Ohio lawmakers, worried that school districts are sitting on too much extra cash, added a provision to their latest budget that forces school districts to return some of that money to property owners.

The provision caps how much extra money school districts can “carry over” to the next year at an amount equal to 40% of their annual operating budget. 

In other words, a hypothetical school district with a $10 million budget would only be allowed to end the year with $4 million in its bank account. Anything more than that would have to be given back to taxpayers through automatic tax reductions. The rules are less strict though for school districts with smaller budgets or for those that receive less than a less than average amount in state funding. 

Republican state lawmakers say the change is meant to give billions of dollars worth of immediate property relief to Ohioans who are financially strapped by the tax impact of the recent generationally large property value increases. They think some school districts have hoarded money as a result of those increased values and that the money should be given back.

“Over the last five years, our taxpayers have pleaded with this body, with the Senate, with the governor, with our local entities to do something on property taxes,” state Rep. David Thomas, an Ashtabula County Republican, said in a House floor speech last week. “Today, we have heard their pleas.”

Critics says provision could lead to more levies

School districts and teachers’ unions are urging Gov. MIke DeWine to veto the 40% rule in the budget bill. They argue it will force school districts to go to the ballot more often with smaller funding requests and lead to voter “levy fatigue.”

“This provision places limits on local control and will force school districts to return to the ballot more often while leading to voter confusion,” Scott DiMauro, president of the Ohio Education Association, a large teacher’s union, told DeWine in a recent letter. 

DeWine, meanwhile, hasn’t said what parts of the budget he may veto. He’s expected to announce his choices soon. But in an interview with Ohio Public Radio on Saturday, the governor reiterated his longstanding sympathy for allowing local government units to control their own affairs.

“”This is a state that, by and large, gives due respect to the local communities in regards to running their schools,” he said. “We have some things, some goals and things they have to meet, which is correct. Every child should have certain advantages. But as far as the financing and other things, we leave a lot of that to the local community.”

How many school districts will this affect? 

Theoretically, the 40% rule could translate to schools issuing as much as $2.17 billion in refunds. 

That’s roughly the total amount of money contained in the bank accounts of the 370 Ohio school districts with cash reserves greater than 40%, minus districts that qualify for exemptions, according to estimates from Howard Fleeter, a longtime school finance expert in Ohio. 

What’s less clear though is whether the rule will actually trigger property tax refunds, thanks to a major exemption contained within the new law.

How might schools get around the new rules?

In an interview, David Conley, a Columbus-based school-finance consultant, said school districts are scrambling to understand exactly which school districts would be affected by the 40% rule.

He also said that school districts are examining a way to potentially get around it. This work around involves an exemption in the budget bill that says school district savings set aside in separate accounts for permanent school improvements for building maintenance and construction projects don’t count against the 40% limit.

“I’m spending time with school districts right now designing workarounds,” Conley said. “Most districts are actively engaged with trying to determine how you can provide services to children with limited resources. There’s just always a workaround.”

Lawmakers included the exemption for school improvements and building maintenance after school districts pointed out a major reason they save large amounts of money is to help finance school construction and maintenance. School officials have raised concerns that forcing them to give back their savings could theoretically cause them to default on construction loans. 

The new budget bill says any money a school district moves into a capital improvement fund must be spent within three years. But Conley said he doesn’t think that will be a major barrier for districts. 

“I believe that almost no individuals in a community will see a reduction in their property taxes,” Conley said of the new rule.

Budget negotiator says the 40% rule will still lead to refunds

State Rep. Brian Stewart, who oversaw budget negotiations for Ohio House Republicans, reiterated in an interview that he believes the 40% rule will result in property tax refunds.  

Stewart said Republican lawmakers wrote other provisions in the state budget meant to place more accountability on local school boards.

These include a new requirement that now requires school boards to cast a vote to accept what previously were automatic increases in funding associated with rising property values.

“If there are school districts where residents are going to be happy paying for massive increases in property taxes, they will likely be able to do what they want,” Stewart said. “But in districts where taxpayers have made clear they are being taxed beyond what they can pay, I think it’s going to be difficult for school boards to ignore that sentiment, and try to evade the law through accounting gimmicks.”