Bill would let districts use more in‑lieu revenue for capital; DPI flags draft language and fiscal uncertainty

BISMARCK, N.D. — Lawmakers and school finance staff discussed House Bill 1130 on Oct. 12, a proposal to let school districts apply a higher percentage of in‑lieu revenue (taxes paid "in lieu of" standard property tax) toward capital projects and debt repayment.

Representative David Richter, R‑District 1, told the House Education Committee the change would operate similarly to a current sinking‑and‑interest deduction. Under the bill districts would calculate the portion of local revenue represented by in‑lieu receipts and deduct that portion before other formula deductions; municipalities and districts with large in‑lieu receipts (for example, gross production taxes in oil producing counties) stand to be affected differently than eastern districts with minimal in‑lieu revenue.

DPI fiscal staff raised two concerns. First, the department’s initial fiscal calculation applied the change to every district and produced an estimated fiscal impact of about $48 million; DPI staff said that result stems from ambiguous draft language and that the fiscal effect should be smaller because only districts with qualifying sinking‑and‑interest or similar capital levies are intended to use the deduction. Second, DPI noted a drafting inconsistency on page 11, line 13: the bill references “the percentage of in‑lieu revenue deducted in the state school aid formula,” but that percentage is the value the bill itself would create; DPI recommended replacing circular language with a clear base (total in‑lieu revenue or total local revenue) to avoid miscalculation.

Illustrative example: DPI staff outlined a simplified example of how the deduction affects reported revenue. If a district receives $1,000,000 in in‑lieu receipts and its sinking‑and‑interest levy is 20 of 100 mills (20 percent), DPI would first apply that 20 percent (reducing the $1,000,000 to $800,000) and then deduct 75 percent (yielding $600,000 to be counted in the funding formula). If the sinking‑and‑interest deduction did not apply, the district would instead count $750,000 of the $1,000,000. The difference — in that example $150,000 — is the incremental effect the bill would create in the state aid calculation.

Representative Richter said he will work with DPI to clarify language and asked the committee to leave the record open for amendments and district‑level examples. DPI staff recommended locking levy data (the draft uses 2024 tax levies) and noted that the final fiscal effect will vary by district and by the timing of bond elections.

Why it matters: The proposal changes how local in‑lieu revenues are treated in the state funding formula. For districts with large in‑lieu receipts and active capital levies, the change could reduce local mill levies and increase the state’s share of the per‑pupil foundation payment. Critics and DPI staff urged clearer statutory language and a mechanism for tracking whether districts used the additional deduction for capital debt repayment or other capital expenses.

Committee action: The committee paused the hearing to allow the bill sponsor and legislative staff to draft clarifying amendments and to provide numerical examples for individual districts. No vote was taken on Oct. 12.