimum this option guarantees a minimum specified amount of State Aid per student regardless of t h e district's formula entitlement. Hold Harmless this option authorizes a district t o receive all or any portion of its entitlement t o State Aid under t h e current aid formula even if the proposed State Aid formula would allow for less.







-







b.







-







c.



d.







-







-







4 .







The remaining revenue sources for the proposed and projected years a r e determined in the following way. a. Other State Aid (1) 1977-78 Actual from Master Fund Report. (2) 1977-78 Proposed = (Factor) (1977-78 Actual), the factor is a parameter input common t o all elementary districts with a separ a t e but common one for high school.



(3)







1980-81 Project = (Factor) (1977-78 Actual), the factor is a parameter input common t o all elementary districts with a separate but common one for high school.







b.







Federal Aid (1) 1977-78 Actual for Master Fund Report. (2) 1977-78 Proposed = (Factor) (1977-78 Actual), the factor is a parameter input common t o all elementary districts with a separ a t e but common one for high school.







(3) 1980-81 Projected = (Factor) (1977-78 Actual), the factor is a parameter input common t o all elementary districts with a separate but common one for high school.







c.







Other Revenue (1) 1977-78 Actual from Master Fund Report. (2) 1977-78 Proposed is same a s 1977-78 Actual. (3) 1980-81 Projected = (Factor) (1977-78 Actual), the factor is a parameter input common t o all elementary districts with a separate but common one for high school.







5.







Pupil transportation (Fund 004) Basic State Aid Equation i s : District State Aid = Gross State Transportation Support - QTR ( A . V . ) Uhere: ( 1 ) Gross s t a t e transportation support i s a d i s t r i c t specific s t a t e supported expenditure level.



(2)







a.







QTR i s the Qua1 i fyi ng Tax Rate t h a t establ i shes the D i s t r i c t ' s effort toward the support level .



A.V. i s the D i s t r i c t ' s Assessed Valuation







(3)



b.







Expenditure Control Provision: (1 ) Compute existing expenditures ( a ) 77-78 proposed = 77-78 (ACT) Basic State Aid + 77-78 (ACT) Fed. Aid + 77-78 (ACT) Levy + 77-78 (ACT) Other Rev.



(b)







I I I I I I I 1 I I I I I I







80-81 Projected = District Specific Factor X 77-78 Proposed







(2)







Define a1 lowabl e spending level (a) 77-78 Proposed = 77-78 Gross State Transportation Support (b) 80-81 Projected = 80-81 Gross State Transportation Support







(3)







Establ ish allowable expenditures for levy computation ; selection i s option: ( a ) Option 1 - I f existing expenditures i s less than a1 lowable spending, then use existing expenditures



(b)







Option 2 - Existing expenditures i s greater than a1 1 owabl e, then use existi ng expenditures







( c ) Option 3 - Existing expenditures i s less than allowable spending, then use allowable spending X factor



(d)







Option 4 - Existing expenditures i s greater than a1 lowable spending, then use allowable spending X factor



Q







c.



d.







Levy i s tied t o expenditure control provision levy = allowable expenditure - (basic s t a t e aid + federal aid + other revenue) Cther special options



(1 )







Negative aid (.recapture) Impact aid deduction







(2)







6.







C a p i t a l o u t l a y (Fund