Committees
Revenue and Taxation Committee
February 24, 2004 Minutes
Committee members in attendance were Chairman Chuck Gossett, Vice Chairman Dan Navin, John Brandt, Ted Adams, Representative Charles Calvert, Fred Church, Richard Stoff, Christine Hansen, Barbara Shaner and Thomas Zaino. Other Task Force members in attendance were Task Force Chairman William W. Wilkins, Vice Chairman James Hyre, Paolo DeMaria, Scott Williams and David Varda.
Presentations:
- Property Tax Reform and School Funding (PDF*, 89 KB)
-Don Mottley - Discussion of OSBA and Taxation Plans (PDF*, 13 KB)
Chairman Gossett called the meeting to order at approximately 10:15 a.m. He introduced Representative James Trakas, who provided an overview of the morning's presentations from the panel, which included Representative Timothy Grendell, Representative William Hartnett and Representative Jon Peterson. Representative Wolpert was scheduled to present a discussion of the issue of school facility assistance. Representative Peterson made a brief presentation on this issue in Representative Wolpert's absence.
Representative Peterson began the group's presentation with a discussion of Phantom Revenue. Representative Peterson noted that his constituents often ask him why the General Assembly has not fixed school funding. He believes that there is no "fix," but that we can make incremental progress to improve the current school funding system. He noted that together with then-Representative Jacobson in House Bill 94, he drafted section 3317.012 (D)(4) of the Ohio Revised Code directing the General Assembly to look at the issue of Phantom Revenue. He noted that Phantom Revenue erodes the state's share of school funding. He went on to describe his forward-looking model proposal to address the Phantom Revenue problem.
Representative Peterson's model specifically addresses reappraisal Phantom Revenue. Reappraisal Phantom Revenue attributes income to school districts that they do not actually receive because of Ohio's statutory tax reduction factors. His proposal would be calculated on realizable (actual) revenue. Mr. Navin asked if the calculations described by Representative Peterson would be done district by district. Representative Peterson responded that they would be calculated on a district-by-district basis because of the enormous variability among districts. In closing, he summarized some of the advantages of his model proposal, including: strong support of the House of Representatives, diminishing district ballot frequency, elimination of the rapid erosion of state support and better predictability.
Representative Grendell then discussed the issues of tax reform and replacement revenue. He has concerns about the above-average wealth school districts that he represents. The constant need to return to voters for additional millage is a "gathering storm." One specific problem is that fixed-income seniors are being pushed out of their homes because of excessive tax burdens. He believes the answer starts in Columbus, with the reduction of the Department of Education and the dollars saved by that reduction would be returned to the school districts. The issue of the "phantom student" needs to be eliminated - Ohio taxpayers should not be required to make payments for students who do not exist.
Representative Grendell's primary concern is that a proposed solution would actually make things worse for his school districts. He went on to say that a statewide property tax would be not only unacceptable, but potentially unconstitutional. It is an attempt to "socialize" school funding. Property owners who pay high property taxes can at least rationalize that they are supporting their local schools and preserving the long-term value of their homes. Of specific concern is that the state will not be allocating more money to the districts than what they are losing. He feels that sales and income taxes should be the funding source for school districts. He also advocated for the elimination of the tangible personal property tax.
Representative Trakas followed, noting that school funding changes need to be made in conjunction with tax reform. The two cannot be separated. He is concerned about replacing revenue lost by school districts by phasing out the tangible personal property tax, but agrees that it needs to be phased out. He cited S.B. 3 as a possible model for replacing these lost revenues. Representative Trakas noted that, if the tangible property tax were eliminated in Solon, other property taxes would need to be increased by 40% to make up for the loss. He went on to note that income and sales taxes in Ohio are relatively low compared to other states.
Representative Trakas noted that there is only one forum where voters have an opportunity to say no to taxes, and that is for schools through property tax levies. Ballot frequency creates its own resistance. Representative Trakas noted that his school districts do not receive state school facilities funding. Voters are cynical about school districts' management of their resources. There is also a shrinking customer base with fewer and fewer voters having children in school. He feels that there is a growing anti-tax sentiment among voters. Too much time, effort and money are devoted to getting voters to approve school levies. Educators' attention is diverted in campaigning for tax levies.
In closing, Representative Trakas offered some options to consider. He wants school districts to have the ability to put levies before voters that would not be subject to tax reduction factors. The joint municipality-school district income tax should be reauthorized. Currently there is only one such tax in Ohio, in Lakewood. He went on to liken the statewide property tax to "Robin Hood" proposals that would take resources from school districts with more property tax wealth and distribute it to poorer school districts.
Representative Hartnett began his discussion by questioning whether school funding will be a shared responsibility between the state and local school districts. He does not think that school funding is as complicated as some make it. He observed that school districts lose money when their students transfer to community schools. He discussed alternatives to the H.B. 920 tax reduction factors. He wants Phantom Revenue eliminated and supports power equalizing. Representative Hartnett added that bad tax policy cannot be tinkered with. We need to redefine taxation in Ohio. Tax reform needs to be completed first. Appropriate school funding will result from tax reform. He agreed with Representative Trakas' comparison of the statewide property tax to a "Robin Hood" proposal.
Representative Peterson (for Representative Wolpert) concluded the legislative panel's presentation by discussing the school facilities needs of school districts with rapid growth and school districts with deficiencies. He noted that Representative Larry Wolpert will be introducing a bill shortly to authorize state funding for rapidly growing school districts.
Chairman Gossett noted that he is the treasurer of a relatively wealthy suburban school district, so he understands the legislators' concerns. He feels that, whether 20 mills is collected by the state or "taken" by the current formula charge-off, his district is in about the same place. He is sympathetic to the issues that the panel raised.
Representative Grendell added that the public perception is important. Twenty mills statewide will be perceived as socialized taxation. Representative Peterson suggested that the committee should offer alternative recommendations for the General Assembly to consider. Representative Trakas feels that there should be alternatives available to local school districts. He suggested the "one size fits all" solution is not a solution at all. All districts have strengths and weaknesses. Let the school districts, individually, figure it out. Representative Hartnett agreed that we need to look at school districts not as a mass, but individually. We cannot just say "we fixed it, for the most part."
Representative Calvert disagreed with Representative Hartnett that school districts lose revenue when students move to community schools.
Mr. Zaino addressed the issue of Robin Hood. He noted that all taxes in Ohio are Robin Hood. He does not understand the Robin Hood argument.
Barbara Shaner asked the representatives if they would come back to hear the final recommendations and how the recommendations were determined.
At 11:45 a.m. Mr. Mottley began his presentation to the committee, entitled Property Tax Reform and School Funding. He feels that any school funding solution must address adequacy (both the state and local components) and what school districts can do to go beyond adequacy.
Mr. Mottley noted that the school district property tax is here so stay. It represents one-half of school district revenues. It is more stable and predictable than either sales or income taxes. Ohio's income taxes are already above the national average. Per-capita lottery revenues are also well above the national average. Corporate taxes are below the national average and sales taxes are about at the national average. Property taxes are below the national average. Tangible personal property taxes are above the national average.
Mr. Mottley then reviewed briefly the tax proposals of the Ohio School Boards Association (OSBA) and the Department of Taxation. He noted that the OSBA proposal is nearly $1 billion short of funding current foundation levels and the Taxation proposal is $100 million short.
His concerns with the OSBA proposal are that it does not fund current foundation levels, there is not a local share and so there is no incentive to control certain costs. Also, reducing levels to 20 mills shifts state aid to wealthier school districts. The Taxation proposal may require voter approval, the levy replacement mechanism is very complex, there is no replacement revenue source for the tangible personal property tax reforms and the proposed tangible personal property tax rate is not well received by the business community.
Mr. Mottley proposed a reappraisal Phantom Revenue solution: non-floor districts could increase unused inside mills on real property just enough to offset phantom revenue in that district without voter approval. He would also allow voters to authorize additional levies that would allow for revenue growth. Lastly, he would allow tangible personal property reform to stabilize the current tax base, phasing out the 10% rollback on business real property.
Mr. Church asked for clarification regarding Mr. Mottley's proposal relative to Phantom Revenue. He asked whether the proposed increase in inside millage applied only to real property. Mr. Mottley answered yes to this question. Mr. Mottley noted that his entire proposal could be accomplished without a constitutional amendment.
Mr. Wilkins asked why something similar to what Mr. Mottley is proposing has not been passed already. Mr. Mottley replied that, at one time or another, each house of the General Assembly has passed something similar, but, for various political reasons, was never adopted by the entire General Assembly.
Mr. Navin asked how Mr. Mottley could reconcile his statement that state aid as a percent of total school spending was increasing while Representative Peterson said the opposite. Mr. Mottley said that he and Representative Peterson were using different bases for their comparisons.
Mr. Hyre asked to whom Mr. Mottley has made this presentation and what were concerns expressed about it. Mr. Mottley answered that nobody has seen this same proposal. Mr. Mottley noted that there are some individuals that are concerned about unvoted property tax increases.
Mr. Church commented that the innovative piece of Mr. Mottley's presentation is the inside mills and marrying that with the incremental change. By doing this we might be able to avoid some complaints. Mr. Church asked whether we could sell the unvoted tax. Mr. Mottley responded that he believes we could "sell" this proposal but it would have to be the whole package in terms that the public could understand.
Ms. Shaner commented on the "criticism" of the cost of the OSBA plan. There is a considerable number of categoricals that are included in the OSBA plan that are not included in the Mottley plan. This will impact the cost of the plan.
Ms. Shaner asked Mr. Mottley to react to the proposal to collect 20 mills of property tax at the state level. Mr. Mottley opined that his proposal has a very similar effect, but does not have the political baggage associated with a statewide property tax.
Chairman Gossett directed the committee members' attention to simulations prepared by Mr. Michael Sobul. Mr. Sobul noted that there are now 350 school districts at the 20-mill floor. He shared preliminary information he prepared that analyzed the impact of Taxation's proposal, using updated data. His draft examined what the cost would be of funding Taxation's proposal using per-pupil foundation levels of $5,283, $5,500, $5,750 and $6,000. Mr. Navin would like to see the simulation complete with categoricals.
Mr. Zaino asked if the additional cost in the simulation would go down over time. Mr. Sobul answered that no, it would actually go up over time.
Mr. Sobul then reviewed for the committee the impact of Taxation's proposal on the Big Eight school districts. The table showed how long these school districts would be on a hold harmless. Mr. Sobul noted that Dayton would be on a hold harmless for 10 years, even at a $6,000 per-pupil foundation level. Mr. Gossett would like to see an analysis of the impact of Taxation's proposal on different types of school districts, four to five groupings of districts by wealth, as well as groupings by size. Also, he asked Mr. Sobul to use higher per-pupil foundation amounts to see what impact this has on the number of hold-harmless school districts.
Ms. Shaner would like to know how much it would cost to implement these changes. Mr. Sobul said that it could be shown and calculated easily.
Mr. Gossett reminded the committee the full Task Force would meet on April 1st. He asked the committee to be prepared to state their desired direction. He wants to discuss this at the committee's next meeting on March 15th.
Mr. Gossett adjourned the meeting at approximately 2:50 p.m.
* To view PDF files, download Adobe's free Acrobat Reader.
