Entitlement Share

The Entitlement Share Payment concept was born in HB 124 (2001) as a vehicle to provide payments to counties for lost property tax revenue due to the re-direction of a number of different revenue streams for both counties and the state.  For example, we had a scenario where vehicle license fees were collected at the county level, then a portion was sent to the state with those dollars being split a multitude of different ways and some of it being sent back to the county to be distributed to various funds.  The result was that there were many chances of errors being made.

Click here to access a Power Point with two slides that show an example of the streamlining of revenue collections and distributions at both the state and county level.  The first slide shows the way those revenues were collected and distributed prior to HB 124.  The second shows the same revenue collection and distribution after the passage of HB 124.

The dollar amounts that counties received in 2001 under the old collection and distribution formulas became one of the components of the Entitlement Share “Base.” The “Base Entitlement Share Payment” included additional fees and taxes that were re-directed to simplify the process and revenues such as DNRC PILT payments for counties having over 6% state land, Aircraft Registration Fees, video gaming revenue, Coal Tax Apportionment, Beer, Liquor and Wine Tax Apportionment, Corporate License Tax and others.  Most significantly, it also included reimbursements for lost property tax revenue caused by SB 184 (1999) that reduced the tax rate on business equipment from 6% to 3%.  All of those different revenue offsets became the “Base Year Component” for Entitlement Share Payment calculations.

During the same legislative session, legislation was passed that removed counties obligations for most district court and welfare costs and transferred the responsibility for funding those programs to the state.  Those program costs had been rising at rates far beyond most counties’ ability to continue funding.  Counties actual FY-2001 costs for those programs was used as an offset to the base-year component, which effectively froze county’s financial obligation.  When all of those factors were calculated, the actual Entitlement Share Payment was established.  Counties relinquished some revenues and were relieved of some obligations with the net of these things becoming the actual payment amount.

The Entitlement Share Payment was also intended to serve as a “vehicle” to adjust payments to counties in the future due to legislative changes. The first occurrence of this took place when the state assumed the responsibility for providing public defender services.  The county’s actual prior year costs were deducted from the Entitlement Share Payment, because counties no longer were required to provide public defenders for indigent defendants in criminal cases.  The total of that offset was $1,633,874.

As the legislature continues to make adjustments in property taxes, subsequent reimbursements have been added to the Entitlement Share Payments such as the SB 372 reimbursement from 2011, the SB 96 reimbursement from 2013 (more adjustments discussed in the next section).

The growth rate was based upon two components until 2013.  The legislation provided a formula to calculate the overall growth rate which was then applied with 50% based upon each county’s base year component and the other 50% based on population, which was adjusted annually.  That is why when you look at the individual county changes, the percent of growth is different for each county.

The next significant change was in 2011 when the legislature froze the payment amounts for FY-13 and FY-14.  The legislature also changed how the overall growth rate is calculated with the new “base” being the actual 2012 payment amount.  To that amount a uniform rate of growth is applied based upon a new formula that better-reflects changes in state general fund revenues.  That growth rate is capped at 3%.

When the calculations were completed for FY-14 the growth rate hit the cap, therefore the growth rate applied to all counties payments will be 3%; however, the 2011 legislature also passed SB 372 which further reduced the tax rate on business equipment.  The lost revenue from that legislation was added to the base amount for each county–prior to the growth factor being applied.  Because the lost revenue is now included in the base, the actual increase in the Entitlement Share Payments for each county varies widely, as does the percent when you simply compare the FY-13 to FY-14 amounts.

Probably the most vivid example of these changes is Cascade County.  Their original base year component was largely offset due to very high district court and welfare costs leaving a relatively small Entitlement Share Payment in 2003 so when you track Cascade County’s percent of growth it consistently is higher than most counties because half of the growth amount was based on the base year component.  When the revenue loss due to SB 372 was factored in, their percent of growth was very high because of the reimbursement that is included to offset the loss of tax revenue for the reduction in business equipment taxes, which is a large portion of their overall tax base.

SB 96 further reduced the tax rate on business equipment and became effective for tax years beginning after December 31, 2013.  Business equipment that is not liened to real property (included in the real property tax statements) is taxed in May, based upon January values.  This resulted in lost property tax revenue in the 2013 fiscal year.  However that loss was reimbursed in June 2014 as a special Entitlement Share payment.