According to officials in ISD 2142, the school district will almost certainly face dissolution should voters reject their proposed $78.8 million bond referendum on Dec. 8. Those same officials have cited tax comparisons to argue that ISD 2142 property taxpayers would pay more, and likely much more, were the district to actually dissolve.

So how do those claims stand up to scrutiny? A two-part investigation by the Timberjay finds that under current law, dissolution of ISD 2142 is highly unlikely, and district officials acknowledged as much in interviews. On the issue of taxes, the picture is less clear, but in most cases the tax implications of a district breakup would be less than ISD 2142 officials have implied through charts they have presented in public meetings and in publications provided to district residents

A question of

terminology

While a breakup or realignment of ISD 2142 boundaries is a possibility, it appears doing so under dissolution would be extremely problematic. “It would be unbelievable,” said Tony Boyer, a school administration consultant who served as interim superintendent at the McLeod-West School District, and who oversaw the breakup of that small central Minnesota district earlier this year.

At the time, the McLeod-West district operated a single school in Brownton and employed about 30 teachers K-12. Boyer and others in the district had looked at the possibility of dissolution, but found the process exceedingly cumbersome and politically difficult, a reality that would be all the more troublesome in a district the size of ISD 2142, which borders on 19 separate school districts, operates seven schools, and employs more than 200 teachers and support staff. In the end, said Boyer, the McLeod-West officials pursued a three-way consolidation that absorbed that district into neighboring ones.

“I don’t think dissolution is the answer,” Boyer. “I think there’s a better route.”

Other school officials appear to agree. While hundreds of school districts have pursued consolidation over the past 30 years in Minnesota, it has been decades since a district pursued dissolution under the laws governing the procedure.

And one particular provision of that law would seem to make the process all but impossible in the case of ISD 2142. According to a statement provided to the Timberjay by the state Department of Education, under dissolution: “Any existing excess referendum levies in the dissolved district or the district to which it is attached will be canceled unless the pre-existing district has 90 percent of the tax base in the enlarged district.”

The implications of this provision would seem to all but eliminate the prospect of any neighboring school district accepting any significant portion of ISD 2142 under dissolution, since it appears it would cancel any excess operating levies currently in effect. Since most neighboring school districts, including Ely, Virginia, and Hibbing, have passed significant operating levies, the prospect of absorbing a significant portion of ISD 2142 would put those levies at risk of cancellation. While the newly-formed combined district could seek voter approval for a new one, voters in ISD 2142 have shown a reluctance to support such measures in the past.

ISD 2142 Superintendent Charles Rick said he was unaware of that provision of the law, but that’s hardly surprising. In fact, it’s been so long since a school district actually dissolved that few at the state Department of Education know much about the process, either. A spokesperson for the department was unable to refer the Timberjay to any official in the department who was knowledgeable on the subject.

Even officials in ISD 2142 acknowledge that dissolution is unlikely. Rick agreed that the district, even if a breakup were to occur, would likely pursue avenues other than dissolution. “I think given the makeup of our district, it would come to special legislation,” said Rick.

That would open up a wide range of possible district realignments, including the possibility of a new district north of the Mesabi Range, which would include Ely, Tower-Soudan, Babbitt, Cook, and Orr. A recent meeting of the five cities found at least some support for pursuing such a concept.

Tax implications

When it comes to school taxes, one thing is clear— as a property taxpayer, you can’t avoid them. “There’s a misnomer out there that if we don’t have a school, we don’t have to pay school taxes,” said Boyer. “Taxes don’t go away, and sometimes your taxes could be less if you save your school.”

How much ISD 2142 property taxpayers might pay under a break-up of the district depends on so many factors, any projections are mere guesswork. District officials have implied during public presentations that ISD 2142 taxpayers would be subject to the tax rates currently paid by residents of neighboring districts. That suggestion is inaccurate for a number of reasons.

For one, under a breakup through consolidation, apportioning tax liabilities would all be subject to negotiation. In some cases, the outstanding levies are combined, in other cases portions are eliminated, and some may be limited to voters within the boundaries of one or the other of the pre-consolidated districts.

In the case of McLeod-West, for example, taxpayers in that district were initially exempted from paying a capital bond in a neighboring district, while they were required to pay off the remaining debts of their old district by themselves.

But even if ISD 2142 were subject to the full effect of excess levies or capital bonds approved by the voters of other districts, additions of new territory to remaining districts would inevitably affect the size of those districts’ tax base, with potentially significant consequences for tax rates. The addition of new territory could also affect taxes by increasing the number of students in the district. Additional students would increase the size of existing operating levies, since such levies are based on the number of students in a district.

Given the low level of taxation currently in effect in ISD 2142, it appears that most taxpayers would see a tax hike were the district to be broken up. But the picture becomes less clear when the tax effects of the district’s proposed $78.8 million capital bond are included in that calculation.

According to tax data provided by the district, the owner of a homesteaded property valued at $100,000 would pay a total of $232 annually were the Dec. 8 referendum to pass. About $164 of that would be attributable to the bond measure, while the most of the remaining is the result of other assessments, including a small operating levy which expires in 2011.

District officials have noted that property taxpayers in neighboring districts, such as Virginia or Ely, currently pay more than that. In the case of Virginia, that same $100,000 property would currently be assessed $326 a year, while an Ely taxpayer would be assessed $256.

While those tax rate calculations appear to be accurate, they may or may not resemble the tax rates ISD 2142 residents would pay should they end up as part of one of those districts— and a possible scenario illustrates why. Assume that the Tower-Soudan area, including Greenwood, Vermilion Lake, Embarrass, Breitung, and Kugler townships, as well as the city of Tower, were attached to the Virginia School District under a recombination of district boundaries. The new territory would add about 265 students, which would increase the size of Virginia’s $800 per student operating levy from $875,000 a year to about $1.1 million. But that higher levy would be spread across considerably more property value, about $377 million in additional referendum market value. That is considerably less than the actual market value in these areas, but current state law exempts seasonal recreational properties from paying for excess levies.

Add Virginia’s 2008 referendum market value of $522 million and the newly-configured district would be valued at $899 million.

Currently, Virginia taxpayers pay about $282 in operating levies on a $100,000 homesteaded property. But with the additional market value, that rate would drop to about $187 per year.

Virginia does have a relatively small capital bond as well and were that also levied on residents in the Tower-Soudan area, it would push their total tax bill to approximately $200 annually.

The tax picture could be significantly different for residents in other parts of ISD 2142. For residents of the southern half of the district, where property values are much more limited, a recombination with a neighboring district could increase their tax rates more significantly than for residents of the north.

The wild card

Under a break-up of ISD 2142, some, if not most of the district’s existing schools would likely close or be reduced to elementary schools only. That would presumably mean a significant influx of new students to neighboring districts— and an accompanying inflow of state education dollars. Given that most area districts have pushed excess operating levies, in part, as a way to stave off the effects of declining enrollment, the influx of new students could reduce the need for renewing existing operating levies in some districts. The expansion of territory would also add new voters, many located in outlying communities, which could make it more difficult for school districts to renew expiring levies.

At the time, the McLeod-West district operated a single school in Brownton and employed about 30 teachers K-12. Boyer and others in the district had looked at the possibility of dissolution, but found the process exceedingly cumbersome and politically difficult, a reality that would be all the more troublesome in a district the size of ISD 2142, which borders on 19 separate school districts, operates seven schools, and employs more than 200 teachers and support staff. In the end, said Boyer, the McLeod-West officials pursued a three-way consolidation that absorbed that district into neighboring ones.

“I don’t think dissolution is the answer,” said Boyer. “I think there’s a better route.”

Other school officials appear to agree. While hundreds of school districts have pursued consolidation over the past 30 years in Minnesota, it has been decades since a district pursued dissolution under the laws governing the procedure.

And one particular provision of that law would seem to make the process all but impossible in the case of ISD 2142. According to a statement provided to the Timberjay by the state Department of Education, under dissolution: “Any existing excess referendum levies in the dissolved district or the district to which it is attached will be canceled unless the pre-existing district has 90 percent of the tax base in the enlarged district.”

The implications of this provision would seem to all but eliminate the prospect of any neighboring school district accepting any significant portion of ISD 2142 under dissolution, since it appears it would cancel any excess operating levies currently in effect. Since most neighboring school districts, including Ely, Virginia, and Hibbing, have passed significant operating levies, the prospect of absorbing a significant portion of ISD 2142 would put those levies at risk of cancellation. While the newly-formed combined district could seek voter approval for a new one, voters in ISD 2142 have shown a reluctance to support such measures in the past.

ISD 2142 Superintendent Charles Rick said he was unaware of that provision of the law, but that’s hardly surprising. In fact, it’s been so long since a school district actually dissolved that few at the state Department of Education know much about the process, either. A spokesperson for the department was unable to refer the Timberjay to any official in the department who was knowledgeable on the subject.

Even officials in ISD 2142 acknowledge that dissolution is unlikely. Rick agreed that the district, even if a breakup were to occur, would likely pursue avenues other than dissolution. “I think given the makeup of our district, it would come down to special legislation,” said Rick.

That would open up a wide range of possible district realignments, including the possibility of a new district north of the Mesabi Range, which would include Ely, Tower-Soudan, Babbitt, Cook, and Orr. A recent meeting of the five cities found at least some support for pursuing such a concept.

Boyer agrees that special legislation would be the easier route. In fact, some special legislation helped with the process in McLeod-West. While McLeod-West was successfully broken up largely through the consolidation process, he said it was a contentious and difficult effort, even for a small school district. Boyer said it would be a much bigger challenge for ISD 2142. “They would have a real fun time consolidating with 19 different school distrcts,” he said.

Tax implications

When it comes to school taxes, one thing is clear— as a property taxpayer, you can’t avoid them. “There’s a misnomer out there that if we don’t have a school, we don’t have to pay school taxes,” said Boyer. “Taxes don’t go away, and sometimes your taxes could be less if you save your school.”

How much ISD 2142 property taxpayers might pay under a breakup of the district depends on so many factors, any projections are mere guesswork. District officials have implied during public presentations that ISD 2142 taxpayers would be subject to the tax rates currently paid by residents of neighboring districts. That suggestion is inaccurate for a number of reasons.

For one, under a breakup through consolidation, apportioning tax liabilities would all be subject to negotiation. In some cases, the outstanding levies are combined, in other cases portions are eliminated, and some may be limited to voters within the boundaries of one or the other of the pre-consolidated districts.

In the case of McLeod-West, for example, taxpayers in that district were initially exempted from paying a capital bond in a neighboring district, while they were required to pay off the remaining debts of their old district by themselves.

But even if ISD 2142 were subject to the full effect of excess levies or capital bonds approved by the voters of other districts, additions of new territory to remaining districts would inevitably affect the size of those districts’ tax base, with potentially significant consequences for tax rates. The addition of new territory could also affect taxes by increasing the number of students in the district. Additional students would increase the size of existing operating levies, since such levies are based on the number of students in a district.

Given the low level of taxation currently in effect in ISD 2142, it appears that most taxpayers would see a tax hike were the district to be broken up. But the picture becomes less clear when the tax effects of the district’s proposed $78.8 million capital bond are included in that calculation.

According to tax data provided by the district, the owner of a homesteaded property valued at $100,000 would pay a total of $232 annually were the Dec. 8 referendum to pass. About $164 of that would be attributable to the bond measure, while most of the remaining is the result of other assessments, including a small operating levy which expires in 2011.

District officials have noted that property taxpayers in neighboring districts, such as Virginia or Ely, currently pay more than that. In the case of Virginia, that same $100,000 property would currently be assessed $326 a year, while an Ely taxpayer would be assessed $256.

While those tax rates appear to be accurate, they may or may not resemble the tax rates ISD 2142 residents would pay should they end up as part of one of those districts— and a possible scenario illustrates why.

Assume that the Tower-Soudan area, including Greenwood, Vermilion Lake, Embarrass, Breitung, and Kugler townships, as well as the city of Tower, were attached to the Virginia School District under a recombination of district boundaries. The new territory would add about 300 students, which would increase the size of Virginia’s $800 per student operating levy from $875,000 a year to about $1.1 million. But that higher levy would be spread across considerably more property value, about $377 million in additional referendum market value. That is considerably less than the actual market value in these areas, but current state law exempts seasonal recreational properties from paying for excess levies.

Add Virginia’s 2008 referendum market value of $522 million and the newly-configured district would be valued at $899 million.

Currently, Virginia taxpayers pay about $282 in operating levies on a $100,000 homesteaded property. But with the additional market value, that rate would drop to about $187 per year.

Virginia does have a relatively small capital bond as well and were that also levied on residents in the Tower-Soudan area, it would push their total tax bill to approximately $200 annually.

The tax picture could be significantly different for residents in other parts of ISD 2142. For residents of the southern half of the district, where property values are much more limited, a recombination with a neighboring district could increase their tax rates more significantly than for residents of the north.

The wild card

Under a break-up of ISD 2142, some, if not most of the district’s existing schools would likely close or be reduced to elementary schools only. That would presumably mean a significant influx of new students to neighboring districts— and an accompanying inflow of state education dollars.

Given that most area districts have pushed excess operating levies, in part, as a way to stave off the effects of declining enrollment, the influx of new students could reduce the need for renewing existing operating levies in some districts. Since Virginia’s $800 per student operating levy expires at the end of the 2012-13 school year, tax rates in the district could drop significantly were the levy not renewed.

And any expansion of the Virginia district into former portions of ISD 2142 could make passage of new levies more difficult. As ISD 2142 officials have found, outlying rural areas have historically voted in opposition, sometimes by large margins, to operating referenda.