FISCAL NOTE

Date Requested: February 25, 2016
Time Requested: 10:31 AM
Agency: Tax Department, State
CBD Number: Version: Bill Number: Resolution Number:
2576 Introduced HB4688
CBD Subject: Education (K12)


FUND(S):

General Revenue Fund, local governments

Sources of Revenue:

General Fund,Other Fund local governments

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The stated purpose of this bill is to provide for an adjustment to the allocated state aid share to any county on account of, and in the amount of, payments or contributions in lieu of property tax distributed from the sheriff to the county board of education as a result of payment in lieu of tax agreements first entered into on or after July 1, 2016. According to our interpretation, passage of this bill would prospectively eliminate future financial incentives for local governments to engage in the practice of offering payment in lieu of tax agreements for some property owners. Payment in lieu of tax agreements often provide a property owner with more favorable local tax liability relative to the actual assessment of property taxes. Under current law, the State is to include proceeds of such arrangements in their local property share calculations. However, in past years, policymakers have allowed school systems in counties with payment in lieu of property tax agreements to enjoy some additional financial benefit relative to other similarly situated school systems. In these cases, the State Treasury paid the additional cost associated with such arrangements. This bill would not prohibit payment in lieu of tax agreements, but may prospectively eliminate local government financial incentives to engage in such agreements under the assumption that policymakers will include such future payments in the local share calculations. The elimination of local incentives to enter into payment in lieu of tax agreements would promote greater tax equity among property owners and greater funding equity among schools. The Executive Budget proposal for FY2017 includes payment in lieu of taxes in the local share calculation. Passage of this bill may be an attempt to grandfather past funding practices by not including payments in lieu of taxes associated with agreements in place prior to July 1, 2016. Under this assumption of intent, passage of this bill would increase State General Revenue Fund costs related to the State Aid to Schools Formula by $2,645,688 in FY2017. Costs in future years should gradually decline as payment in lieu of tax agreements made prior to July 1, 2016 expire.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2016
Increase/Decrease
(use"-")
2017
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 -2,645,688 -2,645,688
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


According to our interpretation, passage of this bill would prospectively eliminate future financial incentives for local governments to engage in the practice of offering payment in lieu of tax agreements for some property owners. Payment in lieu of tax agreements often provide a property owner with more favorable local tax liability relative to the actual assessment of property taxes. Under current law, the State is to include proceeds of such arrangements in their local property share calculations. However, in past years, policymakers have allowed school systems in counties with payment in lieu of property tax agreements to enjoy some additional financial benefit relative to other similarly situated school systems. In these cases, the State Treasury paid the additional cost associated with such arrangements. This bill would not prohibit payment in lieu of tax agreements, but may prospectively eliminate local government financial incentives to engage in such agreements under the assumption that policymakers will include such future payments in the local share calculations. The elimination of local incentives to enter into payment in lieu of tax agreements would promote greater tax equity among property owners and greater funding equity among schools. The Executive Budget proposal for FY2017 includes payment in lieu of taxes in the local share calculation. Passage of this bill may be an attempt to grandfather past funding practices by not including payments in lieu of taxes associated with agreements in place prior to July 1, 2016. Under this assumption of intent, passage of this bill would increase State General Revenue Fund costs related to the State Aid to Schools Formula by $2,645,688 in FY2017. Costs in future years should gradually decline as payment in lieu of tax agreements made prior to July 1, 2016 expire.



Memorandum


The stated purpose of this bill is to provide for an adjustment to the allocated state aid share to any county on account of, and in the amount of, payments or contributions in lieu of property tax distributed from the sheriff to the county board of education as a result of payment in lieu of tax agreements first entered into on or after July 1, 2016. Insertion of this date provision does not mitigate the absence of a requirement that payments in lieu of property tax are to be distributed in the same manner as if the payments were property taxes.



    Person submitting Fiscal Note: Mark Muchow
    Email Address: kerri.r.petry@wv.gov