Glossary of Ohio School Finance Terms

School finance can be very confusing because of the number of technical terms used in describing the process. The following is a glossary of terms that you may hear Talawanda (and other school districts) talking about in our discussions.

Assessed Valuation

The percentage of valuation that is subject to taxation. For example, Class I and Class II property are assessed at 35%, personal tangible at 24% and public utility property at either 25% or 88%, depending on the type of utility.

Average Daily Membership (ADM)

Number of students enrolled in a school district who are either in attendance or have an excused absence the first full week in October.

Biennium

Any two-year period, used mostly in school funding to refer to the two fiscal years that make up each state budget.

Bond Levy

Property tax levies used to provide the local revenue for construction purposes. Proceeds from the levy are used to pay the principal and interest on construction bonds. Offered for a specified dollar amount and a specified period of time.

Chargeoff

Millage rate established by the General Assembly that, when multiplied times a district’s recognized valuation, provides the local contribution to the foundation formula. It is currently set at 22 mills. The term is sometimes used interchangeably to describe both the millage set by the legislature and the entire local contribution.

Class I Property

Residential and agricultural property.

Class II Property

Commercial, industrial and all other property.

Continuing Levy

Levy proposing millage rate or school district income tax that is assessed indefinitely.

DeRolph I

March 27, 1997, Ohio Supreme Court decision where the court ruled, by a 4-3 vote, that Ohio’s school funding system was unconstitutional. The court allowed the state one year to craft a new funding system.

DeRolph II

May 11, 2000, Ohio Supreme Court decision where the court ruled, again by a 4-3 voted, that the new funding system created by the General Assembly in response to the DeRolph I ruling was still unconstitutional. The state was given until June 15, 2001, to again overhaul the funding system.

Dual Purpose Levy

Single ballot issue for both a permanent improvement levy or a bond issue combined with an operating levy. It may be continuing or limited. The ballot issue must state how much of the tax levy will be used for each purpose. A permanent improvement/operating levy may either be a property tax or a school district income tax, but a bond/operating levy must be a property tax.

Effective Mills

The actual rate of taxation realized when the tax reduction factor reduces the taxes charged by a voted levy. It equals the taxes charged divided by the taxable value of the class of property against which they apply.

Emergency Levy

Limited levy proposed up to five years for a specific dollar amount. The millage rate required to produce the dollar amount changes on all types of property if property values change. Emergency levies may be renewed for the dollar amount originally requested.

Exempt Property

Real property not subject to taxation. Typically, exempt property is owned by federal, state or local branches of government, and religious or educational institutions.

Fiscal Year (FY)

Annual period used for government accounting purposes. Begins July 1 and ends June 30 of the next year. Named for the calendar year in which it ends (i.e., FY 2022 begins July 1, 2021 and ends June 30, 2022).

Forecast

According to Merriam-Webster Dictionary, forecast means to calculate or predict (some future event or condition) usually as a result of study and analysis of available pertinent data.

Floor

Rate below which voted mills will not be reduced under the property tax reduction factor. Established by the General Assembly, currently set at 20 mills.

Guarantee

Alternative calculation of state funding that insulates school districts from the effects of dramatic changes in school funding factors, such as property valuation or ADM. Guarantees are also often politically necessary when changes in state policy have disproportionate effects on different types of school districts.

Homestead Property

Property where the owner occupies the property as a residence. Such property qualifies for the additional 2.5% rollback. This term should not be confused with the homestead exemption that provides specific property tax relief to low-income elderly (65 and older) or disabled homeowners.

Incremental Property Tax Levy

Limited levy, with a maximum time of 10 years, that imposes additional millage, or a dollar amount or percentage increase, on a regular schedule throughout the life of the levy. Increments are imposed as the full voted millage, not as effective millage, giving a limited amount of growth in the levy. Up to five changes may be proposed during the life of the levy.

Inside Mills

Millage imposed by local governments without voter approval. Defined in the Ohio Constitution. Inside mills are not subject to the property tax reduction factor. Sometimes referred to as “unvoted mills."

Limited Levy

Levy proposing a millage rate or school district income tax hat is assessed for a specified period of time. A limited levy is eligible for renewal or replacement.

Millage

Factor applied to the assessed, a.k.a, taxable, valuation of real or personal tangible property to produce tax revenue. A mill is defined as one-tenth of a percent or one-tenth of a cent (0.1¢) in cash terms.

Operating Levy

Levy used primarily for district operating purposes, which can be either continuing or limited.

Outside Mills

Millage approved by voters. Outside mills are subject to the property tax reduction factor; sometimes referred to as “voted mills."

Permanent Improvement Levy

Limited or continuing levy used for maintenance and repair of school property, and, in some limited circumstances, for renovation and building projects. This type of levy can be a property tax or an income tax.

Property Tax Reduction Factor

Sometimes referred to as the “HB 920”effect. An adjustment by which the taxes charged by voted mills in Class I and Class II real property are reduced to yield the same amount as those same mills yielded in the preceding year, exclusive of new construction. The reduction factor does not apply to inside mills or to voted mills charged against general and public utility personal property.

Property Tax Rollback

A percentage reduction in the taxes charged against all real property. The percentage equals 10% for all property and an additional 2.5% for owner-occupied residential property. The state reimburses schools and other local governments for the full amount of the rollback. The rollback applies after the reduction in taxes charged against real property as determined by the tax reduction factor. The 10% rollback for Class II commercial and industrial real property has been eliminated.

Public Utility Property

Tangible personal property used in the operations of a public utility company.

Real Property

Land and improvements to land such as structures or buildings. In Ohio, real property is divided into two classes: Class I (residential and agricultural property) and Class II (commercial, industrial and all other real property).

Reappraisal

Appraisal by the county auditor of the value of real property for tax purposes. It occurs every sixth year. Three years after each reappraisal, the county auditor adjusts appraised values based on recent sales of property in that county. This adjustment is referred to as the triennial “update."

Recognized Valuation

Computation used to alleviate the reappraisal phantom revenue effects in the state foundation formula of an increase in a district’s valuation due to an update or reappraisal. The recognized valuation adjustment adds, for foundation formula purposes only, one-third of a reappraisal increase to the district’s valuation in the first year, two-thirds in the second year and the full increase in the third year.

Renewal Levy

Voter approval to extend the term of a limited levy when it expires. The renewal levy must state the same purpose as the original levy. The effective rate of the renewal begins from the point where the original levy ends. A renewal levy proposal can combine with a proposal to raise additional millage.

Replacement Levy

Like a renewal levy in that it seeks voter approval to extend the term of a limited levy when it expires. Replacement levies differ from renewal levies because the replacement begins with an effective rate equal to the original effective rate of the levy which it replaces. In this way, a replacement levy allows a district to obtain the benefit of growth in the real property tax since the approval of the replaced levy. Replacement levies cannot be used for an emergency levy and cannot be combined with other changes in millage in a single proposed levy.

School District Income Tax (SDIT)

Limited or continuing levy proposed as a percentage rate on the income of district residents as reported for state income tax purposes. SDIT can be proposed in combination with a reduction in property tax. Because the SDIT taxes income, not property, there is no reduction factor involved, allowing unlimited growth in the proceeds. School district income taxes apply only to personal income and do not apply to the net profits of corporations.

School District Purpose

Legally defined reason for seeking a levy. Currently includes: operating expenses; specific permanent improvements and/or class of improvements; general, ongoing improvements; recreational purposes; community centers; support for public libraries or community centers; and the purchase of educational technology.

Valuation of a School District

Taxable value of all Class I and Class II real property, general tangible personal property and public utility personal property in a district.

Valuation Per Pupil

Computation derived by dividing a district’s ADM into the district’s assessed valuation.

Wealth Index

For school districts whose valuation index is greater than their income index and their median income index is less than or equal to 1.5, the wealth index will be a combination of the valuation index at 60% strength and the income index at 40% strength. For all other school districts, the wealth index will be the same as the valuation index.

Weighted Funding

Method of funding certain categorical programs. Under this approach, pupils with special needs count as some additional multiple of one in the computation of the cost of an adequate education. The weight assigned to each pupil with a special need corresponds to an estimate of the additional cost associated with providing pupils with that special need an adequate education.

Sources: ODE and OSBA publication (2002) ‘Making $ense out of School Finance’, Warren Russell, William Driscoll and Howard Fleeter.