Friday, January 27, 2012

School Funding (reprise)

The way public school funding works in Ohio isn't hard to understand. It really isn't. But folks find it easier to just believe whatever misinformation they hear from a neighbor or friend than doing the research themselves. And frankly, few school districts or elected representatives are trying to educate their constituents about school funding either, so misinformation continues to propagate, and gets reinforced in its repetition.

One of those is about the constitutionality of using property taxes to fund our public schools in Ohio. Most people believe the Ohio Supreme Court ruled that property taxes may not be used to fund schools. We saw that mistaken belief expressed yet again in a Letter to the Editor published by The Columbus Dispatch today.

The Ohio Supreme Court never said that property taxes were an unconstitutional way to fund our schools. What they said was that the funding system used at the time the lawsuit was filed (DeRolph v. State of Ohio), granted insufficient state funding to some districts, which caused those districts to have an "overreliance on property taxes."

The funding system the Supreme Court made this ruling about is gone. It was replaced first by the "Evidence Based Model" championed by Governor Strickland, and then the temporary funding plan implemented by Governor Kasich. So the Court's ruling in DeRolph is moot. The most we can say is that the constitutionality of the current system is untested in court.

Okay, so let's focus on the simple facts. Let's start by looking at the sources of our funding:

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Residential Property Taxes: This is our primary funding source, providing 47% of our total funding, or $5,200 per student per year. It changes due to two primary things: a) a new operating levy is passed by the voters; and, b) when new homes are built in the school district. Every dollar of property tax we pay stays in our school district.

Let's correct another common misconception: EVERY residential property owner in our school district pays EXACTLY THE SAME property tax rate. Our property taxes fund many agencies, and the agencies which appear on our individual tax bills depends on which municipality one lives in. Our school district includes all of the City of Hilliard, pieces of Dublin and Columbus, and all or some of several townships. Each may impose their own property taxes, making us have differing total tax rates. But we all pay the same school property tax rate, and it all comes to Hilliard City Schools.

Commercial Property Taxes: These are property taxes paid by the commercial property owners in our school district. They don't get to vote on the levies we put on the ballot (unless the commercial landowners are also residents of the district), but they pay the same property taxes as residential landowners nonetheless - unless a property tax abatement is granted by whichever municipality the business lies in. It's a bizarre thing: a city may waive up to 75% of the property taxes for a business without the approval of the school district. But it's not their revenue to give away in the first place!

Nonetheless, a city and school district acting in partnership will often decide that an abatement is a good thing. Such a decision was made at our last School Board meeting, when we agreed with the City of Columbus to grant a ten-year 75% abatement deal to Boehringer Ingelheim Roxanne Labs, who is competing internally for the opportunity to expand their operations. To not grant this abatement would mean losing the opportunity to collect any new revenue. It's a reasonable deal for an important community partner that we'd all like to see grow and be successful.

As is the case with Residential Property Taxes, every dime of the Commercial Property Taxes collected in our school district stays here. Today it is 15% of our funding, or about $1,700 per student per year. When our family came to the school district thirty years ago, the total Commercial Property Taxes was about equal the total Residential Property Taxes. This commercial percentage has gotten smaller not because there are fewer businesses now than then, but rather because there are thousands more houses, and of course thousands more kids to educate.

The problem here is that the incremental property tax revenue generated by the typical new single-family home is a fraction of the incremental cost to educate the school age kids who will live in that new house. That's why we need lots more commercial property development in our school district. Otherwise the school funding burden created by new homes has to be funded with new levies - meaning more taxes on the rest of us.

Federal Grants: As you can see, this is a relatively minor revenue source, consisting mostly of things like our Title 1 funding to help disadvantaged children. It amounts to about $500 per student per year.

We got a nice Federal stimulus gift of a few $million for a couple of years, and that's not reflected in this percentage, but it was one-time money and is long gone.

State Grants: This is our second largest source of funding, representing 33% of our revenue stream, or about $3,700 per student per year. The bulk of this is the so-called Foundation Aid, the primary state funding stream. Foundation Aid increases with the number of students, and decreases with the perceived affluence of a school district, as measured by aggregate property values, whether residential or commercial.

This is the component of our funding which causes all the angst among Governors, members of the General Assembly, and a myriad of lobbying groups such as:
In the past ten years, our Governors and the General Assembly have tried three different approaches to determining how much funding each of the 614 local school districts should receive from the State. None of them have satisfied everyone, and we still don't know what the Kasich administration is going to propose as a replacement to temporary funding mechanism now in place.

But the common philosophy of all past, and likely all future State funding schemes is that the more affluent a local district may be, the less State funding that will be provided. Here's a chart which shows how much Ohio income tax is paid by the residents of several local school districts versus the amount of state funding they received:
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In our case, we get back 41¢ for each $1 we pay in Ohio Income Tax.  Three area school districts, Pickerington, Reynoldsburg and Canal Winchester get back every penny they pay in Ohio Income Taxes. Two districts, Whitehall and Hamilton get back multiples of what they pay.

This isn't going to change.

The assumption made down at the Statehouse is that districts like ours have the capacity to pay an ever-increasing fraction of the cost to run our schools. That's the reason they thought it was okay to accelerate the phase-out of our Personal Property Tax reimbursements, which is one of the primary reasons we put a 5.9 mill levy on the ballot in November.

So that's it - school funding in a nutshell. I'm happy to answer your questions. We'll discuss spending (again) in an upcoming post.

All data used in this article were taken from the 2010 CUPP Report, published by the Ohio Department of Education.


3 comments:

  1. Good summary. Thanks.

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  2. Thanks, Paul. This is great information.

    You wrote "...thirty years ago, the total Commercial Property Taxes was about equal the total Residential Property Taxes." Just out of curiosity, I wonder if you know how fed and stat money stacked up at that point. My guess is that it would've been closer to thirds (res/comm/govt).

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  3. CE: I'm looking to find some old financial data on the district, but my recollection is that the further you go back in time, the more significant was the commercial component, largely because of the existence of the Buckeye (railroad) Yard in our district, but also because of Dana Axle.

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