The Minnesota Legislature approved a significant increase to the Ag2School tax credit for farmers and timber land owners on school facility bonds. The credit will increase to 50 percent for all existing and new bond debt levies payable in 2020. Over the next four years, the credit will increase incrementally to 70 percent.
The tax credit, initially enacted in June 2017, tripled the state share of school bond debt service payments and with the greatest impact seen in the state’s rural school district. But lawmakers recognized that more needed to be done to support the state’s agriculture economy and K-12 schools. Local property taxpayers still picked up 94 percent of the costs.
Referendum results show that school districts in rural areas with a large share of farm land have been less successful at passing bond referendums as those in metro areas.
This comes as the state faces a large number of aging and outdated school facilities. About half of the state’s schools were built before 1976 and one-quarter are between 54 and 125 years old, according to a report from the Minnesota Rural Education Association (MREA).
When to Run a Referendum
With the scaling of the credit, school leaders and voters may wonder why not wait until the credit reaches its full increase.
We know many students in our state are in need of — and deserve — better school facilities, Waiting a year does impact their education and their learning experience. What does your community want for your youth?
The construction market has been strong in recent years. The industry benchmark for planning is to project a 4 percent inflationary increase in construction costs a year. So, if a project costs $40 million in 2020, the same project would cost nearly $47 million 2024. That represents a $1.5 million increase each year that you wait and a 17 percent increase in the total project cost in four years.
It’s also common to elevated prices for specific parts of the project based on the availability of labor. For example, Minnesota currently faces a shortage of skilled workers to provide piping and masonry so we are seeing higher costs for those items on projects.
We’re been fortunate that bond and interest rates have held steady over the last several years. However, if at some time the interest on bonds start to rise, these rising interest rates will increase the future cost of the projects as well.
The answer is not cut and dry. Each community needs to weigh a variety of factors from the learning needs of their youth to the impact of bond rates and inflation on overall project costs.
Need help in the planning process? IIW provides free consultations to help you get started.