$159m cloud hangs over Maricopa school districts, as Scottsdale braces for the brunt

Some districts may use reserve funds, while others are requesting recalculations of their state aid.

PUBLISHED JUL 18, 2024

School districts are exploring various options to manage these repayments.

Phoenix, Arizona: Maricopa County school districts face significant financial challenges following a court ruling that mandates the repayment of approximately $150 million due to incorrect property tax assessments.

This stems from the Qasimyar vs. Maricopa County lawsuit, where a group of property owners successfully argued that their properties were misclassified, leading to higher taxes. The total repayment amount across various entities, including school districts, cities, and fire districts, is about $329 million.

The Buckeye Union High School District must repay around $900,000, while Mesa Public Schools, the state's largest district, faces a repayment of about $11.2 million. Scottsdale Unified School District has the highest individual burden at $27.5 million. The misclassification largely involved properties reclassified as rental or secondary homes, which should have been taxed at lower rates.

This decision led to the requirement for the county to refund the overpaid taxes.

School districts are exploring various options to manage these repayments. Some districts may use their reserve funds, while others are requesting recalculations of their state aid from the Arizona Department of Education. Additionally, districts might need to adjust tax rates, potentially increasing the financial burden on taxpayers.

The Scottsdale Unified School District's governing board has considered issuing Tax Anticipation Notes (TANS) to cover the shortfall. This would operate as a loan, allowing the district to manage its repayments over a more extended period at a lower interest rate than the prime rate.

The timeline for these repayments is still uncertain, as final figures and payment schedules are yet to be fully determined. This uncertainty poses further challenges for the school districts as they plan their budgets for the upcoming fiscal years.

What was Maricopa County's defense?

In the Qasimyar vs. Maricopa County lawsuit, Maricopa County's defense centered on their interpretation and application of property tax assessments. The county officials argued that the change in property classification from an owner-occupied residential home to a rental or secondary home, or vice versa, did not constitute a change in use under the existing tax code. Therefore, they believed that reassessment of these properties was not required. The Maricopa County Assessor's Office maintained that these properties were still residential, and thus, no significant reevaluation was necessary.

The county contended that their methods of assessment were consistent with the state's guidelines and tax laws at the time. They also argued that reassessing these properties would have been an unnecessary administrative burden and could have led to inconsistencies in tax revenue collection.

The court did not accept Maricopa County's defense. The court sided with the property owners, ruling that the properties should have been reassessed based on their changed use, which would have resulted in lower tax bills for the property owners. This decision led to the requirement for the county to refund the overpaid taxes, a significant financial repercussion for the school districts and other taxing entities involved.