Arizona school districts owe nearly $150M after court rules county overtaxed property owners (2024)

School districts across Maricopa County must pay back nearly $150 million in funds levied through property taxes after the Arizona Court of Appeals upheld a ruling that the county overtaxed a group of property owners from 2015 through 2021.

The decision stemmed from a 2016 lawsuit, Qasimyar v. Maricopa County, which challenged how county officials billed certain property taxes.

In the lawsuit, a group of property owners alleged they were improperly taxed. The property owners argued their properties should have been reassessed because the properties changed classification from an owner-occupied residential home to a rental or secondary home, or vice versa. The Maricopa County Assessor's Office hadn't considered that a change in use, because the properties were still residential.

But the property owners said if their homes had been reassessed, they would have seen lower tax bills. A tax court sided with the property owners.

An appeals court upheld that decision in 2021. In the following years, the county also needed to reassess about 55,000 other homes that changed classification in 2022 and 2023. Some of those homes saw a decrease in assessed value, while others saw an increase.

Since then, state law has been modified such that a change from an owner-occupied residential home to a rental or secondary home, or vice versa, does not count as a change in use. That means county officials won't need to reassess homes that change classification in the future.

County officials have begun calculating property tax resolutions for individuals due to the judgment — most of which will result in property owners receiving tax refunds. Taxing authorities — school districts, fire districts, the Maricopa County Community College District, cities and towns — in Maricopa County will be on the hook for the repayments.

In all, the Maricopa County Treasurer's Office estimates that it will have to pay back more than $329 million it received via property taxes. Those estimates include interest through February 2024, and interest will continue to accrue at a rate of 8% annually.

How will the lawsuit impact Maricopa County school districts?

Many school districts have been asked to pay back millions of dollars.

The Scottsdale Unified School District will have an estimated financial impact of $27,598,581—the highest dollar amount of any K-12 school district. To give a sense of the financial scale, that amount is approximately 8.6% of the district's total budgeted revenues for the 2023 fiscal year.

In the Paradise Valley Unified School District, the estimated amount was nearly $15 million, which Jill Barragan, the district's assistant superintendent of business operations, called a "surprisingly larger number than we had anticipated" during a May 2 board meeting.

"Much of our cash will be going away due to that," Barragan said during the meeting.

In December, the Maricopa County Treasurer's Office told taxing authorities that they should "expect a reduction in funds when planning the Fiscal Year 2024-25 Budget." In April, the Treasurer's Office told them that the refund process for taxpayers was anticipated to begin in July 2024 and last until June 2025.

The Treasurer's Office processes property tax reconciliations every year, and for this judgment, the county will "continue to follow the same procedures," said Jordan Dale, the chief of staff for Maricopa County Treasurer John Allen.

"If districts anticipate a potential cash shortfall at some point in the coming fiscal year, mechanisms such as tax anticipation notes and lines of credits are available," Dale wrote, adding that his office was also considering other options to help taxing districts with the cost burden.

Some school districts are now looking to the state for help.

County schools leader tells districts to ask for state aid recalculation

On June 3, the Office of the Maricopa County School Superintendent told districts they could request a recalculation of the basic state aid they received from fiscal years 2015 through 2023 because of the Qasimyar v. Maricopa County judgment.

It was an effort to let school districts know their options and help them get through the "unprecedented judgment" with as little fiscal damage as possible, said Heather Mock, the assistant superintendent of economic management. She added that the county School Superintendent's Office has "no authority" in the process.

Because the court ruled that Maricopa County incorrectly assessed parcels during that time period, the state aid that was calculated for school districts during those nine years was "probably less than what it should have been," Mock said. School districts could get governing board approval to request a state aid recalculation from the Arizona Department of Education, Mock told districts in the letter.

A state aid recalculation wouldn't necessarily cover the entire amount that school districts owe, however.

"This portion that’s being recalculated is only the portion that is typically split between local taxpayers and the state general fund," Mock said.

School districts can also levy property taxes through bond and override measures, which are ways for them to generate additional funding through secondary property taxes based on homes' limited property values. Any of a district’s funds raised through bonds or overrides that have to be repaid because of the judgments wouldn’t be included in a state aid recalculation, according to Mock.

It's unclear if the Arizona Legislature would fund the recalculation, and if it does, what portion it would make up of what school districts owe. The Legislature is currently in budget negotiations, and the state is facing a budget deficit.

Rick Medina, a spokesperson for the Department of Education, said the department's finance team will recalculate basic state aid once it receives the "original and amended assessed valuation from Maricopa County for each impacted district." Those numbers and details are not available yet, he said.

The Education Department's financial team has been in contact with "appropriate members" of the Legislature regarding the matter, Medina said. He said the department had no additional information at this time about whether the department had received assurances from the Legislature that it would fund a state aid recalculation.

On Thursday, the Isaac Elementary School District's governing board approved a request for a recalculation of its state aid.

Superintendent Mario Ventura told board members and the public during the meeting that the situation wasn't the district's fault. The district's estimated financial impact was $5,698.

"For Isaac, it wasn't that much money ... however, we do have the ability for the state to recalculate our assistance and state aid," Ventura said.

The governing boards of several other school districts are also planning to vote this week on whether to request a recalculation of state aid.

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This article originally appeared on Arizona Republic: Maricopa County schools owe nearly $150 million after county tax error

Arizona school districts owe nearly $150M after court rules county overtaxed property owners (2024)
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