Local School Tax Millage and the 10-Mill Local Match Chargeback Thing – Explained

Alabama has had a flurry of city school districts break off from county districts in recent years. Many more are waiting in the wings. Most cities seeking to form their own school systems cite the reason for wanting to break off is to have local control over how funds are spent. County districts serve large areas, and consistently spend fewer dollars per student than city systems spend.

It all seems to hinge on whether a city believes it can afford to establish and maintain a school district and invest more of its citizens’ tax dollars in the education of its city’s schoolchildren.

Folks tend to focus a lot of attention on whether the millage of property tax is high enough to support forming a city school district. But they generally stop at the number of mills, rather than taking a look at the value of those mills.

School officials and residents must also consider the 10-mill/local match/chargeback thing (referred to as “chargeback”) and whether a district can afford to devote those 10 mills to the pot of money for its own state Foundation Program funding.

Orange Beach City Schools?

Orange Beach will hold a vote on September 23 to determine whether they will increase their property taxes by 5 mills, which will be used to break away from Baldwin County Schools and establish an independent city school system, the 139th in the state. There are 136 districts (67 county and the rest are city) currently in operation, with Pike Road and Gardendale beginning operations in the next year or two.

A feasibility study proclaimed the city of Orange Beach will have enough funding to support a local school district.

Baldwin County school officials shot back, questioning the data used in the report.

Orange Beach city officials issued a response to Baldwin County school officials earlier this month.

And the chargeback is causing a lot of confusion for the folks in Orange Beach. The confusion centers on whether Orange Beach will receive any state funding through the Foundation Program at all because the value of 10 mills is more than the amount of state funding Orange Beach can be expected to receive. Read the linked article for more on that conundrum.

The Foundation Program: What It Funds

Foundation Program units are calculated based on ADM for:

• Teachers
• Principals
• Assistant Principals
• Counselors
• Librarians
• Career Tech Directors
• Career Tech Counselors

Total dollars earned under the Foundation Program for FY15 include:

• Salaries
• Fringe Benefits
• Other Current Expense ($15,967 /unit)
• Classroom Instructional Support
  • Student Materials ($310/unit)
  • Technology ($0/unit)*
  • Library Enhancement ($0/unit)*
  • Professional Development ($0/unit)*
  • Common Purchase ($0/unit)*
  • Textbooks ($35/adm)

*The items listed as “($0/unit)” are included to accurately reflect what components the Foundation Program included as a minimum level of need even though no funding was allocated by the state legislature for those needs.

A full explanation of the formulas used in the Foundation Program is located here.

The chargeback amount is subtracted from the total Foundation Program funding resulting in what the state will send to the school district over the course of the year.

The Value of a Mill, Millage Rates, and Tax Bills

The simple definition is that a mill equals one-tenth of one cent (.001).

The millage rate is determined at the state, county, city, and local school district levels through levies by the respective areas of government and/or by voters.

The total tax bill is a product of the appraised value times the class of the value (I, II, III, or IV), which equals the assessed value. Then you multiply the assessed value times the millage rate. If any exemptions (such as homestead) are due, those are deducted from the tax bill to get the final amount owed. Here is the Alabama Department of Revenue’s property tax calculator page.

The value of a mill is what really matters to a school district. And the value of a mill can differ in each locality….based on property values in the taxing area.

This must be understood by those seeking to break off from county systems into their own city systems.

It isn’t enough to consider the total mills that school districts receive from their local property taxpayers. Because 10 mills in one city doesn’t have the same value as 10 mills in another city.

This map gives you the value of one mill, as calculated most recently for the ALSDE FY15 Foundation Program allocations.

The table reflects the value of one mill in FY13, FY14, and FY15.

Here is another way to look at the value of that one mill. Click the bubbles to learn more.

 The Chargeback

The chargeback refers to the amount equivalent to 10 mills of property tax that boards of education are required to put into the pot toward their own state Foundation program allocation. The idea of committing local taxes to the state Foundation Program dates back to the original 1935 Foundation program.

Here’s an example of how it works:

• The district is allocated $11 million under the state Foundation program.
• 10 mills of property tax equals $1 million in the school district.
• The state will only send $10 million to the school district that year, expecting the local school board to use that 10-mill equivalent/$1 million to contribute to its own “state-funded” school expenditures.

PLEASE note that the school district does NOT send any money to the ALSDE or to the legislature. It is required to symbolically put that local 10-mill equivalent into the state funding pool and use it for whatever the state has dictated.

This explanation of the philosophy behind and application of the local match is from the School Superintendents of Alabama’s 2011 primer on school funding mechanisms:

For purposes of the Foundation Program, affluence is determined solely by the value of property in a given school system’s boundaries.  Regardless of the number of mills of property tax a system raises, the value of a single mill is contingent upon the value of the property in general. For instance, property in downtown Birmingham or on the waterfront is considerably more valuable than property in a rural farming area. Therefore, a mill of property tax in Birmingham or on the waterfront raises more money than a mill in the rural areas.

Applying a standard formula to information gathered from county revenue offices, the value of 1.0 mill is determined for each system and then multiplied by 10 to determine the local system’s contribution to the Foundation Program. This amount is then subtracted from the amount budgeted in the Foundation Program total each year for that system. The balance is the state’s share from the ETF (Education Trust Fund).

Some school boards look at that chargeback amount and think of it as money they could be using to spend the way they choose to spend it, rather than having that amount be directed by the legislature.

It isn’t, nor has it ever been, money that the local school board could be using in a different way. To look at that money in that manner is just wishful thinkg. It has, and always will be (barring an act of the legislature or implementation of a new way to fund schools) thrown into the Foundation program pot to be used the way the legislature directs it to be used.

However, any property tax devoted for school purposes at the local level (county or city) over the chargeback amount can be used however the board of education chooses to use it, unless the voters have put some sort of limitation on how it can be used, e.g. for capital purchases or technology.

When you look at this table, you must remember that this reflects ONLY the chargeback amount for the Foundation program. This is NOT a figure representing local tax revenue nor local tax effort. This gives you a look at what our school districts are paying in to the Foundation program to participate. And no, public schools cannot opt out of the state Foundation program.

The table reflects the chargeback for FY13, FY14, and FY15. This is the value of 10 mills of property tax in each school district.

Why This Matters

As school funding continues to be a struggle for many school districts in Alabama, and as voters continue to be asked to renew existing property taxes and/or approve new property taxes, it is important to understand the mechanism through which and how much of our local property tax makes it into our classrooms.

It also needs to be said that no matter how much or how little our state legislators direct toward our schools, the chargeback amount will reflect the same 10-mills value. More on that analysis in a future post.

What You Need to Know

(1) When trying to determine how much property tax your school district needs, you must know the value of a mill as well as the number of mills needed.

(2) The value of a mill differs from district to district because property values differ from district to district.

(3) Every district must set aside the equivalent of 10 mills of property tax to add to the state funding received under the Foundation Program. This is known as the chargeback. This can differ every year as property values change.

Additional Reading

The Guide to State Allocations 2014-2015 – Produced by the ALSDE

Funding Trends in Alabama Schools: The Foundation Program – Alabama School Connection, October 2013

If you’re looking for a list of millages for various school districts, the most recent one found is from 2007 (beginning on page 79), right after voters passed a requirement for all school districts to collect at least 10 mills in actual property tax. Prior to the vote in 2006, collection of 10 mills in property tax was not mandatory, but the 10-mill property tax equivalent chargeback amount was in place. Prior to that vote, districts could use whatever tax they collected to meet the chargeback requirement.