Problems with how Missouri counties assess real estate are complicating an effort to update the formula that determines state aid for public schools.
In a meeting Monday morning, the Missouri School Funding Modernization Task Force discussed how an updated formula could factor in local property taxes as real estate valuations struggle to keep up with inflation.
“Property values and property taxes have been used to fund schools, in part, because of the stability of it,” said Kari Monsees, the state education department’s former finance chief and task force facilitator. “Stability is an attribute for it, and now it has destabilized, at least in the short term.”
In a need-based formula like the current model, accurately measuring local resources is key to efficiently deploying state funds.
“The more local resources you have, the formula provides a little less. If local effort is really low, it provides a little more,” Monsees said. “But if those values are not accurate, then it is really tough for the formula to meet schools’ needs.”
Monsees estimates that nearly two-thirds of students live in a county that is assessing home values below 90% of what the State Tax Commission deems market value.
The commission evaluates how counties are valuing residential and commercial real estate every two years. These ratio studies compare what properties sold for against the county assessor’s valuation.
Jeff Schmidt, who works as a local assistance technical consultant with the Missouri State Tax Commission, told the task force that the latest report showed more counties out of compliance than he had seen in his decades-long career.
“When COVID came and the market really shot up, that is when we noticed the counties falling dramatically behind,” he said.
In Missouri, county assessors cannot raise property valuations by more than 15% annually without a physical inspection. So when valuations are far below market value, it can take years to catch up.
In the 2017-2018 study, just over a fourth of counties assessed homes below the commission’s benchmark of 90%. In the latest report, encompassing 2023-2024, nearly 80% of counties missed the mark, with some county assessors valuing residential properties at half of what the homes sold for.
This problem has yet to impact the school funding formula, since the current framework uses property values from 2005, the year the formula was approved by lawmakers.
Don Thalhuber, policy director for the Senate Minority Caucus who helped draft the current funding model, said this frozen value has made the formula “stable to a fault.” While the measure of local aid stays flat, some communities have grown rapidly over the past 20 years, creating vast inequities in how the state funds districts.
But with large differences in counties’ assessment ratios, updating the formula with current property-tax data isn’t exactly fair either, explained Michael Podgursky, a semi-retired economics professor from the University of Missouri-Columbia and affiliated scholar at the Sinquefield Center for Applied Economic Research.
“An equally needy kid in a (county) that is playing by the rules in assessing at 90% or above is getting less under our formula,” he said. “So as long as we have a (need-based) formula, if we’re mis-measuring the local ability to pay, then we are redistributing away from one group of needy kids to another group of needy kids.”
Some of the task force members worried that using the State Tax Commission’s valuations would hurt districts who are already receiving less in property taxes.
“You are reducing the amount of state money they will get, and they’re already low on assessments,” said David Wood, who most recently worked as a policy analyst for the Missouri State Tax Commission. “So they’re ending up double short on both ends.”
Monsees suggested that the task force build in a 10-year transition that would gradually shift the formula’s calculations from a county’s assessed valuation to full market value. He isn’t sure how long it will take for real estate valuations to even out statewide, but his plan is intended to give the state time to fix the issue and “spread out the impact” over multiple years.
“Right now, we have a frozen local-effort calculation in the formula, so we are detached,” Thalhuber said. “So this would be a way to get us to slowly come back to having something that does more accurately reflect (reality).”
But Thalhuber, who has scrutinized each proposal under the expectation that the formula will be challenged in court, wondered whether the State Tax Commission’s rate studies were “robust enough” to support using its values.
“Our ratio studies are valid. They are a good tool in the tool box” said Larry Jones, the commission’s local assistance manager. “But the more data we have, the more reliable.”
Jones, Schmidt and Dan Hutton, state ombudsman for the tax commission, told the task force that the commission and county assessors are facing numerous challenges, driven largely by a lack of staff and the absence of public sales data in most counties.
St. Louis, St. Charles and Jackson counties, as well as the city of St. Louis, require the reporting of real estate sales, allowing local assessors to quickly compare their valuations to a property’s sales price. Missouri’s 111 other counties rely on property owners to voluntarily disclose how much they spent, which isn’t very effective, Schmidt said.
The commission has repeatedly asked lawmakers to pass a bill to require all real estate sales to be publicly reported. Democrat state Rep. Emily Weber of Kansas City has repeatedly filed legislation to fulfill their call since 2023, but it has not gained any traction.
Lawmakers have been embroiled in numerous debates around property taxes in recent years. In 2023, they passed a bill allowing counties to vote whether to freeze property tax rates for those 62 and older. And in a special session last year, lawmakers voted to limit the amount tax bills can increase in 97 counties.
Going into the legislative session in January, they appeared poised to pass a number of property tax reforms but couldn’t reach an agreement between the House and Senate.
Unless lawmakers reconvene in a special session this year, many of the problems facing property taxes cannot be resolved prior to the task force’s deadline on Dec. 1, when they must present their recommendations to Gov. Mike Kehoe.
