OHIO BUDGET Schools brace for loss of taxes

The tax on businesses' property is a key source of money for education.
ANNA, Ohio (AP) -- Legislators are poised to eliminate a tax that businesses despise but schools value as a reliable source of money, putting Ohio among the states moving away from taxing companies' property.
The tax on equipment, inventory and machinery accounts for 40 percent or more of school tax revenue in nine small school districts in 2003, the latest year statistics were available, according to an Associated Press analysis of state tax data.
It makes up 30 percent or more of the tax revenue in 35 districts, paying for everything from teachers' salaries to classroom supplies.
Economic shift
States are focusing more on taxing services, reflecting a change in the country's economic structure.
Taxing property "hits that old economy of manufacturing and retailing more than anything in the newer economy," said Harley Duncan, executive director of the National Federation of Tax Administrators.
Ohio businesses have complained for years about the taxes they say punish them for expanding and put them at a competitive disadvantage with companies in other states.
The money raised for schools and local governments -- $1.6 billion in 2003, including $1.2 billion for schools -- made it politically difficult for lawmakers to eliminate the taxes. This year, Gov. Bob Taft proposed phasing them out over five years as part of his plan to update the state's tax laws, and lawmakers agreed.
The change, which would be one of the biggest in the tax system since the 1930s, is part of Ohio's two-year, $51 billion budget now in final debate in the Legislature.
Other states
Several other states have recently eliminated or voted to eliminate similar taxes.
Louisiana is in the second year of a seven-year phaseout of its tax on manufacturing machinery and equipment, a portion of which is used to fund schools.
School administrators there fear that once the tax is erased, it could take the state up to two years to make up the funding difference.
Nebraska will eliminate its tax in January. The $17 million it raises annually goes into the state's general fund, which helps pay for education.
Jerry Sellentin, executive director of the Nebraska Council of School Administrators, said schools aren't concerned because they've received good state aid for the coming school year and the governor appears open to continuing that practice.
The plan
Ohio would reimburse districts in full for five years, then phase out the payments over eight years. The proposal would set aside $390 million the first two years, then cover the funding differences with a new business tax, said spokesman Mark Rickel.
After that, Taft and legislative leaders promise that an economy revitalized by the tax changes would produce extra money for the state that would go to higher overall school funding.
All of Ohio's 612 school districts receive some revenue through the business property tax. Schools with major companies in their districts see it as more dependable than other taxes that can wither in bad economic times.
The tax accounts for almost 60 percent of tax revenues and 35 percent of the operating budget for schools in Anna, which has a Honda plant.
Marysville schools, which rely on the property tax for 30 percent of their operating income, would be especially hard hit because they are growing.
With 300 new students annually, the district has spent $70 million in the past seven years to build two new elementary schools, a middle school and several school additions.
Redirecting funds
Superintendent Larry Zimmerman said eliminating the property tax would raise the mortgage, or bond rate, for the district, making it more expensive to pay off debt on new buildings. He said it would also shift the tax burden from businesses to homeowners.
Honda supports Taft's plan in part because it would help the company's 165 Ohio suppliers, said spokesman Ed Miller.
More states are funding schools with statewide taxes instead of business and homeowner taxes, said Michael Griffith, policy analyst for the Education Commission of the States, a Denver-based group designed to help governors and legislators improve education. However, he said the property taxes are more stable.

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