School Funding in Minnesota: An operating levy vs. a referendum

To the Editor:

In order to understand why the MCW School District has a referendum on the ballot for May 14th, it is important to have a basic understanding of how schools are funded in Minnesota. Some have proposed that MCW asks for an operating levy instead of a referendum, and this editorial will provide more insight as to why that is NOT a financially sound plan.

According to the Center for Rural Policy and Development, “although Minnesota’s K-12 schools get their funding from a mix of local, state and federal funding mechanisms, Minnesota’s funding framework, the general education revenue program, makes up around a half to two-thirds of the total revenue a school district receives each year.”

If the basic education revenue does not provide enough money for schools to pay all of their bills, many schools go to voters to ask them to approve an operating levy. An operating levy provides funds that are used to pay for the general operating expenses such as utilities, supplies for the classroom, and wages and benefits. One way to think about an operating levy is that taxpayers are providing additional funds for day to day expenses of the district. Operating levies do not pay for building projects, and they are taxed differently than a bond referendum. An operating levy only taxes the house, garage and one acre of each taxpayer. Agricultural farmland and businesses are not taxed. The Ag2 School credit does not apply to an operating levy so the district residents will bear the full tax burden.

If a school district wants to upgrade facilities, they go to voters to ask voters to approve a referendum to authorize the sale of bonds, and the proceeds from the bonds are used to pay for school construction projects. Bond referendums can be used to fund building projects, and they are taxed in a different manner than an operating levy. In a bond referendum, all land in the district is taxed (including residential properties, agricultural farmland, and businesses). The Ag2School credit applies to a bond referendum, and for the MCW referendum, that results in the State of Minnesota paying for approximately 42 percent of the new building project.

To breakdown the future referendum costs versus the cost of a levy, we will use a residential property that is valued at $150,000 (the average value in the MCW school district). For a property with an estimated market value of $150,000, the cost of a $1.3 million annual operating levy (which is the amount that the district estimates in savings by moving to one building), the annual taxes would be $273.87. For that same property (with an estimated market value of $150,000) if a bond referendum is passed for a new pre K-12 building, the annual taxes would be $269.00. This resident would pay MORE each year for an operating levy to operate three old buildings than they would pay for a brand new facility. Many residents would pay MORE or, at the minimum, close to the same amount for an operating levy to maintain old buildings as they would for a bond referendum to build new.

Financially, and looking at the sustainability of our school district, this is a no-brainer. A levy will cost most district residents close to the same amount and we have nothing to show for it after 10 years.

How can this be that an operating levy would cost similarly to building a new school? Refer back to the previous two paragraphs. Bonds and levies are taxed differently – bonds apply tax to all land in the district, and levies apply tax to only residential properties (plus the garage and one acre). The tax base changes with a levy.

It is also important to think of levies and referenda in this way. A levy is similar to renting, and a bond referendum is similar to building equity through an investment. If the MCW district residents reject the bond referendum on May 14th, they will be asked to pass an operating levy to keep the district afloat. Residents will be paying significant taxes for the levy to simply keep the doors of the school open. There will not be building improvements made with that money, and we have not gained anything with the investment.

If MCW district residents choose to pass the building referendum on May 14th, we will be investing in a new building that will be used by students and residents of the community for many decades to come. We are building equity in our district versus throwing money away.

As we evaluate options for the future of MCW, it is becoming more and more clear that the bond referendum is the right choice. We are investing our money into a new facility that will be used for many decades versus throwing our money away on old facilities and having nothing to show for it. It is time for us to step up, invest in our facilities, and create a future for the Martin County West district that we can be proud of.

Stephanie Wohlhuter, and other members of the Vote Yes for Martin County West Committee, Sherburn, Minn.