MITCHELL — The Mitchell Board of Education will give final approval for the 2022-23 school budget in the coming weeks. For school administrators, this means that the framework for district income and expenditure for the coming year is in place, paving the way for another year of paying student education bills.
But for district sponsors, the question usually arises: Will my taxes go up?
According to Steve Culhane, Mitchell School District business manager, as can often be the case with taxes, the answer is not that simple.
“I would say that levies are expected to come down slightly but the estimated valuation is going up. Although the levy falls a bit, most people will likely see a slight tax increase,” Culhane said.
It’s the balance between the appraised property value and tax collection claims that is at the heart of what a property owner will find on their annual property tax bill. It’s an intricate process involving complex formulas, estimates, and the ever-increasing expense of ensuring students in a school district are getting the best possible education for taxpayer’s money.
The Mitchell School District is a tax jurisdiction located in portions of Davison County and Hanson County. It is one of several tax jurisdictions in the region where residents pay taxes for services, others include facilities such as water districts.
The first step in determining property taxes is to determine the full and true value of all properties within the county’s boundaries. State laws require real estate to be valued at its market value, which is the amount for which the property would likely be sold if sold on the open market. This value is then adjusted to 85% for tax purposes.
The value of land can change from year to year, said Karla Love, director of compensation for Davison County.
“Each year, the Davison County Equalization Office reviews properties for changes and reevaluates those properties based on current market conditions. Generally, when market values change, estimated values also change,” Love said.
These values can change for any number of reasons. The property in question may have changed physically or the market itself may have changed. Adding a garage to a home would likely increase the value of the property and therefore the valuation would go up. Properties that deteriorate in condition or deteriorate over the years may experience a reduction in valuation.
Appraisers consider a number of factors, including the amount of land a taxpayer owns, the location, the number and size of improvements on the land, and the physical characteristics of the improvements.
“This information is used to estimate the market value of properties by comparing the selling price of similar properties, estimating the cost of building your property and calculating the potential rental income your property could generate, if any,” Love said.
Love said her office – which consists of three full-time appraisers, herself, an administrative assistant and a database coordinator – tries to appraise a property every seven to eight years, although it can sometimes take longer between appraisals.
School districts across the state receive the overall assessment of housing numbers within the district as part of their budget process. This is also where district business managers begin to determine how much they can generate in local taxes to support the district.
“Every year the state sends the district the school appraisal — the values of those properties,” Culhane said.
The 2021-22 official real estate appraisal in the Mitchell School District was $1,532,987,533. But due to the timing of the final assessments being completed and the Board of Education approving its annual budget, Culhane and other school managers are working on an estimate of what they think next year’s assessment will be.
For 2022-23, Culhane projects a valuation of $1,555,680,304, or an increase of about 1.48%.
State legislatures set the maximum annual tax that school districts can collect, so these numbers change regularly. Lawmakers know that real estate values are generally trending upwards. To keep real estate taxes relatively stable, he adjusts levies lower to keep the balance and not increase or decrease taxes drastically.
For the 2021-22 school year, the Mitchell School District collected a total of 6,081 on real estate levies through the general fund, the capital expenditure fund and the special education fund. Culhane estimates a total tax of 5,975 for 2022-23, down 1.74%. A decline of 2.09% is also estimated for owner-occupied real estate and a decline of 0.60% for commercial real estate.
Analysis of Mitchell School District tax filings shows that estimated 2022-23 general fund filings will be $6,152,246, down $6,158,330 from the prior year; $4,665,998 for the Investment Fund, an increase of $4,395,469 from a year earlier; and $2,487,000 for the Special Education Fund, a decrease from the $2,561,000 requested last year.
That’s a total of $13,305,244, up 1.45% from last year’s $13,114,799.
The total tax claim for 2013-14 was $11,305,874 for a total increase of $1,999,370 since that date. That’s an average increase of $199,937 per year.
The greater the cost of running the school district, the greater the required property tax revenue. Revenue from property taxes, along with other funds such as federal grants, must match the size of the government unit’s budget, according to the South Dakota Department of Treasury. Property taxes are used to cover the difference between operating costs and what the district receives in state aid.
The allocations are different for different funds, such as the general fund and the investment fund. Culhane used an example of the district’s special education budget.
“For special education, we know the estimated value is $1.5 billion. And we know that the state has lowered the special education tax. This tells me that our special education application will raise close to $2.5 million based on submission and overall assessment,” Culhane said.
A difficult question to answer
Culhane said he tries to be conservative in his estimates of what the district must secure in property tax funds, and the impact on local taxpayers may vary from year to year. There are many factors in what a resident will find as a total on their tax bill, and it generally depends on the status of each property owner.
If the rate at which an owner’s property appreciates in value exceeds the rate at which the state and school impose lower dues, their taxes will increase for the proportion of their taxes in the school district. In this case, the more property an owner has, the more it increases. If the value goes down faster than the levies go up, their taxes go down.
The tax rates of other tax districts unrelated to the school district may also change an owner’s tax bill.
Because of this, it can be difficult for Culhane to communicate to patrons or the Board of Education how annual levy requests will affect an owner.
“Fees are falling every year and values are tending to rise. The state is trying (lower levies) so you don’t have a huge tax hike, but again it all depends on each individual’s property situation,” Culhane said.
Susan Kiepke, chartered accountant for Davison County, agreed that property valuation is perhaps the most important factor in determining an owner’s property tax bill. Your office has the task of taking over the figures from the equalization office and the allocation information specified by the state parliament for calculating the individual tax assessments.
“Assessment is the most important thing. For school fees, I get the maximums from the state—what those maximums might be, and I put them in my computer. The computer does most of the work,” said Kiepke. “But there are various (other) bodies that also get tax money. Fire department districts, communities, counties. Your tax bill has many facets.”
Here, too, it depends on the individual landowner, his holdings and the condition and value of his property.
“Will my taxes go up?” As much as they wish there was a straight answer to that question, Culhane and Kiepke will likely both respond with “It depends.” They understand the lack of a solid answer can be frustrating, but it’s an unfortunate part of a necessary but complicated system that’s critical to ensuring vital services — like the Mitchell School District — are adequately funded.
“There is no patent solution,” said Kiepke.