School Funding Basics

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Public School Funding Basics:

In each Ohio K-12 school district the public schools must place a ballot issue before the voters every several years to support public school education. Ohio citizens need to understand why these levy issues are repeatedly on the ballot. They also need to understand that the districts are not being spendthrifts nor are they necessarily wasting money. The Ohio state laws require these repeated ballot issues to fund public education.

Ohio public schools are primarily funded in three ways:

1) Federal government monies allocated to the state systems are usually on a grant or mandated system. Cleveland Heights-University Heights (CH-UH) schools receive 1% of their budget from the federal government. Some federal money from grants, etc. are not noted in the general fund. Monies such as the Race to the Top money that the district participates in are incentivized programs.

2) The State of Ohio contributes money based on the State Foundation Formula which provides Basic Aid to districts, taking into account the ability each district has to raise local taxes plus the per student minimum amount the state determines is necessary to provide an adequate education. Lower wealth district should receive more assistance than those with higher property wealth. CH-UH gets 19% of its budget from the state of Ohio. In return, the state requires its public schools to meet certain mandates. Many of these mandates are unfunded e.g. the Ohio Teacher Evaluation Program and the Third Grade Reading Guarantee.

The specific state formula is very complicated and often changes, especially in recent years. The Ohio Supreme Court found the funding system of Ohio’s public schools unconstitutional in 1997 and the legislature has not given it the “complete systematic overhaul” required by the Court since that finding.

3) Local Support is provided mostly by school districts using property taxes to support their schools although a few have also included local income taxes in their funding mix. The CH-UH district uses only property taxes. The real property tax is one levied on land and buildings located within the school district (not the city limits). Owners of the land—businesses, public utilities, and private individuals—are taxed on the value of the real property. The county auditor appraises real property every six years. Every third year an “update” is performed on the value. The appraisal is the auditor’s value of the property, but the taxes are based on the assessed value. The assessed value in Ohio is 35% of the appraised value.

Mills

Real property rates are computed in mills. Each mill equals $1.00 for every $1,000 of value that the property is assessed for each year. So a house worth $100,000 would bring in $35 of tax revenue for each mill.

Inside Mills and Outside Mills

Inside mills: The Ohio Constitution allows 10 mills of unvoted taxes to be levied by each political subdivision and the resulting taxes are divided among the cities, counties, other local governments and public schools in that subdivision.

Outside Mills: All other mills are voted by the public and these are called “outside mills”.

The 12.5% rollback is now called the Non business Credit. A 10% discount was given to all property owners and an additional 2.5% discount was given to residential property tax payers under the old law. These discounts were reimbursed to the school districts by the state so that the school districts were not losing dollars. Under the new law enacted in 2013 these rollbacks no longer apply to new or renewal levies.

The Homestead Exemption is now called the Owner Occupancy Credit. This discount ($8.75 per mill of tax exemption) was given to seniors over 65 years of age regardless of income. Since the 2013 law, the exemption now will only be granted to new applicants with an income figure of $30,000 or less or those with a permanent disability.

HB 920

In 1976, when inflation was very high, the Ohio legislature enacted HB 920 governing the property taxes going to school districts. The bill froze the dollar amount districts could receive at the dollar amount voted when the levy was passed. So as inflation increased the costs of expenses to school districts, the schools’ income was kept at the frozen amount. Other government entities did not fall under this rubric. The effect of this bill has been that school districts--just to keep up with inflation--have had to go on the ballot repeatedly to increase their income. As property values rise with reappraisals, the dollar amount paid to schools remains the same. The inflexibility of this system means that unless and until additional millage is voted the schools must operate at the same income level regardless of cost increases to the district (e.g. supplies, textbooks, utilities, health care, personnel). Likewise, as property values decrease, the dollar amount received by the districts remains constant. The amount received at the frozen level is called the effective millage rate. The inside millage rate is not affected by HB 920, so this very tiny amount of tax may rise with inflation. The CH-UH effective millage rate is 71.2 though the voted millage is 139.2. The effect of HB 920 is that Ohioans have faced more school tax levies than residents of any other state and will continue to do so, as long as there is no growing income stream for the public school districts.

Other forms of income

A few other forms of income bring in small amounts of funds.

There may be emergency levies and other forms of levies passed. Districts have resorted to incremental levies, replacement levies, and emergency levies in an attempt to balance their budgets.

The Lottery, often touted as providing funds for education, only brings in about $50 per student to a district per year. The rest of lottery profits are diverted to replace monies originally slated for education in the general fund.

Some grants may bring in dollars for specific purposes.

Infrequently there are bequests or donations to the district.

Capital Funds

Bond issues are often passed to provide monies for capital improvements. Capital improvement monies are separate from operating funds and the two forms of financing may not be co-mingled. The CH-UH district used to have a capital improvement levy on the ballot every 2-3 years as well as an operating levy on the ballot every 3 years. Finally the cost in human effort as well as dollars to run so many levies resulted in the district establishing a capital improvement fund that is on-going to cover relatively minor expenses as roof repairs, driveway potholes, etc.

CH-UH recently passed the bond issue to remodel the high school and the middles schools because these expenditures were much larger than the small capital improvement fund could cover.

What factors differentiate school districts?

There are many differences among the 612 districts in Ohio and each may impact the funding of a district differently. A few are described below.

1) If a district has a lot of commerce or business property, the cost to residents may be reduced as these commercial ventures help pay the costs of education. CH-UH does not have large industrial parks and commercial ventures; property taxes are primarily paid by residents.

2) Various factors based on the school population may result in additional funding to the district. Small amounts of money are available to a district based on disadvantaged pupils, number of free lunches, etc. The state does provide some extra money dependent on the numbers in special populations recognizing in a small way the additional costs of educating these students.

3) Mobility of families has been shown to result in a disruption of education from one district to another, creating learning problems for the children. The more transient the population, the more difficult it is for students to reap the benefits of a coordinated curriculum. Districts spend additional dollars to help students get in step with the curriculum.

4) The state requires districts to bus all pupils, whether attending the public schools or private schools within the same parameters. State law requires all students in grades K-8 who live two miles or more from their schools to be bused. If a district, such as CH-UH busses its own students living outside 1.5 miles, then it must bus all students living outside 1.5 miles to their respective schools. About half of the students CH-UH buses are non-public school students.

5) Many additional education choices in a district also impact funding. The state of Ohio pays $1,800 for each school-aged student living within the district. The state collects, however, $5,900 from the district for each student attending private school. Although the district still must provide transportation and learning assessments for these private school students, the state requires the district to pay an additional $4,100 per non-public school student. In a district such as CH-UH with numerous private and religious schools, these additional dollars drain the budget.

6) The district’s resident’s desires for the education of their children may also impact the curriculum and therefore the costs. Services expected by the communities vary with the population and may go beyond the minimum required by the state.

7) The market place the district is in also impacts costs. For instance, the cost of doing business is lower in some southern counties than it is in Northeast Ohio. Attracting and keeping good personnel means necessarily keeping up with neighboring communities’ pay scales. (All public school teachers must be certified in their teaching area.) The cost of doing business is also impacted by the differing costs of utilities, transportation, and other services.

8) Tax abatements given in some districts are more numerous than others. If the cities provide property tax abatements for businesses and industries, then the school district is the party forfeiting most of the money for the abated period of time.

9) The rate of a district’s ability to collect the real property taxes owed is often affected by the larger economy, but to some extent its population. Most districts saw a decline in the collection rate over the last several years. The county auditor keeps track of collection rates and predicts what a district’s rate will be for the coming fiscal year.

These basics of funding public schools partially explain the differences in costs to various districts and the complicated system of funding the state of Ohio uses. The laws as they exist require that schools have a balanced budget AND that they meet particular mandates. The result is that levies appear on the ballot periodically to enable districts to maintain the curriculum and programs they have developed. Although this funding mechanism has been declared unconstitutional, it is the flawed system under which all districts must function until the legislature sees fit to create a fairer and more equitable system of funding—completely overhauling the current one as stated by the Supreme Court of Ohio.