Meeting Schedule, Agendas and Minutes
December 9, 2004 Minutes
Members in attendance included Chairman William W. Wilkins, Vice Chairman Jim Hyre, Ted Adams, Susan Bodary, John Brandt, Eric Burkland, Barbara Byrd-Bennett, Fred Church, Walt Davis, Paolo DeMaria, Matt Filipic, Christine Hansen, Russ Harris, Representative Bill Hartnett, Representative Jim Hoops, Senator Jeff Jacobson, Thomas W. Johnson, Jim Mahoney, Dick Maxwell, Tom Mooney, Dan Navin, Senator C.J. Prentiss, Barbara Shaner, David Varda, Scott Williams, Dennis Woods, Tom Zaino and Susan Tave Zelman.
Presentation:
The meeting was called to order by Chairman Wilkins at 12:30 p.m.
Mr. Wilkins noted that the purpose of the day's meeting was to discuss the draft recommendations, as well as some specific items that have been brought to his attention by other Task Force members. The last Task Force meeting will be held December 17, at which time members will discuss the entire report. Members will be given the opportunity to comment on the draft that is produced following the next meeting. Mr. Wilkins then turned to Mr. Navin, who summarized the Revenue and Taxation Committee's recommendations.
Revenue and Taxation Committee's Recommendations
Mr. Navin began his presentation by reminding Task Force members that the Revenue and Taxation Committee's principal concern was addressing phantom revenue and the frequent ballot issues that result from it. The first recommendation addresses the problem of phantom revenue directly by calling for a 22-mill growing levy on real property for all school districts. Those mills would be capped by some index, either one that measures inflation or one that reflects growth in personal income. The second part of the recommendation is for a 40-mill charge-off on tangible property, which improves the equity of the state's school funding system.
Mr. Brandt added that the Revenue and Taxation Committee assumed that there would also be a meaningful adequacy component to the state's funding formula. Mr. Navin concurred that committee members did assume that the Revenue and Taxation Committee's recommendation would be complementary to the work of the Funding for Success Committee.
Ms. Shaner observed that the recommendation for increasing the tangible property charge-off to 40 mills was done in part because of the uncertainty of the future of tangible taxes. This increase would protect schools if tangible taxes were to go away. The money lost to school districts because of this would be made up by a hold-harmless, as well as other enhanced funding through the formula.
Senator Jacobson expressed agreement with Ms. Shaner regarding the tangible property tax proposal. He stated his opposition to increasing the tangible charge-off to 40 mills. Senator Jacobson supports increasing the tangible charge-off just enough to cover the cost to the state or reducing the real property charge-off from 23 to 22 mills.
Mr. Varda supports the first recommendation, emphasizing that phantom revenue does not impact just wealthy school districts. Mr. Woods added that the state will never know what base funding buys until we have solved the phantom revenue problem, since that comes out of a portion of base cost.
Mr. Maxwell agreed that it is critical to address phantom revenue. Solving this problem should be listed as one of our major goals.
Mr. Harris stated that the Task Force's report should state clearly what reappraisal phantom revenue is and how the Task Force's recommendation would address it, since there are differing levels of understanding among the general public about this concern.
Senator Jacobson opined that phantom revenue is a problem that has a differential impact on school districts. He added that it does not affect the base cost, but it does affect everything else. Senator Jacobson iterated his belief that a statewide approach is not the way to do this. We should focus on an individual school district approach.
Mr. Brandt expressed his opposition to the second recommendation, which specified that the assessment rate on machinery and equipment should be cut in half. He agreed that this is an important issue, but expressed that it is really a tax reform item, not something that should be addressed by the Task Force. It was agreed that this recommendation was too specific and should be made more general.
Senator Jacobson believes that there is merit in evening out the property reappraisal cycles. The unevenness of the current county pools has caused very bad budget years that the legislature has to work around. He added that two year updates will, though, end up being net tax increases since there will be updates more often, which increases property taxes.
Mr. Church responded that moving from a three-year to a two-year reappraisal cycle does cause a tax increase, but it is not that large. Senator Jacobson opined that the report should note that more frequent updates would increase taxes.
Mr. Marshall interjected that what is unknown is if this change would affect the levy cycle. Since school districts would receive more regular increases in their property tax revenues, they should need to go back to voters less often for additional funding.
Mr. Zaino asked how more frequent valuation updates would affect school districts that are at the 20-mill floor. Mr. Church replied that he did not know, but he doubts that there is a definitive answer. Mr. Zaino opined that more frequent updates could result in tax decreases for some school districts' taxpayers.
Representative Hoops agreed that allowing limited growth on 22 mills should reduce the frequency with which school districts need to return to voters for more money. He added that Ohio's voters will have a say in this, since they would need to approve the constitutional amendment.
Mr. Harris reminded members that, at one point, the Task Force was discussing the possibility of annual updates. Other large states use annual updates. When they are done annually, they are done in a somewhat automated process that results in lower costs. Most properties have their value determined by a computer, not by an appraisal firm. Representative Hoops agreed that updates can be done by computer, with no visit by anyone.
Senator Jacobson opined that the draft recommendations do not show clearly how they would restrain growth in property tax bills. We are recommending boosting the property tax bills for the 350 districts that are at the 20-mill floor by a significant amount, but we are saying this action protects taxpayers. We are not doing everyone a favor by doing this.
Mr. Sobul answered that, of the 350 school districts that are at the floor, only 160 would see increases. In the rest, there would be no increase because emergency mills and school district income taxes take them to the equivalent of at least 22 mills. Mr. Navin added that the notion that this will increase taxes needs to be balanced against the fact that currently there are taxpayers in 350 school districts whose taxes are increasing uncapped.
Mr. Maxwell observed that, if the purpose of H.B. 920 was to lower taxes, it has failed. Property taxes have risen at the rate of inflation or more. The reason for this is because of all the levies, successful or failed, which have continued to be put on the ballot every election. That is a lot of wasted effort by the school districts. Senator Jacobson noted that this is a better argument than others he has heard.
Funding for Success Committee
Mr. Filipic reviewed the recommendations of the Funding for Success Committee. He emphasized that the principal goal of this committee was to target additional funding to those districts with the greatest needs, especially districts with high concentrations of economically disadvantaged children. Mr. Filipic acknowledged that there is more work that needs to be done in this area, as the draft recommendations alleviate but do not solve the problem. Research is underway in Ohio that, when completed, should give us a better understanding of how to address these challenges.
Mr. Brandt expressed a concern that Cleveland would apparently receive only a modest increase in state funding above what current law would provide. If we are truly concentrating on districts like Cleveland, one would think that we would see more of an increase. Also, it is entirely possible that our recommendations could create a lot of school districts who do worse by our model than by the current system. If that is the case, this would be a major detriment to this report.
Mr. Filipic asked whether Mr. Brandt was referring to simply the recommendations of the Funding for Success Committee or the sum of the recommendations. Mr. Brandt responded that he was referring to the entire proposal.
Senator Prentiss and Mr. Mooney shared Mr. Brandt's concerns. It appears to them that there would be too many districts that would be better off under the current school funding system than under the one proposed by the Task Force.
Senator Jacobson supports giving more state resources to the urban and rural school districts that need it. Reallocating state resources to where the needs are makes sense. Some school districts will not do as well under the Task Force's proposal, but is that a bad thing?
Mr. Brandt responded that everyone agrees with concentrating money on the urban and rural school districts that need the most assistance, but we have not done enough for those districts. What we are proposing is not a school funding fix. We do not all agree that a new system means that there will always be winners and losers.
Dr. Byrd-Bennett expressed her agreement with the Funding for Success Committee's recommendations. However, if the total proposal creates winners and losers she does not approve of that. She does not want to see Cleveland win at the expense of other school districts. If the Task Force's proposal simply shifts money around, we have failed. Senator Prentiss agreed that the proposal is inadequate in the amount of money that it recommends be added for school funding.
Mr. Woods asked that the Task Force recommend full funding of the special education weights, which are currently supported at 90%. Mr. DeMaria answered that it has always been his understanding that the goal was 100% funding. Moving towards full funding of the weights would be consistent with the Funding for Success Committee's recommendations and the State Board of Education's recommendations.
Senator Jacobson clarified that the Task Force's draft proposal does not cause any school districts to lose funding compared to the current year. There are only losers if you look at estimates of what future funding might be under the current system and compare that estimate to the estimated impact of the Task Force's proposal.
Mr. Filipic observed that it was not his sense that the work of the Funding for Success Committee was adequate to face the problems that Cleveland and other school districts are facing. What the Funding for Success Committee is recommending is much more incremental. The second piece of the solution has to address the problems with property taxes and their interplay with the state's school funding formula.
Dr. Byrd-Bennett suggested that a college education benefits Ohio's economic system as well as the individual. There is a strong linkage between education and the economy. She added that she also would like to see how the Task Force's proposal would impact individual school districts.
Mr. Hyre asked Senator Jacobson whether he believes that the cost-of-doing-business factor will still be in existence four years from now. Senator Jacobson responded that he is committed to doing everything that he can to get rid of this factor, which benefits wealthy suburban districts disproportionately. Four years ago the Ohio House of Representatives was disturbed by this factor because of how the rural school districts were being treated. They were absolutely right, in Senator Jacobson's opinion.
Mr. Hyre noted that he interprets Senator Jacobson's answer to be that, if the senator has anything to say about it, the cost-of-doing-business factor will not continue to exist in its current form. Comparing the Task Force's proposal to the present system is not fair because the present system will not continue as it is. Mr. Hyre continued, saying that the theory behind the Task Force's proposal is better than the underlying theory of our current system: there seems to be agreement on that among Task Force members. It is up to the General Assembly to come up with the specific numbers. We should propose that these are the things that we should be spending money on, and then lobby the legislature to get the money to the appropriate levels.
Senator Jacobson observed that budgets come and go: people who are in charge make changes. The funding system that was ruled unconstitutional by the Ohio Supreme Court was developed by Democrats. It does not matter who is in charge: they all have limited resources to allocate. The value of what the Task Force is recommending is by focusing not on specific numbers, but on what we can buy for school districts. We propose moving in the direction of a more rational basis for school funding discussion, which is huge.
Mr. Maxwell asked Mr. Hyre why he asked about the cost-of-doing-business factor (CODBF). Mr. Hyre replied that, if the intention of the General Assembly is to eliminate the CODBF, regardless of what the Task Force recommends, then that is something that the members need to keep in mind as they attempt to compare the Task Force's proposal to Ohio's current school funding system.
Representative Hoops offered that Task Force members really seem to be engaged. He iterated his concern that school districts should actually receive what the school funding formula appears to be giving them. The way to assure that this happens is to fix the phantom revenue problem.
Mr. Mahoney stated that the Task Force needs to adopt a set of principles on which a new school funding system can be based. After the principles are adopted, we need to put data in there to make sure that the system works as advertised. Does this new system create more disparities or decrease them? We will not know until we have looked at the numbers. That will also give us data with which to lobby the legislature.
Dr. Zelman agreed with Mr. Mahoney. She finds the recommendation for a new poverty-based assistance program to be very weak. She believes that it sounds like the Task Force is recommending the status quo. Dr. Zelman added that every state that is serious about closing the achievement gap is making substantial investments in early childhood education. She wants a strong commitment to do more than the state is already doing for early childhood education.
Senator Jacobson replied that the Task Force wants to encourage spending in early childhood education, but he does not want to make a commitment to do this. He is concerned that such a commitment will lead to another lawsuit. We need to clarify the wording of the recommendation to say that more should be done in early childhood education without committing us to something that we might not be able to afford.
Ms. Shaner expressed agreement with the concepts included in the Task Force's proposal, but as an educational representative, she needs to have a package that meets the needs of students in Ohio. She has not seen what the end result of the draft proposal would be. If she is to ask her members to support the Task Force's report, she needs to know what the results will be. If a significant portion of her members are going to be worse off than under the status quo, it would be difficult to sell the proposal.
Mr. Harris noted that he now feels successful because members are discussing the concept of adequacy. The state needs to take a hard look at what resources are needed to help students achieve certain standards. We need a study, and any successor group that follows us should deal with what resources need to be available to all students to meet certain levels of success. The next two years should be used to better position ourselves to get a successful plan implemented.
Mr. Burkland offered that he wished there were some number that the Task Force could recommend. The Task Force has taken some nice steps to build a new methodology to work towards. The state currently does not capture the data that are necessary to recommend a number. Mr. Burkland hopes that the state is moving towards a better data collection system and that the Task Force's proposal moves the state towards a better way of funding education.
Dr. Zelman added that the Task Force's process is an unfinished journey. The principles that have been discussed will make the system better: we should all rally around that. There has been some interesting research that will bring better clarity to what we are buying with the state's investment. Dr. Zelman believes that Ohio should use some of the national research and realize that most states are facing some sort of educational funding crisis. School funding is a partnership among the state, local and federal governments. Education is critical to keeping Ohio competitive.
Senator Jacobson observed that he is happy to note that the Task Force has made great strides in its communication. At the first meeting, Senator Jacobson added, he was booed and hissed when he opined that educational funding is a state and local partnership. Senator Jacobson repeated his opposition to school funding adequacy studies because such studies cannot account for aspects of education that are not empirical. Also, these studies always conclude that more money should be spent on education.
Senator Jacobson agreed with Mr. Harris's contention that school funding is a state problem, but does not agree that it is exclusively the state's responsibility. If a school district makes a commitment that it cannot afford, it should not be the state's responsibility to fund it.
Mr. Harris replied that, contrary to Senator Jacobson's assertion, union contracts are not the problem. We do not know what the true problem is in our schools because we have refused to look closely at it. Collective bargaining is not the reason we have school funding problems in Ohio.
Mr. Woods suggested that the recommendation related to the forming of a successor group to carry on the work of the Task Force should include an acknowledgement that No Child Left Behind has created a shift from universal access to universal proficiency. The Task Force's report should state that evidenced-based research needs to be used by the successor group to meet the needs of Ohio.
Mr. Maxwell opined that the Task Force has produced some significant accomplishments by addressing phantom revenue and the accompanying frequency of levies. He suggested that the Task Force should not recommend a charge-off on tangible property that is higher than is necessary to compensate for the reduction in the real property charge-off. Raising the tangible property charge-off to 40 mills creates too many problems for some school districts. He added that, eventually, members need to see real numbers that show the impact of the Task Force's proposal.
Senator Jacobson agreed that the tangible property charge-off should not be increased to 40 mills unless the savings to the state are put back into basic aid.
Mr. Navin noted that increasing the tangible property charge-off would also generate revenues that could be directed to specific spending areas. This revenue may not be targeted where members want, but it is money that is available for reallocation.
Senator Jacobson offered that the Task Force first needs to make sure that nobody loses. The revenue and spending impacts should first be determined separately and then the results should be combined so that we can see the net impact of all of the recommended changes.
Mr. Church stated that reducing the tangible property tax charge-off from the proposed 40 mills to 30 mills would increase the state's cost in the fourth year of implementation from $310 million to about $400 million.
Operations and Efficiency Committee
Walt Davis, the chair of the Operations and Efficiency Committee, summarized this committee's recommendations for the Task Force.
Mr. Brandt remarked that the recommendation to require legal and ethical training for school board members is a problem for his association. The Ohio School Boards Association offers considerable training, but on a voluntary basis. His members do not understand why this recommendation is in a school funding report. Legislators are not required to take this training, so why should school board members be? Mr. Zaino added that he did not understand how this recommendation would improve the operations and efficiency of school districts.
Mr. Davis responded that, when the Operations and Efficiency Committee went through its list of issues, one of the areas that the committee examined was governance. School boards manage school budgets, so there is a small group of people making large budgetary decisions.
Mr. Brandt asked whether Mr. Davis would be willing to amend the recommendation to require that superintendents, treasurers and legislators take this training as well.
Senator Jacobson answered that he believes that everyone involved in the management of public dollars should have this training. The training lets you know the questions involved in these types of public transactions. However, he thinks that the training should be in the areas of contracts and finance.
Mr. Wilkins interjected that all state board and commission members and all cabinet members are required to have ethics training. He has served in these positions and feels that schools should be required to give ethics, legal and other training to board members so that they know the requirements they are facing.
Mr. Brandt replied that he is very much in favor of training, but disagrees with the way that the recommendation is worded.
Mr. Wilkins asked Mr. Brandt whether this issue could be addressed in a way that would be more acceptable to him. Senator Jacobson suggested that the Department of Education should be required to ensure that all those engaged in school district governance have adequate opportunities for appropriate training for their needs. Everyone involved needs to have the opportunity to participate in this training, but they should not be required to take a certain number of hours of training.
Mr. Maxwell noted that, in 1978 budget and financial training was made mandatory for all school district treasurers, business managers and superintendents. Maybe we just make sure the training is provided for their protection.
Mr. Wilkins requested that staff work with Mr. Brandt to draft an alternative recommendation.
Mr. Wilkins adjourned the meeting at 4:00 p.m.
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