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Memo Presentation Hopkins School District 270 Officials t . . I.................................................,......1 - To: Honorable Mayor and members of the City Council From: Steven C. Mielke, City Manager Date: Monday, May 23, 1994 Subject: Presentation by Hopkins School District 270 officials Over the last several months, Superintendent Michael Kremer and City Manager Steve Mielke have been holding discussions with regard to issues of mutual concern. One of the issues which will emerge during this budget year involves 1995 tax levies. For a variety of reasons, the Hopkins School District is experiencing financial stress. The School District has estimated that next year's School District levy will result in double digit tax increases for residential properties within the Hopkins School District. The effects of that type of property tax increase will likely impact the City as it considers . its budget and tax levy decisions for 1995. Superintendent Kremer and Business Affairs Director David Shapely will make a presentation to the Council at its June 7th meeting. Attached you will find some background information from District 270 regarding the District's financial situation. If you have any questions which you would like answered prior to the presentation, or you would like to make sure are covered during the presentation, please contact the City Manager and we will forward those questions to the School District. Attachment: Background information - Hopkins School District 270 presentation . t Hopkins School District 270 . Hopkins, Minnesota Background information for June 7,1994, presentation to the Hopkins City Council by Superintendent Michael Kremer and Director of Business Affairs David Shapley The financial condition of Minnesota However, because taxpayers have peti- District adjusts school districts has deteriorated signifi- tioned for, and have been granted, lower general fund budget cantly over the past few years. This dete- properly values resulting in lax abate- Due to the increasingly serious revenue rioration has been caused by a number ments, the District's tax capacity has problems caused by the factors discllSsed of factors: dropped by approximately one-third from here, the Hopkins School District has 1990 to 1992. trimmed $1 million, or about 2%, from Property tax abatements its 1994-95 general fund budget and delinquencies General education The level of delinquent property taxes has funding per student Unfortunalely, properly owners in the doubled, or even tripled, in one year for The State Legislature authorizes a star/- Hopkins School District will actually see some school districts. Because delinquent dard dollar level of basic general educa- the school portion of their property taxes taxes are not recorded as revenue until lion funding per student on a statewide rise next year. Home owners will be pay- they are received, the increase in delin- basis. There has been almost no increase ing a greater portion of taxes collected in quencies has had the effect of reducing in per pupil funding from fiscal 1991 the District because: the school distict's fund balance and cash through fiscal 1994. position. . When taxes are abated from the com- Property tax shift mercia} and industrial sectors they are, The number of property tax petitions has The State Legislature determines the per- by law, spread over the remainder of the also increased significantly over the past centage of net taxes levied (excluding District. thus impacting the amount of . few years. The amount of abatements debt) for the next fiscal school year that taxes paid by home owners. from these petitions has been substantial. can be accelerated and recognized as rev- Under current law, the school district is enue for the current fiscal year. Although . The State is also shifting the amount of allowed to re-Ievy for these lost property tax revenue is increased using an accrual taxes paid by the commercial and indus- taxes. However, because of the timing of entry, the district collects no increase in trial sectors-transferring more of the tax the levy process, much of this lost rev- actual cash. The State then reduces the burden onto home owners. cnue and cash flow is not received until district's aid by an amount equal to the two to four years after the abatement is increase in the shifted (accelerated) tax While home owners will see a significant granted. revenue recognized for the current year. increase in the school portion of next The end result is that State aids and cash year's property tax bill, the District will During the year ending June 30, 1993, flow are reduced, while a corresponding not receive any additional money. the Hopkins School District experienced amount of next year's tax revenue is ac- high property tax abatements and an in- celerated through an accrual accounting crease in delinquent taxes. Property tax entry, making the district's fund balance abatements totaling $1.5 million were appear unaffected. granted during the year. The District also recognized an estimated liability of $2.4 million for additional properly tax fe- 1991 1992 1993 funds. In addition, the Hopkins School Property tax $1,000,000 $2,700,000 $3,900,000 District experienced an increase in delin- abatement quent taxes resulting in an increase in deferred revenue of $1.9 million. Increase in property tax delinquencies $ 700.000 $ 300.000 $1.900,000 Historically, the Hopkins School District Total reduction in has had high commerciaVindustrial val- . ues resulting in a higher level of prop- revenue to Hopkins erty tax revenue and a lower level of state School District $1,700,000 $3,000,000 $5,800,000 aid than most Minnesota school districts.