Task Number Eight: Determining Costs and Levy

In the Assessment Phase of the districting process, a ballpark range of costs for the district was determined. In the Planning Phase, the cost estimates can become firmer. Because the working group will be creating a long-range plan for library service, as well as looking at personnel and facilities costs, the group should be able to make a much more accurate estimate of first-year and long-term costs for the new district.

Idaho property tax laws also determine maximums that can be levied each year. While the statutory levy limits for library districts do not change from year to year, the formulas used on the Form L2 do change. Your county clerk can tell you more about this. Your county clerk can help you determine the amount that your new or enlarged district can raise during its first year of operation. Appendix B contains information about how to figure maximum levies.

Estimating the Budget for a New District. A draft first-year operational budget can and should be prepared for a new district by the working group. Begin by estimating the costs of services and then the amount that you can expect to collect from non-levy sources. Non-levy income sources can include gifts, fines, fees, rental payments, funds from your library foundation, and trust fund income. The remainder will be the amount that would need to be raised by the levy if a levy could be imposed the first year.

Finding a Base Property Tax Budget for Combinations and Consolidations. For the purposes of setting the annual levy, it is necessary to create a base property tax budget figure. Methods for figuring the base budget when two or more libraries combine are established in 33-2710, Idaho Code. With some exceptions, this is done by adding the budgets of the combining or consolidating libraries together.

Combinations. When a city library combines with a district library, the city’s library levy or its most recent certified annual budget for the library — minus fines, fees, and any other identifiable revenues from non-tax sources and minus any grants made directly to the library board — is used for the city budget figure.
This figure will be added to the amount raised by the district’s most recent certified budget raised from property taxes. This dollar amount is then divided by the market value for assessment purposes of all the taxable property in the combined district. If the levy rate derived from this division is less than .0006, the
dollar amount becomes the property tax budget base figure to which all property tax limitations will be applied.

Consolidations. When two or more library districts consolidate, the property tax portions of both districts’ most recent certified annual budgets are added together. This dollar amount becomes the base for the consolidated district’s first annual budget. A uniform levy rate is figured by dividing this dollar amount by
the total market value for assessment purposes of all the taxable property in the combined district. Since both districts’ levy rates should have been .0006 or less, the combined levy rate should not exceed this statutory levy limit.

First-Year Operations. For a new district or district annexation to be included on the tax rolls for a given fiscal year, it must be registered with the Idaho State Tax Commission by December 31 of the previous year. Its budget levy will then be certified by the Tax Commission the following September, and its first tax payment will be made to it by the county (or counties) in January of the following year.

Since the Tax Commission only creates new tax rolls once a year, the minimum amount of time that will occur between the election to establish or enlarge a library district and its first receipt of tax payments will be 14 months, which will occur if the election is held in November. The time will be even longer if the election is held in May.

How can the new district cope with this problem?

Continued City Support. In cases where city libraries are becoming district libraries, the cities sometimes are willing to continue funding the library until tax dollars are collected for district library services. The working group needs to discuss this possibility with the city council and if the city council accepts the
idea, a memorandum of agreement needs to be prepared.

Continued District Support. In cases where two or more districts are consolidating, the problem of first-year financing can be largely alleviated by careful timing of the consolidation. The consolidation should take place after the individual district levies have been set (the second Monday in September), but in
plenty of time to get the consolidated district on the tax rolls for the following fiscal year. The deadline for getting on the tax rolls is December 31. Library law requires that the library board of a new or expanded district send notification to the Idaho State Tax Commission no later than December 15. [See I.C. §§ 33-2705 and 33-2709.] This would indicate that the best time for the commissioners to certify the new name and boundaries of the district would be in October or early November. This would allow plenty of time to get the necessary paperwork to the Tax Commission by the December 31 deadline. During the first year, then, the consolidated district could operate on the levies that the individual districts had set for that year, since these would still be collected for the individual districts.

In other cases, the district may need to look at alternative methods of finance for this period. Such methods may include tax anticipation loans for the first year’s operations.

Tax Anticipation Loans. Provisions for tax anticipation loans for newly created library districts are found in 33-2724, Idaho Code. (Such loans are not available for help to annexations, or district/city consolidations.) Under this provision of the law, the library board may borrow up to .06% of the market value for assessment purposes of all taxable property within the district. This indebtedness can then be paid off by taxing an additional .02% above the .06% levy limit for a three-year period. This additional levy may only be used for the purposes of paying off the indebtedness caused by first-year operations.

Other Issues:

Non-payment of Taxes. Another issue that needs to be considered when determining the levy for the first three years of operations is the problem of non-payment of property taxes. In some districts, the property tax collected represented only 75% of the total levied. Until that time, the levy needs to be set so that the amount collected will meet the library district’s needs. For example, if 90% of the amount levied is normally collected, the district should set its levy 10% higher than what is needed, so that what is collected will meet the needs of the library. This, of course, can only be done up to the legal levy limit of .06% of the market value for assessment purposes. To find out the amount that is normally collected in your service area, you can check with your county clerk.

Carry-over Funding. Although the district’s fiscal year will run from October 1 to September 30, the first significant property tax income will come to the district in January. This needs to be considered when setting the first year’s levy. While the levy theoretically covers a twelve-month period (October through September), it must realistically cover 16 months (October through the following January). The
first-year levy, then, should be enough to create a carry-over fund to operate the library for about three months after the end of the first fiscal year (between October and January). Once a carry-over fund has been created by the first-year levy, the issue will become significantly less important, as each year’s levy will replenish the carry-over fund created during the first year. (The library board, of course, must understand that the library must have enough money at the end of September to carry over to January, and they should budget accordingly.)

Bond Debt. When libraries combine, or library districts consolidate, one of the two parties may be carrying bond debt for a building or other major expense. Taxes for payment of these bonds are applied only to that part of the new district that originally incurred the debt. [See I.C. § 33-2710(4).]

Household Fees. Some new districts express an interest in using household fees rather than property taxes as the method of supporting public library services. They argue that provision for such fees is provided for in I.C. § 63-1311. When this method of funding is used, each household in the taxing district pays the same amount, regardless of the value of the property. The Idaho Commission for Libraries opposes this method of funding for library districts for two reasons.

• First, the code provides no enforcement mechanism for this kind of fee. The tax levied upon property becomes a lien upon the property [see I.C. § 33-2724]. This provision does not exist in I.C. § 63-1311, and, therefore, there is no way for the district to enforce the household fee. Further, 63-902(10), Idaho Code specifically prohibits the county commissioners from placing fees and other charges on tax bills unless the taxing district “has the authority by law to place a lien on property” and “is required to collect such charge in the same manner provided by law for the collection of real and personal property taxes.” Since the statutes neither require nor directly authorize library districts to collect household fees in lieu of taxes and do not authorize library districts to place liens on property of those who refuse to pay the fees, it is doubtful whether these fees can be legally placed on tax bills.
• Second, it is highly questionable whether household fees in lieu of taxation for all library services are legal at all. Although there has been no case law involving public library service and household fees, in the case of Brewster v. City of Pocatello, the Idaho Supreme Court found that a fee charged for street maintenance and restoration was illegal. In rendering its decision, the Court stated, “We view all issues in this case as being subsumed in the question as to whether the street maintenance fee imposed by the Pocatello ordinance is a fee specifically authorized by IC 63-2201A [the number of IC 63-1311 before recodification], or as contended by the respondents it is a disguised tax and hence invalid as not having received voter approval…. The sole issue appears to be whether absent legislative authority a municipality may impose a fee…. In a general sense a fee is a charge for a direct public service rendered to the consumer, while a tax is a forced contribution by the public at large to meet public needs.” In other words, it appears that the Supreme Court found IC 63-2201A to be applicable only when a fee is used to replace tax funding for a specific service (e.g., making a copy) but not a generalized service whose cost to each consumer cannot be identified.

Financial Planning and Public Relations. As you can see above, public financing can be a complicated procedure, and it is difficult for the public to fully understand it. The working group, however, needs to create a plan for financing for at least the first five years of the district’s life. The plan should describe what a typical taxpayer will pay in each year of the plan.

It would be wise to figure out the taxes that would be assessed on a house with a taxable value of $50,000, a farm with a taxable value of $100,000, and a business with a taxable value of $200,000. The Property Tax Calculator at Tax-Rates.org can help you do this: http://www.tax-rates.org/property-tax-calculator.

In addition, someone in the working group should become responsible to develop a more in-depth understanding of how taxes and tax rates are figured. This person could ask the County Assessor for help with learning about tax exemptions and other tax information, when figuring actual tax charges. This tax
“expert” then could be made available to discuss the tax implications of library districting. For example, if a taxpayer asks precisely how much the district will raise his taxes, the working group’s tax expert can help the taxpayer work up the figures, based on the taxpayers’ taxable assets.

A fact sheet should be prepared showing what the expected operational levy would be for each year under the plan. The factors that are outlined above should be explained in the fact sheet, and it should be explained that only in the fifth year of the district is the “typical” amount to be paid likely to be reached, because, by then, any tax anticipation loan will be paid off and the non-payment of taxes will be evened out by payment of back taxes.

Spokespersons for the district should fully understand the financial plan for the first five years and should be prepared to speak to it. In dealing with financial matters, it is best to be forthright. If it is anticipated that the district will at some future time float a bond for buildings or other needs, this needs to be stated from the outset of the districting effort.

As already discussed in the Assessment Phase chapter, however, any discussion of costs needs to be placed in the context of services provided. As you have gone through the Planning Phase, your group has begun to develop plans for specific services. Replacement costs (what it would cost an individual to obtain the service if the library district did not provide it) should be estimated, so that any discussion of the tax charges for the district can be met with the potential savings in services rendered.

Thus, the fact sheet on the levy rates and typical tax charges should be accompanied by the typical cost of a book (hardcover and paperback) in a bookstore, a trip to the closest library to borrow a book, the cost of magazine subscription, and, if the district will be providing these kinds of services: the cost
of purchasing an audiobook or music recording, the cost of DVD rentals, the cost of access to electronic databases, and other information sources.

Anticipated Cash Flow. For the purposes of financial planning, it is also useful to chart the district’s anticipated cash flow for the years of the districting project. The chart can be used to show when you expect income to become available, and what type of income. It can also be used to identify grant application deadlines and other deadlines that are important for obtaining income.

Decreasing City Levies. One issue that has come up in projects involving city libraries that will become part of a new district is the issue of taxes for libraries. Because the district will be taking over the city’s obligation to run the library, it can be assumed that city budget should decrease when the first district levy is budgeted. Many voters, however, are skeptical that the city will decrease taxes when the library district begins providing its library services. This issue needs to be negotiated with city councils. Statements from city officials indicating that they will remove or plan to remove library taxes can be helpful.