Legislative interim study highlights risks of SQ 847 (Capitol Update)

The House County and Municipal Government Committee held an interim study (IS 26-50) last week requested by Rep. Mike Kelley, R-Yukon, to study the growing challenges for counties in Oklahoma to balance increasing service demands with constrained revenue. Kelley is vice-chair of the committee. 

The original study was requested by Kelley to look at concerns about counties’ long-term fiscal stability and the ability to finance public services and critical infrastructure services. However, it morphed into a discussion of the potential detrimental effects of SQ 847 which will be decided by voters this November.

The study’s two presenters, Brent Bryant, assistant city manager for Oklahoma City, and Dr. Cordell Ehrich, assistant superintendent of business and operations for Deer Creek Schools, outlined the potential harm SQ 847 could cause cities and school districts.

Both presenters focused on how the constitutional amendment could reduce cities’ and school districts’ bonding capacity and potentially hinder repayment of existing bonds. School district bonds require approval from 60 percent of local voters, while city bond issues require only a simple majority.

Oklahoma cities may not use property tax revenue for operations. They may use the revenue only to satisfy court judgments against the city or to service outstanding general obligation bond debt. Cities typically issue these bonds to fund streets, bridges, traffic and drainage systems, maintenance facilities, parks and recreation facilities, libraries, economic development, transit and parking systems, and fire, police, municipal court, and family justice facilities.

Schools use bond indebtedness to pay for new buildings and classrooms, cafeterias, buses and a variety of other needs. Schools are limited in bonding capacity to 10 percent of the assessed property valuation located within the school district. For example, a school district with $100 million in assessed property value can issue up to $10 million in bonds with voter approval.

If approved, SQ 847 would amend the constitution to reduce the annual cap on growth in the assessed value of most real property for ad valorem tax purposes from 5 percent to 4 percent, and from 3 percent to 1.75 percent for homesteads and agricultural property. It would also not change the assessed value of homestead property owned by people age 65 or older whose income is at or below 100 percent of the median income for the county or metropolitan statistical area. Above that income level, the allowable assessment cap limit for seniors would increase by 0.35 percentage points across income tiers until reaching 180 percent of median income.

The proposed caps are well below average growth in property values. Based on the All‑Transactions House Price Index for Oklahoma from the Federal Reserve Bank of St. Louis, the average annual growth rate for housing has been about 4.0% over the past five years. Based on USDA and Oklahoma State University data, Oklahoma’s average farm real estate values have risen by roughly 6 percent per year over the past five years, with some years showing higher growth rates. 

As property values increase so does the cost of everything else, including the cost of services provided by cities, counties and school districts. 

By limiting growth in assessed property values while cost of providing services continues to grow, SQ 847 could reduce schools’ ability to finance future needs and to repay existing debt. Possible effects include larger class sizes, fewer course offerings, or higher millage rates to offset lost valuation growth. Cities could face similar pressures, potentially leading to poorer streets and parks and reduced fire and police facilities and services, or increased millage rates.

Most Oklahomans, including legislators, support their schools and local governments. Yet by placing SQ 847 before voters, lawmakers may unintentionally harm schools, cities, and counties — or force local property tax increases.