Committees
Revenue and Taxation Committee
July 29, 2004 Minutes
In attendance were Vice Chairman Dan Navin, John Brandt, Representative Chuck Calvert, Christine Hansen, Barbara Shaner, Tom Schmida (for Tom Mooney) and Richard Stoff. Other Task Force members in attendance were Task Force Vice Chairman Jim Hyre and Denny Woods. Mr. Navin called the meeting to order at approximately 9:50 p.m.
Presentation:
- Homestead Exemption Program (PDF*, 10 KB)
- Phantom Revenue Eliminated Under 22-40 Plan (PDF*, 16 KB)
Mr. Navin reviewed for the committee members the day's agenda. He then called on Mr. Mike Sobul to review materials that he had prepared for the committee.
Mr. Sobul summarized the document entitled Homestead Exemption Program. The current cost of the program to the state is about $65 million annually. The income brackets and the maximum reduction in taxable value are indexed for inflation annually.
The Homestead Exemption Program actually works as a credit. The credit is equal to the reduction in taxable value times the total gross (tangible) millage rate on the property. The credit is subtracted from the tax bill after application of the 10 percent and the 2.5 percent credits. The table at the bottom of the sheets shows an example of the property tax calculation for a property with a 75-mill gross tax rate and a 50-mill effective tax rate after reduction factors have been applied.
Expanding the eligibility of the homestead exemption program to all taxpayers over age 65 with income under $100,000, without changing the exemption levels, would cost between $25 and $35 million annually. This change would potentially provide benefits for up to 475,000 additional homeowners. The average annual benefit would be about $75, with a range of benefits between $32 and $194, depending on the tax rate.
Expanding the eligibility of the Homestead Exemption Program to all taxpayers, regardless of age, with incomes under $50,000, without changing the exemption levels, would cost between $70 and $100 million annually. Potentially, this would provide benefits for up to 1,275,000 additional homeowners. The average benefit would be about $75, with a range of benefits between $32 and $194, depending on tax rates.
Mr. Navin asked whether anything in the document surprised Mr. Sobul. Mr. Sobul responded that he was somewhat surprised at the number of Ohioans over the age of 75 who still owned their own homes.
Mr. Sobul discussed the current Homestead Exemption Program. Mr. Brandt asked if the thresholds needed to be changed by the General Assembly. Mr. Sobul responded that the brackets have been indexed to inflation for five or six years. The Homestead Exemption Program was created through a constitutional amendment for low-income elderly homeowners. If the program were to be expanded for low-income, non-elderly homeowners it would require a constitutional amendment.
Mr. Brandt asked whether an average benefit of $75 would get noticed. He wondered what impact an average benefit of this size would have. The consensus was that an average benefit of $75 would not have much impact.
Ms. Shaner asked about the potential of a circuit breaker. Mr. Sobul responded that the problem with a circuit breaker is that many low-income elderly Ohioans that do not currently file state income taxes would have to file if a circuit breaker were developed. Given the rather small size of the Homestead Exemption, the concern is that many of these individuals would not bother to apply because they would not want to file state income tax returns.
Mr. Brandt asked what the impact would be of extending the Homestead Exemption to all homeowners aged 65 or older with no income requirement. Mr. Sobul responded that approximately 90% of this group has annual incomes below $100,000, so this would simplify things without making a large number of additional people eligible as well as offer more meaningful relief to a more targeted group.
Ms. Shaner opined about the growth of this age group and the impact of the aging baby boomers group.
There was a general discussion of ways to defer real property taxes for senior citizens. Delaying real property taxes would not require a constitutional amendment, but forgiving the taxes probably would.
Mr. Navin noted that, under current tax law, homeowners and their neighbors all pay roughly the same level of property taxes. With a California-style system there can be very significant differences in tax liabilities, depending on how long residents have owned their homes. Mr. Brandt asked if the reduced tax liability would extend to school district taxes only.
Mr. Hyre asked what the benefits and drawbacks might be of extending tax relief to all homeowners 65 or older. Mr. Sobul responded that the benefit is that these taxpayers see tax relief. The negative is that other taxpayers would have to make up the difference.
Mr. Navin asked committee members what their preferences were relative to the Homestead Exemption. Representative Calvert opined that the levels of tax relief being discussed were too small to induce senior citizens to support a constitutional amendment.
Mr. Hyre would like to pursue looking at limits on growth of real property tax increases for those who are 65 or older. Mr. Brandt and Mr. Schmida agreed. Mr. Sobul will work on some materials to present to the committee that would implement this approach.
The committee next turned its attention to what limited growth in real property taxes should look like and how it would be implemented.
Mr. Sobul reviewed for the committee an example entitled Phantom Revenue Eliminated Under 22-40 Plan. This is a simplified example, assuming that there are only two school districts in the state; one relatively wealthy and one relatively poor. One example showed the impact of a statewide-average cap and the other was a district-by-district cap. In the first example there would be one statewide charge-off. In the second example each school district would have its own charge-off. Mr. Sobul noted that school districts that are faster growing receive more state aid than slower-growing school districts with a district-by-district cap.
Mr. Sobul noted that there needs to be a balance between how much of the cost of phantom revenue is paid by the state and how much is paid by local taxpayers. A higher cap means a higher share that is paid by the local taxpayer. A lower cap shifts more of the cost to the state.
Ms. Shaner asked whether the Revenue and Taxation Committee should suggest to the Funding for Success Committee what an appropriate inflation index might be.
Mr. Navin asked committee members their thoughts on the relative merits of different inflation indicators. Is there a preference for a particular indicator? The consensus is that the cap should be statewide, not district by district. There is also consensus that growth on new construction should be allowed. There is also agreement that the charge-off and the level of growing millage should be the same.
Ms. Shaner requested that Mr. Sobul look at growth in the 20-mill floor school districts. Mr. Sobul will conduct this analysis, both of current 20-mill floor districts and those that have been at the floor for several years. Mr. Navin concurred and views this as very important information.
Mr. Navin asked what the committee should recommend relative to the costs of categorical programs. Should the state pay 100%, 50% of somewhere in the middle?
Ms. Shaner asked about the districts that do not have extra millage above 22 mills. How should these districts be addressed? Would we require them to levy the additional mills? If the districts did levy additional mills for categorical programs, and if the categorical millage was protected from phantom revenue using a method similar to the phantom revenue solution proposed by Representative Peterson, would a slightly higher growth cap on categorical program mills be necessary to maintain a constant state and local share of overall funding?
Mr. Sobul agreed that having a slightly higher cap than the one for the charge-off would be necessary to maintain this balance. Mr. Sobul illustrated for the committee the impact of increases in real property values on two mills set aside to fund the cost of categorical programs using the Peterson approach.
Mr. Calvert opined that Mr. Sobul's example shows what it would cost the state to eliminate phantom revenue under Representative Peterson's plan.
Mr. Navin noted that, once the Funding for Success Committee is ready, the two committees probably need to begin meeting as one committee. There was agreement on this point. Mr. Navin suggested that the committee not schedule another meeting until late August or, possibly, after Labor Day.
Mr. Navin adjourned the meeting at approximately 1:00 p.m.
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