12a. School District Financing, City ManagerCITY OF yaw
�BANHASSEN
690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317
(612) 937 -1900 • FAX (612) 937 -5739
I MEMORANDUM
' TO: Mayor and City Council
FROM: Don Ashworth, City Manager _� ..:+'
' DATE: October 5, 1995
SUBJ: School District Financing
At the last city council meeting, I reported that the school district was very interested in obtaining
a commitment from the City of Chanhassen that dollars generated from our tax increment
districts as a result of their proposed referendum would in fact be distributed back to the school
district. As neither Chaska nor Chanhassen had made a final commitment to this concept, the
' school district was anticipating distributing "tax impact figures" on the more conservative
position, i.e. that those dollars would not be available to them. The issue is now moot.
Both the school district and I were aware of changes in state law that required all future
referendums by school districts to be based on market value rather than tax capacity. All of the
write -ups regarding this change in legislation emphasized the fact that commercial /industrial
properties pay three to five times as much as residential property simply because of the formula
that changes market value into a tax capacity value. By using "market value" in establishing a
tax rate for school referendums, both commercial /industrial properties and residential properties
would be treated on an equal playing field. [Note: This change does mean that residential
properties are paying a higher amount of the tax burden created by the referendum in comparison
' to using "tax capacity values" in determining tax burden.] What was not revealed in the
legislative summaries was that "market value" includes all values within the community
including pre -1979 districts, post -1988 districts, etc. Accordingly, the school district will receive
dollars from our various tax increment districts with or without our approval, i.e. a business
within the industrial park will see their tax bill consisting of a base value tax (distribution to
county, city, school, etc. before the district was created) of "x," a tax increment tax of "y," and a
' market value tax of "z." The "z" tax will be distributed by the county auditor directly to the
school district, such representing the total of all "z's" in the school district for the total amount
that had been requested as a part of the referendum.
1
Mayor and City Council ,
October 5, 1995
Page 2 '
The above news should be seen as good news in that the amount of the tax burden for our ISD
112 citizens should be much lower in that it does include a distribution of the taxes received from '
the tax increment districts in Chaska and Chanhassen. Although the issue is moot as it would
apply to the upcoming referendum, the school district is desirous of seeing the city put into
writing the previous commitment that the taxes that they generated as a result of the previous $50 '
million referendum would in fact be returned to the school district. This past week I had a very
productive meeting with the school district in terms of what those amounts should be. Prior to '
this point in time, they have been adamant in going through detailed formulas depicting what that
amount should be. Unfortunately, the formulas ignore one very important point —the City of
Chanhassen cannot return any more monies than it actually receives. I think the message finally ,
got home and that a far more simplistic method of determining what those dollars are and should
be was established. Unless the city council acts to the contrary, I would propose that a contract
be developed that would guarantee to the school district that the dollars generated as a result of '
their $50 million referendum would be returned to the school district, but would have clauses in
such ensuring that if we don't get it, they don't get it.