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Tax Rates

Time to set tax rates
A look at past patterns and present realities

Kentucky School Advocate

September 2018

By Madelynn Coldiron, Matt McCarty and Brenna R. Kelly
Staff writers

It’s the annual hot seat: as August and September roll around, school boards across the state are setting their property tax rates. This is always a high-profile topic, but in the last decade or so, dating from the Great Recession, “it just seems like it’s much more of a hot topic locally,” said Michael Moreland, Breckinridge County Schools’ chief financial officer and treasurer of the Kentucky Association of School Business Officials. “When you start to look at the economy and how that affects the taxpayers, I think in the last few years that impact on the community has begun to be more of an issue.”

The options most often chosen by school boards when setting the property tax rate annually are the compensating rate, which is the rate that generates the amount of revenue the district received last year; or the “4 percent” rate, which is the maximum revenue increase the district can generate without fear of triggering a recall of the tax by voters. An analysis of the property tax levies set over the past decade by Kentucky school districts shows:

• Overall, school boards opted for the 4 percent rate just short of 50 percent of the time (translating to an average of 85 districts); the compensating rate 31.4 percent of the time; and other rates – generally falling between the two other types – 16.8 percent. A fraction of districts chose other little-used options.

• Fifteen boards took the 4 percent rate in each of the past 10 years; 15 other boards did not use that option at all during that time.

• The high point for levying the maximum option over the past decade came in 2008-09, when 107 boards voted for it.

• The pattern of options shows ups and downs: for example, an average of 88 districts chose the 4 percent course from 2008-09 through 2013-14, but over the last four years, that average has dipped to just over 80 districts.

When Perry County Schools Finance Officer Jody Maggard looked at a Kentucky map showing the pattern of school property taxation for the past decade – from the maximum rate without fear of recall to compensating rate and other variations, he said he immediately saw a clear delineation (see map, above).

“It was kind of eye-opening, because anything east of Lexington, most of the time those tax rates are either compensating or staying the same; whereas in the central part of the state, you see the 4 percent every year,” said Maggard, immediate past president of the Kentucky Association of School Business Officials. Both Maggard and Moreland also are part of KSBA’s Training Cadre.

A balancing act
Maggard said finance officers in districts that opt for the 4 percent rate every year say it is not questioned and that their boards hear little from constituents. In districts where property values are soaring, taxpayers may even see lower property tax rates, with the districts still collecting 4 percent more in revenue than the previous year.

But many districts in eastern Kentucky, with plunging property values, loss of minerals tax revenue and population exodus, are not so fortunate, as Maggard knows. Perry County’s total property valuation was down 23 percent last year.

“You lose roughly $225 million of your assessments, so you are looking to make up that revenue, and to do that, you’re having to raise taxes about 32 percent just to get the same revenue we had,” he said. “It’s becoming more of a challenge to place that burden on taxpayers to continually pay more to offset the decrease in assessments.” But, he added, in more urban areas of the state, “They don’t even notice it.”

Leonard Whalen, superintendent of Dawson Springs Independent in western Kentucky, said not all the districts facing that situation are in eastern Kentucky. “It’s difficult anywhere, but especially when you get into smaller rural areas and smaller towns where there’s just not a whole lot of businesses – there are small businesses, but there are really not larger businesses that generate a number of jobs and really elevate your tax base,” he said.

If the Dawson Springs board opts for the 4 percent option this year, for example, it will bring in just $15,000 – not even enough to cover the increase in pension contributions for classified staff.

Because of these local conditions, school boards are often torn in deciding on the tax rate – Moreland called it “splitting the difference in a lot of ways with the community vs. the school.”

“You’re trying to get a little bit of additional revenue to do some of the things you want to do, but you’re also trying to limit that rate increase to the taxpayer,” he said.

“No board makes this decision lightly,” Corbin Independent board Chairwoman Kim Croley said. “But it’s our job at the end of the day to make certain that the school system is financially solvent, but also able to meet unforeseen circumstances.”

Whalen noted that failing to take the 4 percent rate is a little like compound interest in reverse. In his case, “$15,000 for us doesn’t sound like a lot, but that $15,000 that you don’t take this year is $15,000 you can never regain,” he said.

Moreland said in the short term, board decisions on their tax rates will be “all over the place.” But Maggard said if funding cuts continue, school boards may not be able to avoid taking the maximum tax rate, despite that tension between local conditions and district needs.

“I see the challenges that education faces that may position local boards into a forced situation where they have to do it to make ends meet,” he said.

Croley said she wishes the state’s school funding system were simpler and less “convoluted.”

“I wish the state had made things easier because there are school systems that are struggling so hard,” she said. “They have so little commerce within their district, but their students deserve the same thing as somebody who lives in a district in northern Kentucky that is booming.”

District breakdown

See a district-by-district tax rate listing for the past 10 years.