The House Committee on Appropriations is rewriting the rules governing the use of spending surpluses in order to benefit property taxpayers in the future.
Under current law, money gone unspent in a given fiscal year is allocated to three places: Half goes to a property tax relief fund; one quarter go to a rainy day account, and the final quarter is used to offset any revenue reductions that stem from cuts in the federal budget.
The formula was used to split a $26 million general fund surplus for the fiscal year that ended last June 30. And it’s a big part of the reason lawmakers are going to be able to decrease the statewide property tax rate by 3 cents.
But under language set to be approved by the House, that formula would change beginning in fiscal year 2015.
The new system divides the surplus into three pots, and the first goes into what’s known as the “general fund transfer” to the education fund. This allocation would in many ways have the same effect as the property tax relief fund – the more non-property tax revenue flowing into the education, the less homeowners have to pay. But the structure devised by the House makes the incremental increase in the general-fund transfer permanent, meaning that the education fund will benefit from the spike in general fund revenues for perpetuity.
There’s one catch – no matter the size of the surplus, the increase in the general fund transfer can only be as big as the projected revenue increase for the next fiscal year. So if revenues are expected to grow by 2 percent, but the surplus would allow for a 5 percent increase in the general-fund transfer, then the increase in the general-fund transfer is limited to 2 percent. The remainder, under House language, would go into the property tax relief fund.
The second pot of money would be used to the buy down the unfunded liability for health care benefits for retired teachers. And the third pot would go into a rainy day fund.
Of the one-third flowing into the rainy day account, lawmakers want to spend only half of it on a given year, unless revenues are down dramatically. Steve Klein, head of the Legislature’s Joint Fiscal Office, said the language aims to set up “little barriers around spending the reserves” with the “goal of building a reserve for the future, so you actually have a reserve when you need it.”
