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BILL # HB 2074 |
TITLE: treatment and education facilities; exemption |
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SPONSOR: Bowers |
STATUS: As Introduced |
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PREPARED BY: Adam Golden |
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Description
This bill would fully exempt property owned by a nonprofit Residential Treatment Center (RTC) from property taxation. Property that is leased to but not owned by a nonprofit RTC would be assessed and taxed as Class 9 property. The bill is retroactively effective from Tax Year (TY) 2019.
Estimated Impact
Beginning in FY 2020, HB 2074 would increase state General Fund costs by $2,300 annually due to lower local property tax collections that offset state costs for Basic State Aid (BSA). The actual impact could be greater if additional nonprofit RTCs that currently are not approved by ADE to provide special education services, such as residential drug rehabilitation centers, also would be affected by the bill, which is unknown.
A previous version of this fiscal note from our office stated an estimated fiscal impact of $24,100. This revised note reflects updated information that only 2 RTCs, rather than 5, are paying property taxes.
Analysis
A Residential Treatment Center is defined in statute as a residential facility that has been licensed by the Department of Economic Security or the Department of Health Services. Additionally, if the facility has residents in need of special education services, it must be approved by the Arizona Department of Education (ADE) Division of Special Education. Otherwise, the facility must be accredited to serve non-special education pupils by the North Central Association of Colleges and Secondary Schools. Private facilities may receive initial approval without accreditation in their first 3 years of operation as long as they are making continual progress towards accreditation.
Pursuant to A.R.S. § 15-1181, special education for K-12 students may be provided in an RTC if a student has been placed in one by a state placing agency like the Administrative Office of the Courts. For academic year 2018-2019, ADE approved 10 RTCs to provide special education, 5 of which operate as nonprofit institutions. Information from county treasurers' websites indicates that 2 of the 5 nonprofit RTCs are currently paying property taxes.
The 2 nonprofit RTCs are classified as Class 2 properties and thus assessed at a ratio of 15% of their Limited Property Value (LPV). HB 2074 would re-classify the properties to Class 9. Class 9 properties are assessed at 1% of their LPV.
The 2 ADE-approved nonprofit RTCs that currently pay property tax have a total LPV of $3.5 million in FY 2019. HB 2017 would reduce their combined NAV from $517,500 to $34,500, which a NAV reduction of $(483,000).
Pursuant to A.R.S. § 15-971B, school districts levy a Qualifying Tax Rate (QTR) of up to $3.94 per $100 of NAV (the FY 2019 rate) to help fund K-12 formula costs. However, school districts do not levy the "full" QTR if it will generate more than
they are entitled to spend under the BSA funding formula. Thus, not all districts level the full amount. For most districts, however, levying the full QTR does not fully fund their BSA formula costs. Such districts receive equalization assistance from the state to make up the difference. Therefore, HB 2074 would cause state equalization assistance to increase if the affected RTCs were located in school districts that receive state equalization. Neither of the 2 properties affected by HB 2074, however, are located in such districts.
(Continued)
Additionally, school districts currently levy a State Equalization Tax Rate (SETR) of $0.47 per $100 of NAV to provide additional local funding to a school whose QTR levy does not fully fund its BSA formula costs. The "full" SETR rate is levied on all property owners, including ones that do not pay the "full" QTR and thus the $(483,000) estimated decrease in NAV from HB 2074 would create an estimated $(2,300) decrease in SETR revenues statewide.
The estimated NAV reduction of $(483,000) million would result in a total statewide NAV loss of less than (0.001)%. This reduction is too small to affect the Truth-in-Taxation (TNT) adjustment of QTR and SETR. For this reason, there would be no offsetting TNT effect.
The actual impact could be greater if additional nonprofit RTCs that currently are not approved by ADE to provide special education services, such as residential drug rehabilitation centers, also would be affected by the bill.
Local Government Impact
The bill would decrease local property tax collections from the QTR and SETR combined by an estimated $(2,300). In addition to school districts, the bill could also result in a small revenue loss for other taxing jurisdictions.
2/8/19