TSPR Venus ISD - Chapter 4

Chapter 4
Financial Management

This chapter reviews the financial management and purchasing functions of the Venus Independent School District (VISD) in the following sections:

Organization and Management

Planning and Budgeting

Accounting and Payroll

Tax Collections

Purchasing Operations

Contract Management

Textbooks

D. TAX COLLECTION

The assessment and collection of school district property taxes involve different entities with distinct responsibilities. In accordance with state law, VISD’s board sets the tax rate after the adoption of the district budget. The local appraisal district sets property values and certifies tax rolls. In May of each year, the appraisal district provides a tax value estimate but does not provide certified tax rolls until July 25. The appraisal district applies school district tax rates to assessed property values, minus tax exemptions, to determine the amount of taxes to be levied. VISD contracts with the Johnson County Tax Assessor-Collector’s office for the collection of ad valorem taxes. The district contracts with Perdue, Brandon and Fielder to collect its delinquent taxes.

A large percentage of property value in VISD represents to mobile homes, which makes it difficult for the district to collect delinquent taxes. Owners frequently abandon their property and are hard to locate. The delinquent tax attorneys receive a 15 percent fee that is calculated as a percentage of the total taxes collected. Since property taxes on mobile homes are not large accounts and do not generate large payment, they are not monetarily attractive to the delinquent tax attorneys.

At its September 17, 2002 meeting, the board voted unanimously to set the total tax rate at $1.50 per $100 of assessed property value. The total tax rate consists of two components: the M&O tax rate and the Interest and Sinking (I&S) tax rate. In most school districts, the M&O component of the tax cannot exceed $1.50 per $100 of assessed property value. Voters give authorization for the I&S component of the tax to pay bonded debt when they approve a bond issue. The approved M&O tax rate for VISD is $1.35 and the I&S component is $0.15.

Exhibit 4-14 presents an eight-year history of VISD’s adopted tax rates.
Exhibit 4-14
VISD’s Historical Tax Rates per $100 of Assessed Value
1995-96 through 2002-03

Year Maintenance and Operations (M&O) Interest and Sinking Fund (I&S) Total Tax Rate Percent Increase/(Decrease) from Prior Year

1996 $0.77 $0.64 $1.41 N/A

1997 $0.84 $0.61 $1.45 2.8%

1998 $0.93 $0.57 $1.50 3.4%

1999 $1.14 $0.36 $1.50 0%

2000 $1.37 $0.13 $1.50 0%

2001 $1.47 $0.03 $1.50 0%

2002 $1.20 $0.30 $1.50 0%

2003 $1.35 $0.15 $1.50 0%

Source: VISD, Audited Financial Reports, 2001-02, and board minutes.
Exhibit 4-15 shows the amount and percentage of local taxes, which includes penalty and interest, other local revenue, state revenue and federal revenue for the general fund that VISD received for the years of 1997-98 through 2001-02.
Exhibit 4-15
VISD Tax Collections, Other Local Revenue, State Revenue
and Federal Revenue to Total Revenue for the General Fund
1997-98 through 2001-02

Description 1997-98 Actual 1998-99 Actual 1999-2000 Actual 2000-01 Actual 2001-02 Actual

Tax collections $639,935 $883,822 $1,248,340 $1,651,274 $1,500,101

Percent of total revenue 9.4% 11.2% 12.2% 15.1% 15.8%

Other local revenue $118,317 $158,985 $294,791 $388,224 $367,159

Percent of total revenue 1.7% 2% 2.9% 3.5% 3.9%

State revenue and pass-through $6,022,480 $6,860,501 $8,679,437 $8,900,645 $7,654,622

Percent of total revenue 88.8% 86.8% 84.9% 81.3% 80.4%

Federal $0 $2,868 $1,768 $1,700 $1,356

Percent of total revenue 0% 0% 0% 0% 0%

Total local and state revenue $6,780,732 $7,906,176 $10,224,336 $10,941,843 $9,523,238

Source: VISD, Audited Financial Reports, 1997-98 through 2001-02.
Exhibit 4-16 shows the changes in VISD’s assessed property value and the percentage of collections between 1997-98 and 2001-02.
Exhibit 4-16
VISD Change in Property Value and Tax Rate and
Percentage of Taxes Collected to the Total Levy
1997-98 through 2001-02

Description 1997-98 1998-99 1999-2000 2000-01 2001-02

Assessed Property Value $69,763,667 $80,009,000 $102,589,890 $125,245,229 $133,368,667

M&O Tax Rate $0.93 $1.14 $1.37 $1.47 $1.20

I&S Tax Rate $0.57 $0.36 $0.13 $0.03 $0.30

Total Tax Rate $1.50 $1.50 $1.50 $1.50 $1.50

Tax Levy $1,046,455 $1,200,135 $1,538,848 $1,878,678 $2,000,530

Total Tax Collections $1,041,818 $1,140,455 $1,390,626 $1,713,097 $1,854,436

Percentage Collected to Levy 99.6% 95.0% 90.4% 91.2% 92.7%

Source: VISD, Audited Financial Reports, 1997-98 through 2001-02.
Exhibit 4-17 shows the percentage of delinquent taxes, including prior years, to the current-year levy between 1997-98 and 2001-02.
Exhibit 4-17
VISD Percentage of Delinquent Taxes to Tax Levy
1997-98 through 2001-02

Description 1997-98 1998-99 1999-2000 2000-01 2001-02

Tax Levy $1,046,455 $1,200,135 $1,538,848 $1,878,678 $2,000,530

Delinquent Taxes at Year End $358,828 $428,551 $538,771 $719,075 $862,234

Percentage of Delinquent Taxes to Levy 34% 36% 35% 38% 43%

Source: VISD, Audited Financial Reports, 1997-98 through 2001-02.
Exhibit 4-18 shows the increase in VISD’s delinquent taxes between 1997-98 and 2001-02.
Exhibit 4-18
VISD Increase in Delinquent Taxes
1997-98 through 2001-02

1997-98 (Actual) 1998-99 (Actual) Percent Change 1999-2000 (Actual) Percent Change from 1998-99 2000-01 (Actual) Percent Change from 1999-2000 2001-02 (Actual) Percent Change from 2000-01

$358,828 $428,551 19% $538,771 26% $719,075 33% $862,234 20%

Source: VISD, Audited Financial Reports, 1997-98 through 2001-02.

FINDING

VISD does not have a tax collection board policy, which may contribute to the district’s rising delinquent tax roll. Delinquent taxes increased $143,159 from 2000-01 to 2001-02.

The new superintendent is working with the delinquent tax attorneys to improve the tax collection rate. As noted above, VISD has a large number of mobile homes in its tax base. The collection of taxes on these properties is difficult because owners can move and leave unpaid taxes. As of March 2003, the district had 823 delinquent tax accounts dating back to 1982. VISD’s total tax collection rate for 2001-02 was 92.7 percent. FIRST states that a total collection rate of 96 percent or greater is favorable.

Other districts pursue delinquent taxpayers more aggressively. The Aransas ISD board authorized the Aransas County’s Tax Assessor Collector to post delinquent taxpayers in the local newspaper. In May 2001, the board passed a resolution to allow the Aransas County Tax Assessor Collector the authority to post an advertisement of the top 100 delinquent taxpayers. The resolution agreed that the tax assessor collector would run two advertisements in the newspaper that read as follows:

WARNING NOTICE Past due taxes owed to Aransas County Taxing Authorities
The Aransas County Tax Office on behalf of Itself and Aransas County ISD, Aransas County MUD #1, Aransas County ND #1, City of Fulton and City of Rockport will publish in ______ the names of individuals and businesses that are delinquent in their tax obligations as of __, 2001.

PAY YOUR PAST DUE TAXES PRIOR TO _______, 2001 TO PREVENT YOUR NAME FROM APPEARING ON THE PAST DUE LIST PUBLISHED IN THIS PAPER.

Aransas County’s law firm also sent letters to the past due taxpayers warning them of the pending advertisement that would appear if they did not pay their taxes. The district entered into 40 written installment agreements with delinquent taxpayers as a direct result of this campaign.

Recommendation 25:

Develop a tax collection policy that sets the targeted rate of collection at 96 percent.

A total tax collection rate of less than 96 percent creates a negative response to indicator 6 of FIRST.

IMPLEMENTATION STRATEGIES AND TIMELINE

1. The superintendent and business manager draft a policy that sets a target total tax collection rate of 96 percent. October 2003

2. The superintendent requests that the board adopt the policy outlining the proposed collection rates. November 2003

3. The superintendent and business manager implement the policy. November 2003

FISCAL IMPACT

The review team estimates that it will take VISD three years to reach a 96 percent collection rate. But the district should begin receiving increased revenue during 2003-04.

Exhibit 4-19 presents the annual additional revenue that VISD could realize by raising the total tax collection rate.
Exhibit 4-19
VISD’s Projected Additional Revenue
from Increase of Tax Collection Rate

Year 2001-02 Tax Levy Current Tax Collection Rate Proposed Tax Collection Rate Increase in Collection Rate Additional Revenues (Tax Collection Rate)

2003-04 $2,000,530 92.7% 94% 1.3% $26,007

2004-05 $2,000,530 92.7% 95% 2.3% $46,012

2005-06 $2,000,530 92.7% 96% 3.3% $66,017

2006-07 $2,000,530 92.7% 96% 3.3% $66,017

2007-08 $2,000,530 92.7% 96% 3.3% $66,017

Recommendation 2003-04 2004-05 2005-06 2006-07 2007-08

Develop a tax collection policy that sets the targeted rate of collection at 96 percent. $26,007 $46,012 $66,017 $66,017 $66,017

FINDING

VISD spent $20,000 to renovate one of two houses the district owns and $419 on property insurance for these houses in 2001-02. The district rents these properties to the superintendent and the athletic director.

The Johnson County Appraisal District values the house rented by the superintendent at $79,150 and the house rented by the athletic director at $83,670. The superintendent pays $350 monthly for rent while the athletic director’s monthly rent is $600.

The district is responsible for the maintenance and upkeep of the properties. This includes repairs and grounds maintenance on the superintendent’s home and providing property insurance. Occupants pay for the utilities.

It is not unusual for rural school districts with little or no available housing to provide homes for the superintendent and other key personnel. Districts provide these home at little or no cost to employees as part of the employee’s compensation package. According to Internal Revenue Service Publication 525, both the superintendent’s and the athletic director’s rental rates are considered adequate for exclusion from income tax.

The VISD area lacks adequate housing primarily because of limited water treatment capacity in the area. The Venus Chamber of Commerce and others are working to remedy this situation and expect the problem to be solved within the next two years.

Recommendation 26:

Sell district homes, returning the property to the tax rolls.

VISD should consider increasing remuneration rather than furnishing housing. This would benefit both the district and the superintendent. The district would benefit by returning property to the tax roll and by relieving itself of maintenance problems associated with residential property; the superintendent and athletic director would benefit from the additional income, which would count toward the Teacher Retirement System (TRS).

Venus should have increased water treatment capacity within the next two years, and this should have a positive impact on area housing. As housing becomes available, VISD should sell the district-owned homes and place them on the tax roll.

IMPLEMENTATION STRATEGIES AND TIMELINE

1. The superintendent and board determine if adequate housing is available within the district. November 2004

2. The board offers the superintendent and athletic director an opportunity to purchase the rental houses at 6 percent below the market value. November 2004

3. The board reviews and adjusts the 2006-07 contracts of the superintendent and athletic director to compensate them for the monetary value of their housing. January 2005

4. If the superintendent or athletic director decide not to purchase the houses, the board places them on the market and sells them in accordance with applicable laws. June 2005

FISCAL IMPACT

The Johnson County Appraisal District values the houses at $162,820 ($83,670 + $79,150). Proceeds from selling to the occupants at a discount or through a real estate agent will amount to $153,051 ($162,820 x 94 percent). Considering the residential homestead exemption the tax proceeds from the homes will be $1,992 ($162,820 - $30,000 = $132,820 taxable value) ($132,820/100 x $1.50 = $1,992). The fiscal impact assumes the additional remuneration provided to the superintendent and athletic director will offset the annual cost of repairs and maintenance. Two months of rent on both houses totals $1,900.

Recommendation 2003-04 2004-05 2005-06 2006-07 2007-08

Proceeds from sale of homes and additional tax revenue. $0 $153,051 $1,992 $1,992 $1,992

Loss of rental income, assuming the property is sold in June 2005. $0 ($1,900) $0 $0 $0

Net Savings/(Costs) $0 $151,151 $1,992 $1,992 $1,992

Year	Maintenance and Operations (M&O)	Interest and Sinking Fund (I&S)	Total Tax Rate	Percent Increase/(Decrease) from Prior Year
1996	$0.77	$0.64	$1.41	N/A
1997	$0.84	$0.61	$1.45	2.8%
1998	$0.93	$0.57	$1.50	3.4%
1999	$1.14	$0.36	$1.50	0%
2000	$1.37	$0.13	$1.50	0%
2001	$1.47	$0.03	$1.50	0%
2002	$1.20	$0.30	$1.50	0%
2003	$1.35	$0.15	$1.50	0%

Description	1997-98 Actual	1998-99 Actual	1999-2000 Actual	2000-01 Actual	2001-02 Actual
Tax collections	$639,935	$883,822	$1,248,340	$1,651,274	$1,500,101
Percent of total revenue	9.4%	11.2%	12.2%	15.1%	15.8%
Other local revenue	$118,317	$158,985	$294,791	$388,224	$367,159
Percent of total revenue	1.7%	2%	2.9%	3.5%	3.9%
State revenue and pass-through	$6,022,480	$6,860,501	$8,679,437	$8,900,645	$7,654,622
Percent of total revenue	88.8%	86.8%	84.9%	81.3%	80.4%
Federal	$0	$2,868	$1,768	$1,700	$1,356
Percent of total revenue	0%	0%	0%	0%	0%
Total local and state revenue	$6,780,732	$7,906,176	$10,224,336	$10,941,843	$9,523,238

Description	1997-98	1998-99	1999-2000	2000-01	2001-02
Assessed Property Value	$69,763,667	$80,009,000	$102,589,890	$125,245,229	$133,368,667
M&O Tax Rate	$0.93	$1.14	$1.37	$1.47	$1.20
I&S Tax Rate	$0.57	$0.36	$0.13	$0.03	$0.30
Total Tax Rate	$1.50	$1.50	$1.50	$1.50	$1.50
Tax Levy	$1,046,455	$1,200,135	$1,538,848	$1,878,678	$2,000,530
Total Tax Collections	$1,041,818	$1,140,455	$1,390,626	$1,713,097	$1,854,436
Percentage Collected to Levy	99.6%	95.0%	90.4%	91.2%	92.7%

1. The superintendent and business manager draft a policy that sets a target total tax collection rate of 96 percent.	October 2003
2. The superintendent requests that the board adopt the policy outlining the proposed collection rates.	November 2003
3. The superintendent and business manager implement the policy.	November 2003

Year	2001-02 Tax Levy	Current Tax Collection Rate	Proposed Tax Collection Rate	Increase in Collection Rate	Additional Revenues (Tax Collection Rate)
2003-04	$2,000,530	92.7%	94%	1.3%	$26,007
2004-05	$2,000,530	92.7%	95%	2.3%	$46,012
2005-06	$2,000,530	92.7%	96%	3.3%	$66,017
2006-07	$2,000,530	92.7%	96%	3.3%	$66,017
2007-08	$2,000,530	92.7%	96%	3.3%	$66,017

1. The superintendent and board determine if adequate housing is available within the district.	November 2004
2. The board offers the superintendent and athletic director an opportunity to purchase the rental houses at 6 percent below the market value.	November 2004
3. The board reviews and adjusts the 2006-07 contracts of the superintendent and athletic director to compensate them for the monetary value of their housing.	January 2005
4. If the superintendent or athletic director decide not to purchase the houses, the board places them on the market and sells them in accordance with applicable laws.	June 2005

Recommendation	2003-04	2004-05	2005-06	2006-07	2007-08
Proceeds from sale of homes and additional tax revenue.	$0	$153,051	$1,992	$1,992	$1,992
Loss of rental income, assuming the property is sold in June 2005.	$0	($1,900)	$0	$0	$0
Net Savings/(Costs)	$0	$151,151	$1,992	$1,992	$1,992