INSTRUCTIONS FOR DETERMINING THE PER CENT OF WEALTH NEUTRAL REVENUES IN A STATE SCHOOL FINANCE PROGRAM UNDER $ 115.64 OF FEDERAL REGULATIONS Introduction The following instructions are designed to assist interested persons to apply the wealth neutrality standard in the regulations noted above to a State school finance program. It is likely that even with these instructions some questions will remain unanswered and unique situations will require further analysis. The principle on which this wealth neutrality measure is based is that for an equal effort an equal yield should be realized. This equal effort - equal yield principle is its essential feature with equal effort interpreted as an equal portion of comparable wealth bases, and equal yield interpreted as an equal educational opportunity which may or may not mean equal dollars depending on possible differences in student needs or differences in costs of equal opportunitites. To measure the degree to which this equal effort - equal yield principle is in effect in a program, not only must the yields and efforts of local educational agencies be analyzed but any restraint on effort which makes equal yields impossible must also be considered. Thus, the measure is designed to count as not wealth neutral both revenues which represent unequal yields for equal effort and revenues not obtainable by some local educational agencies but obtained by others because of budget, tax effort, or expenditure restraints imposed by the State. For purposes of analysis revenues from State, intermediate, and local sources and non-accountable federal resources, (excluding those designated for capital outlay and debt service for capital outlay), are grouped into four categories: (1) local leeway property tax revenues, (2) other local revenues, (3) equalizing shared cost revenues, and (4) other State funds. The first two must be examined on a district by district basis and in almost all cases some of each in each district will be neutral and some not. In most cases the same will be true for the third category, but in some cases all of those revenues will be neutral. In many cases all revenues from the fourth category will be neutral but a close examination of the distribution criteria must be made before that conclusion can be reached. If there are separate elementary, secondary, and combined districts in a State they will be compared separately for neutrality and then totaled for the State. Differences in yields which are attributable to State adjustments for differences in need are considered neutral. If revenues are derived from tax bases other than property for which it is impossible to determine a district by district valuation, an equivalent property wealth base may be calculated using the State average adjusted property tax rate. If comparable property valuations are necessary for this test and are not provided the wealth neutrality standard will not be used in that State. Revenues from non tax bases will be analyzed as per § 115.64 (b)(1)(iii). The data needed, on a district by district basis, for the determination of wealth neutrality is: (1) the yield from each of the four categories of revenues described above, (2) comparable wealth and tax rate information, and (3) the pupil count. The steps for calculating the neutral and non-neutral portions for each revenue category are given below. I Local leeway property tax revenues Step 1 For each district divide the valuation by the unweighted pupil count and identify the district with the least valuation per pupil. Step 2 For each district, multiply the least valuation per pupil from step 1 by the tax rate times the unweighted pupil count. If there is no restraint this is the wealth neutral portion of this revenue category in each district. If districts are unequally restrained as per $ 115.64 (b) (1) (ii) proceed to step 3. Step 3 Step 4 Identify the district most restrained under § 115.64 (b)(1)(ii). Calculate For each district multipy the amount from step 3 by the pupil count. Step 5 Step 6 The lesser of the amounts classified as wealth neutral in Step 2 Subtract the adjusted wealth neutral portion obtained in Step 5 from the yield in each district to obtain the non-neutral portion. Step 7 Sum the wealth neutral amounts for all districts in the State. 94-584 O 77 - 31 If all districts in a State are authorized to tax other wealth bases such as sales or income, these sources of revenue are analyzed for wealth neutrality in the same manner as the property tax. If all districts in a State are fiscally independent and some are permitted to tax a wealth base while others are not, all revenues from such taxes are considered nonneutral. If all districts are fiscally dependent and some of the local governmental units of which the districts are a part are permitted to tax a wealth base while others are not, all revenues from such taxes are considered non-neutral. If a State has both independent and dependent districts the tax bases allowed to the local governments containing the dependent districts will be converted, if necessary, to an equivalent property tax base using the adjusted State average property tax rate of the independent districts. Other revenues such as fees for school purposes, non-accountable Federal funds, and any State payments in lieu of taxes will be considered as additional yields of the permitted local taxable wealth base or bases. All other revenues not otherwise exempted such as gifts, bequests, and income from capital assets, including interest, will be combined and analyzed as per S 115.64 (b)(1)(iii) of the regulations. Interdistrict transfers for such purposes as tuition and cooperative services will be considered as revenue to the district in which the State considers the pupil to be located for State aid purposes. III Equalizing shared-cost revenues This class of revenues is analyzed on an equal effort equal yiled basis. If a district is not considered to participate in this part of a program because its required or presumed local effort is greater than the guaranteed yield or foundation level, that guaranteed. level is considered wealth neutral and the excess is considered non-neutral. Keep in mind that the State and local shares of a shared cost program are considered as one sum for purposes of this analysis. If no districts are restrained, the wealth neutral portion in each district is calculated as follows: Step 1 The yield from this source to each district is adjusted to remove Step 2 If a uniform local tax effort is required divide the yield as Step 3 Identify the district with the least amount in step 2. If all amounts Step 4 For each district multiply the amount in step 3 by the tax effort If districts are unequally restrained as per s 115.64 (b) (I) (ii) proceed to Step 5. Step 5 Identify the district which would realize the least yield per pupil if it were making its maximum effort allowed under the restraint. (If State law provides for a voter over-ride of a restraint the districts Step 6 Use the lesser of the amount in Step 4 or Step 5. |