Schools, taxpayers lose with HB1
There are many bills being debated in Columbus that will present a variety of financial challenges to public schools and local governments. Whether it be not updating to current financial data the components of the Fair School Funding Plan, to increasing by some estimates over $1 billion in costs to taxpayers to fund non-public schools, there is a great deal at stake for schools and communities.
One proposed bill that would have a negative impact on both schools and taxpayers throughout Ohio is House Bill 1. House Bill 1, or HB1, of course, sounds good since it is being portrayed as a tax cut. While it does lower income taxes to a flat rate of 2.75 percent and provide tax relief of approximately less than 1 percent annually to a taxpayer with an income of $30,000 and approximately 20 percent tax cut to those making over $150,000, it is how it’s being funded that is most troubling.
For decades tax relief was given to homeowners in Ohio through property tax rollbacks. A 10 percent credit is given to those owning residential and agricultural property, reimbursed by the state of Ohio to the political subdivisions impacted by the rollback. HB1 eliminates the 10 percent discount for taxpayers and, of course, corresponding reimbursements to schools and political subdivisions. It appears the total of these reimbursements, $1.2 billion, is what is being used to pay for the tax cut.
To make matters worse for public agencies (i.e., schools, police departments, fire departments, etc.), the bill also lowers assessed valuation percentage from 35 percent to 31.5 percent. This would impact taxes on all properties. Currently, if you own a $100,000 home, you are taxed on 35 percent of the value, or $35,000. The change would result in the homeowner’s property being taxed at 31.5 percent or $31,500.
To unpack this further, here is how a mill currently impacts on the 35 percent assessment:
Assessment Rate: x 0.35
Taxable Valuation: $35,000
Cost of one mill:$35
Current 10% rollback: – $3.50
The cost of a mill in this current environment would be $31.50, and 2.5 percent less if the property is occupied by the owner. If you apply the provisions in HB1, the tax due would stay at $31.50 for a bill with the 2.5 percent owner-occupied discount moving to a flat $125 owner-occupied discount.
If we stop here, what has taken place in this scenario by changing the assessment rate is that taxpayers would pay the same amount of property taxes, but school districts throughout Ohio would lose collectively $1.2 billion. This appears to be how the move to a flat tax is being financed. But this bill goes even further; it actually would result in tax increases to property taxpayers, while school districts still would lose revenue.
In 1976, the State of Ohio approved House Bill 920. (Later it was made part of the Ohio Constitution.) The purpose was to protect property taxpayers from inflation increasing voted taxes. What this means for a taxpayer is when properties are reappraised and values go up, the millage that had been approved previously must be adjusted so the levy brings in only the amount it generated when it was first approved. Other than one-time increases in new construction and the unvoted (or inside) millage, schools have received nearly no revenue increase. None is permitted for schools’ fixed sum levies.
Here is an example used by several schools to illustrate how this works: A school district received voter approval to raise $5 million through a 5-mill levy in 1985. Today, a reappraisal takes place increasing property values. Due to HB920, the millage amount will be reduced so the school district would continue to receive only $5 million from that levy. Each taxpayer will pay a lower effective tax rate. In short, the district can never realize the gain on property value due to the reduction factor of HB920.
In a recent analysis using Ohio Department of Taxation and Ohio Legislative Services data, when you apply this to changes being proposed in HB1, this actually results in an increase to property taxpayers statewide of over $900 million statewide and a decrease in funding to schools and local governments from property taxes of over $538 million statewide.
In Trumbull County, the increase to taxpayers is projected to be over $8 million and the loss to schools is nearly $2 million. In Newton Falls, for instance, the increase to taxpayers would be over $220,000, yet schools would lose revenue of over $60,000. All this comes while the state of Ohio has a $3.5 billion rainy day fund, had revenues exceeding expectations of $2.7 billion more than anticipated in fiscal year 2022. And so far this fiscal year, revenue is exceeding expectations by more than $1.1 billion.
Many are left asking why propose a bill that increases taxes on taxpayers while resulting in less revenue for schools and other public agencies?
It is hoped taxpayers will speak out against HB1, fully fund the Fair School Funding Plan with current data points and demand equal accountability and transparency of non-public schools that receive taxpayer dollars.
Terry Armstrong of Warren is treasurer of Newton Falls Exempted Village School District.