LD 1 Worksheet for Budgeting & Reporting
(from Maine Townsman, February 2010)
By Michael Starn, Editor
2010 Municipal Property Tax Levy Limit Worksheet
State Planning Office made Interactive
A new worksheet to help municipal officials calculate the LD 1 Property Tax Levy Limit for 2010 has been developed by the State Planning Office (SPO) and is shown on pages 15 and 16 of this issue of the Townsman. The worksheet is also on the MMA website, www.memun.org as a printable and an “interactive” pdf document.
This SPO worksheet is the one that municipal officials should be using to make their LD 1 spending limit calculation for calendar year 2010 budgets and FY 2010-11 budgets. Maine Municipal Association collaborated with SPO on the development of the worksheet and MMA will no longer publish a separate LD 1 worksheet.
A confusing aspect of LD 1 for some municipal officials is “when to calculate” the property tax levy limit. Part of this confusion stems from the fact that the LD 1 law has both budgeting and reporting requirements. For that reason, municipal officials should be filling out part of the worksheet prior to their municipal budget adoption and completing the end of the worksheet after property taxes have been committed. In past years, MMA and SPO have done separate calculation worksheet and reporting forms. This LD 1 levy limit calculation and LD 1 reporting can now be accomplished using just this one form.
The LD 1 law is now five years old, enacted in January 2005. LD 1 property tax levy limit calculations have been part of the municipal budgeting process for four or five years, depending on whether the community operates on a fiscal year or calendar year. Still, the LD 1 process for calculating a property tax levy limit can be confusing at times. This new worksheet will hopefully simplify the process and reduce the amount of time that local officials will spend on their LD 1 calculation and reporting.
The easiest way to explain the worksheet is to comment on the various lines and sections of it from beginning to end. This information is provided with the assumption that municipal officials generally understand the LD 1 spending limit process. It is not meant to be a complete instructional guide for the worksheet.
Specific questions regarding LD 1 spending limit calculations should be addressed to SPO Mike LeVert at SPO, 287-5649, or Kate Dufour, at MMA 1-800-452-8786 ext. 2213, or Mike Starn at MMA, 1-800-452-8786 ext. 2221. Email addresses are: Michael.firstname.lastname@example.org; email@example.com; firstname.lastname@example.org
Line 1. After the first year’s spending limit calculation under LD 1 (2005 for fiscal year/2006 for calendar year), municipalities have used the previous year’s Property Tax Levy Limit as the basis for the next year’s calculation. Unless your legislative body (town meeting or council) gave permission through a specific voting process to increase the Property Tax Levy Limit in 2009, your starting point for the 2010 LD 1 levy limit calculation is the 2009 Property Tax Levy Limit that was calculated last year on a similar worksheet and should be entered in Line 1 of this worksheet. If the municipal legislative body voted in 2009 to override the LD 1 limit and “increase” it, then the municipality needs to set a new limit which will be your starting point for 2010. That calculation uses the 2009 Municipal Tax Assessment Warrant information and is shown in the lines A-D before Line 1.
The special voting procedure required under LD 1 is a “written ballot” vote at town meeting or a “strict majority” vote by the council to increase the levy limit. This same procedural voting is required to exceed the levy limit; however, this LD 1 override process does not establish a permanent, higher levy limit (i.e., you would use the 2009 limit as the starting point for the 2010 calculation).
Lines 2-4. These lines of the worksheet are used to calculate the Property Growth Factor which will be added to the Income Growth Factor (supplied by SPO) to create a Growth Limitation Factor, which is the percentage growth allowance for determining the 2010 Property Tax Levy Limit. The Property Growth Factor is expressed as a fraction with the “new value” being the numerator and the “Total Taxable (Municipal) Value” being the denominator. That fraction is converted to a four-point decimal (see Income Growth Factor) and placed on Line 4. The municipal assessor is typically the person who calculates the Property Growth Factor. Different methodologies are used to do this calculation. An important point to remember is that “new value” means “value taxed for the first time”. New value does not include inflationary value changes, so be careful with revaluations and factoring. Confusion also arises over what assessment period to use for the “new value”. Because the LD 1 calculation is supposed to be done before the budget is adopted, it makes sense to use the prior year’s assessment data (for 2010, the assessment period would be from April 1, 2008 to April 1, 2009). The LD 1 law allows a municipality to use the “most recent property tax year for which information is available”. Normally, municipalities don’t have current year assessment figures until the property taxes are ready to be committed (late summer or early fall). This is well after the municipal budget has been developed and approved.
Line 5. The Income Growth Factor, provided in the latter part of 2009 by SPO, is the same number for every municipality. Expressed as a percentage, the Income Growth Factor for 2010 is 1.78% (.0178 as a decimal).
Line 6. The Growth Limitation Factor is the sum of the Property Growth Factor and the Income Growth Factor.
Line 7. For calculation purposes, you need to place a 1 in front of the Growth Limitation Factor. Some people have mistakenly thought of the levy limit as the percentage growth allowance from one year to the next. The Property Tax Levy Limit is actually the percentage growth allowed, added to the prior year’s levy limit (e.g., a 4% growth allowance will be 104% of the prior year’s levy limit).
Lines 8-11. The final Property Tax Levy Limit is adjusted by changes in State-Municipal Revenue Sharing. The original LD 1 law called this adjustment “Net New State Funding”. For the past two years, the adjustment has been applied only to revenue sharing changes. Originally, “Net New State Funding” could only be used to lower the Property Tax Levy Limit, when a community received more state funding (adjusted by the growth factor) than it had in the prior year. Now, a community that loses revenue sharing can actually increase its Property Tax Levy Limit. For example, a community that received $100,000 of revenue sharing in 2008 and then received $90,000 in 2009 would be allowed to add $10,000 to its 2010 Property Tax Levy Limit. It is important to note that the revenue sharing comparison should be based on calendar years. For 2010, you will compare receipts from calendar year 2009 to calendar year 2008. Lines 10A and 10B are filled in when there has been a gain of revenue sharing (that is subtracted from the Levy Limit) and Line 11 shows a loss of revenue sharing (that can be added to the Levy Limit).
Lines 12-13. This box titled “Calculate This Year’s Municipal Property Tax Levy Limit” is the final calculation of the 2010 Property Tax Levy Limit. The Line 12 calculation gives you a preliminary levy limit and then Line 13 makes the revenue sharing adjustment to provide a final levy limit in the shaded area at the end of the box. If your municipal legislative body does not vote to “increase” the LD 1 levy limit in 2010, this is the number that will be the starting point (Line 1) for the 2011 LD 1 worksheet.
Reporting LD 1 Information
The next box, titled “Calculate This Year’s Municipal Property Tax Levy”, is bound to create some confusion because the title is the same as the previous box except for the word “Limit”. The calculation of a “Municipal Property Tax Levy” has two purposes: (1) it can be used to determine if your community is likely to go over its LD 1 limit before the budget gets adopted; and (2) it should be filled out after property taxes are committed to determine the new 2010 Property Tax Levy Limit for those communities that voted to “increase” the LD 1 limit and to allow communities that stayed within their LD 1 limit to see how far under the limit they ended up. Line 14 will be used on the 2011 LD 1 worksheet (Line 1) only by those communities that voted to “increase” their levy limit.
Lines 15-17 are also for reporting LD 1 information to SPO and should be completed after taxes are committed.
The final copy of this worksheet (after taxes are committed) should be kept in the municipal Valuation Book or some other easy to access location, and a copy should be sent to Kate Dufour at MMA, 60 Community Drive, Augusta, ME 04330.
The SPO and MMA have agreed to share this information, so you will only need to fill out this one LD 1 reporting form in 2010. A reminder mailing from MMA will be sent to municipalities in July.