Update: Ohio Gov. Mike DeWine vetoed the provisions in the budget that would have barred school districts from putting emergency levies and replacement levies on the ballot in the future. He also vetoed a line that would have prevented districts from asking to increase and renew existing levies.
Ohio’s two-year budget would put new limits on how school districts ask voters for more money — potentially sunsetting certain property tax credits for homeowners.
Lawmakers from the Senate and House of Representatives hashed out differences in their respective proposals and voted to approve a budget bill. The bill now goes to Gov. Mike DeWine for a signature. He has 10 days to veto specific provisions.
As it is now, the budget changes laws around tax levies, barring school districts from putting certain kinds of levies on the ballot going forward and tweaking the rules for others. Ohio school districts rely on property taxes to cover large parts of their operating costs. Taxes also pay for school building construction and maintenance.
The changes would leave school districts with fewer options to raise property taxes and collect more money. Voters would have to approve new levies to give districts a cash infusion — school officials would no longer have the option to ask for increases on existing levies.
The changes could also whittle down longstanding tax breaks — sometimes referred to as non-business and owner occupancy credits — for homeowners.
Ultimately, the changes will make it more difficult for school districts to raise money locally, said Howard Fleeter, a Columbus-based economist who has studied school funding for more than 20 years.
“I think that perhaps the legislature thinks that they’re simplifying something which is very complicated, but there are parts of it that are going to make it more confusing to voters,” Fleeter said. “And there are parts of it that are going to actually make it more expensive to voters.”
Why do school districts ask for tax increases?
Schools in Ohio are funded through a combination of state money and local property taxes, plus a little federal funding. If a district needs more money, it can put a request on the ballot to raise local property taxes. That request is called a levy.
The Cleveland Metropolitan School District (CMSD) put a levy on the ballot last November. Voters approved it, and the higher property taxes will give the district roughly $49 million every year for the next 10 years.
All levies are not created equal. There are different types, each with their own rules. Some can only be used for specific things such as new construction and maintaining buildings. Some have limits on how long they can be in place. Operating levies and emergency levies are among the most common kinds, and they both give districts money for day-to-day costs.
What do the school levy changes in the state budget mean for taxpayers?
Ohio has offered homeowners property tax breaks since the 1970s, but in 2013, lawmakers got rid of those breaks, specifically the non-business and owner occupancy credits. Any new levies passed since 2013 do not qualify for these tax breaks.
School districts can renew levies passed before 2013, and those levies would still give homeowners the non-business and owner occupancy property tax breaks. So when districts need to ask voters for more money, they have often opted to renew an old levy and ask for an increase at the same time, Fleeter said. This strategy keeps the tax breaks for homeowners and gives the district additional cash. The increased portion of a renewed levy does not qualify for tax breaks, though.
New rules in the budget would ban districts from asking for renewals with increases. It also gets rid of a similar but less frequently used levy called a replacement levy.
School districts would have to pass new levies any time they need more money, for example, to keep up with inflation. New levies would not give property tax breaks to homeowners.
That means those non-business and owner occupancy tax credits put in place in the ‘70s may be whittled down, Fleeter said, potentially increasing taxes for homeowners over time.
“When I said some of these changes are going to cost taxpayers money, that’s why,” he said.
Fleeter pulled out his most recent property tax bill. The 10% non-business tax credit he used to get is now down to around 7.7%, he said, and the 2.5% owner occupancy tax credit he used to get is now at 1.9%.
“This is fairly typical of what’s been going on with a lot of people,” he said. “I’m not getting as much of a credit as I used to.”
What do the school levy changes in the state budget mean for school districts?
The draft state budget also gets rid of emergency levies.
Emergency levies can only be in place for up to 10 years, but school districts often renew them when they’re about to expire, Fleeter said. Renewals are usually pretty easy for districts to pass, he said, because there’s no tax increase — the rates just stay the same.
Since districts would no longer be able to pass emergency levies, their existing ones would expire. When they expire, districts may have to put new levies on the ballot to essentially replace them, Fleeter said.
That process of replacing an expiring emergency levy with a new operating levy would be confusing for voters, he said. It would also make messaging around a levy campaign more complicated for school districts.
For example, say a school district currently has an emergency levy that raises $3 million every year. As that levy expires, the district could put a new operating levy on the ballot that would also raise $3 million. That new levy would tax homeowners more or less the same amount as the expiring levy, but to many voters, it would look like a tax increase.
“If you can’t do a renewal with an increase, if you can’t renew an emergency levy, right, you’re going to have to put a new operating levy on the ballot,” Fleeter said.
New levies in Ohio are much harder to pass than renewals. Voters approve renewals about 90% of the time while they vote for new levies about 40% of the time, according to the Ohio Education Policy Institute.
“Maybe [lawmakers] think that they’re simplifying things by reducing the number of levy options,” Fleeter said. “But in another way, they’re going to increase confusion for voters because things will not be really as they appear in a lot of cases.”
