School protected tax waiver – 2020

In the most recent legislative session, the protected tax waiver for school corporations was extended to 2023. Nevertheless, the following significant changes to waiver calculations are set to become effective in budget year 2020: (1) waiver eligibility requirements become narrower and (2) there are new limitations on the amount of circuit breaker credits that may be reallocated. In addition, previous eligibility requirements limiting the debt service tax rate or levy to 2016 levels are still in place.  Likewise, schools still must have circuit breaker losses totaling at least 10% of its Operations Fund levy to be eligible. 

Highlights of these changes are as follows:

  • Beginning in 2020, the 10% threshold calculation will become more complicated since debt issued after June 30, 2019 (non-referendum and non-refunding only) gets factored into both the eligibility determination and the calculation of the circuit breaker reallocation.  In effect, circuit breaker attributable to post-June 30, 2019 debt cannot be used in determining eligibility for the waiver, and likewise cannot be reallocated.
  • Schools losing 10-20% of Operations Fund levy to circuit breaker can only reallocate a portion of the circuit breaker.  Schools losing more than 20% can reallocate all circuit breaker, excluding that which is generated from debt issued after June 30, 2019 (as described above).

These changes mean that as eligible schools replace retiring debt, they could be in a position where they are losing their eligibility.  Even if they remain eligible, they may not be able to reallocate as much circuit breaker as in the past.

Consequently, school corporations should include planning for future use of the waiver as they evaluate their cash position in the Debt Service Fund. As they do so, they should keep in mind that as debt that carries a 50% operating balance retires it will be replaced by debt that can only carry a 15% operating balance. This may make the protected tax waiver more difficult to sustain.  

For more information on planning for the protected tax waiver or long-term financial planning, please contact our team.

Lindsay Simonetto
Director, CIPMA
Construction site
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