Funding Our Schools
The cost to educate young people across the state is significant, and those costs continue to rise. More Ohio tax dollars are spent for primary and secondary education than for any other single governmental function. The complexities of school finance practically require that taxpayers have the equivalent of a finance degree in order to understand how the money is spent. While it is increasingly difficult to understand the complexities of how schools within the State of Ohio are funded, it is also increasingly critical that taxpayers understand these issues in order to be informed voters.
How are Schools Funded in Ohio?
Every third year after each reappraisal, another form of reappraisal, called an update, is conducted. Property tax bills are calculated on the assessed value of the property, which equals 35 percent of the Fiscal Officer's appraised value. For instance, a home with an appraised value of $100,000 will be taxed on a value of $35,000
Mills -Local property tax rates are always computed in mills. One mill costs the property owner $1.00 for every $1,000 of assessed valuation each year. In our example, the $100,000 will produce $35 in tax revenue for each mill.
In Ohio, the millage is referred to as "inside" millage and "outside" millage. Inside millage is the millage provided by the Constitution of the State of Ohio and is levied without the vote of the people as established very early in the State's history. The inside millage rate is limited to ten mills in each political subdivision. Public schools, cities, counties and other local governments are allocated a portion of the ten inside mills. The Rocky River School District's portion is 4.57 mills. Outside millage is the millage voted in by the public.
There are two major forms of tax credits property owners receive.
The first is a 12.5 percent millage rollback. With this credit, a homeowner receives a credit of 12.5% on the total gross property tax amount due. In our example, the property owner would receive a credit of $4.38 ($35 x .125).
The net tax bill would be $30.62. The State of Ohio reimburses the amount of this credit back to all the taxing authorities, so they end up collecting the full amount of the levy.
HB 920 - The Controlling Factor
Another key tax credit is known as House Bill 920, which went into effect in 1976. This credit effectively freezes all voted real property millage at the dollar amount collected the first year the millage went into effect. As property values rise through reappraisals, the outside millage rate is commonly referred to as "effective" millage. The inside mills are not affected by the House Bill 920 credit, so a small amount of additional revenue is gained as property values increase.
Why Do Schools Keep Asking for More Money?
The short answer to this question is that while most of the revenues available to schools are fixed and inflexible, the cost of education continually rises. Many of the rising costs are out of the control of local school boards.
As a consumer of goods, school districts encounter inflation in most goods and services purchased. In addition to inflation, legal requirements, unfounded mandates and expanded services expected by communities add to increased operating costs of school districts. There are numerous legislated enactments, which have had significant cost implications for public schools in Ohio. For example, Ohio law requires bus transportation for all students in grades K-8 who reside more than two miles from school and public schools must provide the same level of transportation service to nonpublic students as they provide to their own students. Special education services must be provided for all children in the district who qualify under state and federal guidelines, regardless of cost. School Districts must employ at least 1 classroom teacher for every 24 pupils grades K-4. Also, Ohio law prohibits a reduction in staff because of economic hardship. As service organizations, most dollars in school district budgets are used for personnel, typically about 80%. Ohio collective bargaining laws require school boards to negotiate salary and benefit levels with employee groups. Balancing fairness to employees, keeping pace with the market to attract good people, and accomplishing this with limited resources is a challenge for all school boards.
How Do Schools Raise Additional Funds?
The property tax is the main funding mechanism available to school districts to increase revenue. The school district Income tax is also starting to become more prevalent. State law makes a distinction between operating funds and capital improvement funds. Proceeds from an operating levy can be used for any legal expenditure by a board of education. The following are the types of operating levies:
Regular operating levy for current expenses - A millage rate is submitted to the voters for approval, not a dollar amount. The millage rate will be adjusted as property values change according to HB 920. This levy can be voted in for one to five years or for a continuing period of time.
Emergency Levy - This type of levy is submitted to the voters as a dollar amount. For example, "The emergency levy will raise $1,000,000 per year." An emergency levy can only be voted in for a period of time from one to five years and expires after the time has elapsed unless renewed by a vote of the public.
Incremental Levy - This can be either in terms of millage incremental or dollar incremental. In these instances, millage rates or dollar levies are phased in over a number of years up to five. Millage incremental levies can be for a continuing period of time or one to ten years in duration. Dollar incremental levies can have a duration of one to ten years.
Replacement Levy - A replacement levy can replace all or a portion of an expiring levy. It is used when the effective rate had been lowered and can restore the rate of the tax to its original rate, thus generating increased dollars. A replacement levy can raise more revenue than the levy it replaces because the original levy may have been through one or more reassessment. With each reassessment, if the value of real property in the school district had increased due to inflation, the H.B. 920 tax credit factor will have been applied to the voted levy, reducing the effective mills.
School District Income Tax -It is an income tax, separate from federal, state and municipal income taxes, that is earmarked specifically to support school districts. A school district income tax must be voter approved by residents of the school district in order to be implemented. There are two different types of income tax - traditional and earned.
~Who pays the tax?
In a traditional school district income tax, any individual residing in the State of Ohio who lives during all or part of a tax year in a school district that levies the tax. A part-time resident must pay the school district income tax based upon income received during the portion of the taxable year that he/she is a resident of the school district. Workers who are not residents of the school district do not pay the tax.
~Who gets taxed with an Earned Income Tax?
The following is a general list of income taxed and not taxed with an earned income tax:
Capital improvements can be funded in two forms - Permanent improvement levies and bond issues. All funds received by school districts from permanent improvement levies and bond issues must, by law, be used for the purposes intended and cannot be used for operating expenses of the district.
Permanent Improvement Levy - Permanent improvement levies for specific projects can last from one to five years. Permanent improvement levies for general on-going permanent improvements can be levied for a continuing period of time.
Bond Issue - A bond issue is a tax, the proceeds of which can only be used to pay bonds and notes issued by school districts for the purposes of permanent improvements. Bond issues are normally used for building new or additions to buildings. However, the proceeds of a bond issue cannot be used for operational costs of the new facility (ies). This is often a source of misunderstanding. People remembering a bond issue was passed for a new building can't understand why "the district built a new building without having the money to operate it." Many times an operating levy must also be passed to help pay for the operational costs when the new building was necessitated by increased enrollment.
What Does All This Mean to County Taxpayers?
While state legislators continue to wrestle with issues of equity and fairness in funding public education in Ohio, public schools continue to depend on the support of local taxpayers. There is no quick fix or easy solution coming from the state or federal level. Despite this, children continue to come through the doors of our schools each day, asking and deserving to be educated. Until the State creates a new system on funding schools, local taxpayers in Ohio will continue to shoulder the responsibility of providing quality education for our children.
Five Year Financial Forecast Update for Crestwood
Below is information, relative to Crestwood's financial picture, that Treasurer Sarah Palm presented to the Board of Education in November.
The five-year forecast presented in November of this year was improved considerably from the one done the previous May. The reason for this was the assumed growth rate for health insurance premiums came in lower than previously projected.
In the fiscal year 2020, a revenue surplus is expected. This means that the revenues will exceed the expenditures by $115,440. By the last year of the forecast in 2024, the revenues will be in a shortfall where our expenditures are projected to be greater than the revenue by $2,252,524.00. The district would need to cut 10.8% of expenditures in order to balance the budget without additional revenue. A worsening cash balance can erode the district's financial stability over time.
As you can see from the Five-Year Forecast that was presented, we will be ending Fiscal Year 2024 with a balance of just $64,360 and over $2,252,542 in deficit spending. Treasurer Sarah Palm will be working with me and the Board of Education in the upcoming months to formulate a plan on how to correct this deficit best. Three operating levy suggestions were presented at the presentation that is available online. The district has not received any additional revenue since 2012.
We are grateful to the community for renewing our $1.4 million Emergency Levy, and that will significantly help in the next few years; however, it is important to look to the future and strategize now on how to stabilize the district's finances long term. I would also like to touch on the current millage rate comparison that Crestwood has with other Portage County School Districts. We currently collect at the second lowest millage rate in all of Portage County, with only 51.12 mills being collected.
As always, should any of you have any questions concerning the district's finances, please feel free to email Sarah Palm, Treasurer, at firstname.lastname@example.org or me at email@example.com.