Ohio Property Tax Reforms: What’s at Stake for Schools, Students and Homeowners

In this episode of Leading the Way, host Scott Gerfen examines the Ohio General Assembly’s push to change the state’s property tax system — and the consequences it could have for schools, students and communities.Guests Dr. Howard Fleeter of the Ohio Education Policy Institute and Nicole Piscitani from OSBA’s Legislative Services team explain why property taxes have long been a cornerstone of school funding. They break down how the proposed changes could reduce the resources schools need to help students succeed, while offering little real relief to homeowners. The conversation also explores what the future of property tax legislation could mean for Ohio’s classrooms.Sponsored by Lincoln Learning Solutions. Get more information at https://www.lincolnlearningsolutions.org.

For more resources, training and advocacy updates from the Ohio School Boards Association, visit ohioschoolboards.org.

Transcript

SPEAKER_03 0:00

The following program is a presentation of the Ohio School Boards Association. Welcome to the Leading the Way podcast, where we bring you the voices shaping public education across Ohio. A big shout out to our sponsor, Lincoln Learning Solutions. They offer accredited K-12 digital curriculum and support schools with flexible content and expert training for educators in all learning environments. Hey everybody, it's OSBA Scott Gurfin. Today we're taking a closer look at the Ohio General Assembly's latest push to reform property taxes. At first glance, it might sound like welcome news for families, but the reality is it's more complicated. Many of the proposals under consideration could put our schools at risk and still fall short of providing real relief for the homeowners who need it most. We have two great guests lined up today to talk about it. Dr. Howard Fleeter, he's a consultant with the Ohio Education Policy Institute. He's one of the state's foremost experts on Ohio school funding and tax policy. And Nicole Piscatani from OSBA's legislative services team, she will help us understand what's happening in the State House and what it means for school districts. So, Howard, let's start with you, with you. You've been studying Ohio's tax and school funding system for decades. How did we get to where we are today?

unknown 1:23

Right.

SPEAKER_02 1:24

Well, we we don't have all day, so I'll try to make this as simple as as possible. So um our you know Ohio's school funding relies on property taxes and funding from the state, like is true in every other state except for Hawaii, right, where there's um no local share of it. But so property taxes are the underpinning of it. And we have a lot of school districts, we have more than 600 school districts, and there's wealthy and poor places, right? And so that's um, you know, from the school funding perspective, that's where the state has to step in and equalize things. From the property tax perspective, people ask me all the time, like, why do we use property taxes at the local level? And the answer to that question is because property taxes are historically stable. They tend to go up, not down, and they tend not to go up um a a lot at one time. So the last couple years we've been living through an exception to that, and 50 years ago we lived through an exception to that. So for about 45 years, our property tax system was relatively stable. But there was one trend um that started about um 30 years ago that has changed the composition of who pays property taxes in this state. And in 1991, homeowners and farmers paid 47.5 percent of school property taxes, and in 2023, this percentage had increased to 67.5 percent. So it's gone up by about 50 percent the share paid by persons rather than by businesses. And that's one thing that's putting stress on um on homeowners right now, because what that means is, you know, instead of paying less than 50 cents of every dollar in property taxes, you're now paying 67.5 percent. So every levy that comes online, the homeowner and farmer share of it is going to be 50 percent higher than it was 30 years ago. And that's because of primarily because of tax policy changes that the state made to business taxes, which either eliminated or lowered um a couple of major property taxes for businesses.

SPEAKER_03 3:35

So yeah, and I and I have a graphic and or to show that graphic that you know back you talk about thirty years, the lines were like this, almost equal. Right. And as we've gone, they've separated. Right, yeah, right.

SPEAKER_02 3:47

Right. Yeah, you can you can you can listen to the numbers or you can look at the picture and see it visually. Some work for some people one works better than the other, but the point is still the same that the the share of taxes paid by people is higher because of changes that the state has made. And and those those changes, you know, there were sound tax policy reasons for what the state did. The problem is that in other states, those taxes that were eliminated or reduced were state taxes, so there was no local impact. But in Ohio, these were local taxes, and that's what's created problems for schools and local governments ever since, right?

SPEAKER_03 4:28

So you you set the stage for homeowners and farm and farmers who are paying more of the bill. Uh but another piece of this story is House Bill 920. It was a law passed in 1976, and it was to protect taxpayers from big jumps in their property values. Explain how 920 worked and why it's uh being tested like never before. Right today.

SPEAKER_02 4:51

Okay. So, yes, as as I said before, right, you know, people who pay property taxes know that we've been through a period the last couple of years where property taxes have been going up at an unusually high rate. The last time that this happened was in the early to mid-1970s. And so Ohio did what a lot of other states did at the same time, was that they tried to put some sort of protection in place to help insulate homeowners from having their property taxes go up as a result of their properties being revalued by the county auditor and essentially increasing due to inflation. So back in the mid-19 you know, 1970s, property values were going up much, much faster than incomes were, and it was making it hard for people to be able to pay their property taxes. So we did something that no other state did. There are several ways you could get at this at this issue, but Ohio did something, and we're the only state that did this, which is we will roll back the property tax rates in response to an increase in property values from reappraisal. So the simplest way to explain this is to say if the reappraisal value in your community goes up by 10 percent, all the voted taxes rates will be reduced by about 10 percent. That way, nobody will pay a dime more on a voted levy after the reappraisal than they did before. Or actually, let me correct myself. In aggregate, none of the total amount of money paid for every voted levy will be the same before and after the reappraisal. You can still have instances where an individual taxpayer might still pay more, but that can only happen when their property value goes up more than the average. So if the average in your community is 10 percent and your property went up 15 percent, your taxes will still go up, but not by the full 15 percent. Uh you know, what that means, though, is for one person's property value to be above the average, there has to be at least one person whose property value is below the average. Those peop you know, those persons will actually get a tax decrease. And I think that you know I've always had the suspicion that the people whose taxes are going down kind of think somebody made a mistake and they keep their mouth shut. And the people whose taxes are going up think, hey, there's a problem here, what's wrong? And so, but that that's how our law works is that in aggregate, property taxes remain the same. So schools and local governments, after a reappraisal, don't get one dime more than they did after the reappraisal. So that's why we have so many levies in Ohio, is because local governments have to put new millage on the ballot just to keep up with inflation. But the idea of all this was to try to protect and insulate property taxpayers from having an inordinate increase in their taxes after their house value goes up.

SPEAKER_03 7:43

So we've talked about the mechanics. Uh let's bring this closer to home, though. What does all of this mean for a typical homeowner or farmer today and for the schools that depend on the property tax revenue? Trevor Burrus, Jr.

SPEAKER_02 7:54

So you you'd said in your previous question to me, you said, why is House Bill 920 being stressed more than ever? And the answer to that is because property values are now increasing similarly to where they were 50 years ago in the mid-1970s, right? And so we, starting in 2022, the statewide average reappraisal increase was more than 22 percent. And that's over a three-year period of time, but that's still very high. And then in 2023 it was over 30 percent, and 2024 it was over 30 percent. We don't have the figures yet for this year. I'm guessing and hoping that it's gonna be going down. That's the sense I get from looking at home values, is that I think that we're coming out of this phase that we were in. But, you know, if you look back, I've taken the data already all the way back to you know the year 2000, and you can't find a single year where the reappraisal values were over 15 percent, let alone over 20 percent, or let alone over 30 percent increases. And so we're seeing a historically unusual increase in property values, and it's a variety of factors. It's got to do with interest rates, it's got to do with the pandemic, it's got to do with housing stock supply. There's a lot of underlying reasons for this. But, you know, to taxpayers, they don't really care what the underlying reasons are, they only care what happened to their tax bill. And, you know, what has happened is that House Bill 920, that safety valve that is supposed to kick in when property values rise, after 45 years of it working fairly effectively, it's not working as well because there's um a phenomenon that most people in this state don't know about. It's something called the 20 mil floor, and it applies to school districts. And what it means is that the school millage can't go below 20 mils. And so if you're a district at the 20 mil floor, House Bill 920 can't keep reducing that millage in response to inflation. And we've got, you know, right now close to two-thirds of the school districts in the state at that 20 mil floor, and that's been creating problems for taxpayers in those school districts.

SPEAKER_03 10:05

Nicole, let's turn to the State House. Uh you've been tracking closely on behalf of OSBA members. Uh what's actually happening with legislation right now? We we had a budget bill that was passed that included some some property tax reform. Uh the governor vetoed. Can you talk about that and take our listeners through that?

SPEAKER_01 10:23

Sure. So since January when the General Assembly began, we have over 50 property tax bills that have been introduced in some way, shape, or form. All bills that we are tracking. And they they make various um suggestive changes, um, some being small changes to property taxes, some being very large changes, um, but all would impact um schools in some way based on their proposals. So some of those uh proposals do look directly at trying to provide relief to homeowners by giving them either a circuit breaker or an expanded homestead exemption. So there are other ways to get at this issue legislatively. Um the uh General Assembly uh did include several property tax provisions within the budget, House Bill 96. Governor DeWine had a lot of concerns with those, however, and he vetoed largely most of them. Um as he introduced or vetoed those provisions, he had created a property tax work group made up of former legislators as well as other local governments that are impacted by these changes. So we do have uh schools represented, auditors, treasurers, county commissioners, um, the two former legislators who were on there, um, you know, both have a deep understanding of Ohio and legislation. Um, and they are currently right now working on reviewing mostly what was vetoed, um, trying to come to a consensus on what are those provisions, what is potentially workable, are they not workable? Um, but the legislature doesn't have to take their recommendations when they release that, and that's supposed to come out at the end of September. Um they have um they've been doing a lot of work trying to understand school funding because most of the property taxes do support schools, and so that is something that they are focusing on trying to understand the very complex school funding both at the state level and local level. Um but there isn't a current legislator who sits on that work group, so it's gonna so it's unsure of what will happen with that report and how the legislature will respond to their recommendations. Legislature is still in recess. They left right after they passed the budget. Um there are still property tax proposals coming out over the summer, um, but they will be back um in September, um, not a lot, but it really their work will begin in October, and we'll have to see again how they respond to the work group, um, what proposals they've kind of talked about over the summer. Um, but I don't this conversation isn't over, and um I forgot to mention earlier that with that override or with the vetoes, you know, the legislature came back on July 21st, the House, to um uh consider overriding three issues. They ended up only um voting on one of those. So the other two were never called up. So the one that the House did begin the override process for was the one that talks about the types of levies that local governments can put on the ballot, eliminating emergency levies and substitute levies in addition to a few others. Um it did receive the 60 vote threshold that it needed, but now it needs to go over to the Senate. Um Senate didn't come back right away. They said we'll wait until the fall to address this. Um so that is still something that you know potentially could happen um this fall.

SPEAKER_03 14:12

So let's touch on that a little bit. And what exactly did that override do? So we're eliminating what what types of levies?

SPEAKER_01 14:19

Emergency and substitute. So essentially fixed some levies. Um there are two different types of buckets, we'll call them of levy. So you have your fixed mills, so the operating levies that Howard had talked about, that House Bill 920 largely protects homeowners from in reducing those millage rates as you know evaluations increase. But you also have fixed sum levies, and those are put on a ballot to raise a certain amount of money. And so then the millage is calculated to and adjusted just to bring in, you know, if it's 1 million, 5 million, whatever that may be, it is set within the levy. Um, and those usually come in the form of an emergency levy, um, and then they can also be converted into a substitute levy. Um, I will say when it comes to the names of those levies, you know, the schools didn't create those names. That was something that the legislature created back in the 19, I think, eighties, um, is the word emergency. And so while though I think the schools view that as fixed sum, it is confusing to voters and knowing, you know, why why are we calling an emergency.

SPEAKER_03 15:29

And Howard, if you can explain. So if if they get rid of these levies, uh so I I think can you can you talk about why this really isn't going to be relieved to the taxpayer?

SPEAKER_02 15:40

Ironically, it's actually going to raise taxes more likely than it is going to lower taxes, right? And so it's, you know, the and this goes back to there's a couple prov you know, there's Ohio's property tax is fairly complicated, and there's a lot of features to it, I think, that the average person doesn't know because you don't have any reason to know it. You just get your bill and and you pay it. And one of the things that we have is that we have um two property tax discounts that we call the rollback. One of them is a 10% rollback. So every property taxpayer get you know, the state until 2000, the end of 2013, the state paid one-tenth of everybody of every homeowner and farmer's property tax bill. And then there's a second thing called the two and a half percent rollback, which applies only to owner-occupied houses. And so you you know, if you have more than one home or if you've got more than one acre, right, that you don't get the f you don't get the full benefit of that extra two and a half percent. But for most people who own one house, right, you're getting a 12.5% discount, which means the state's paying one eighth of your taxes. And that was a provision that was put in back in the early 1970s after the state enacted the income tax, and they wanted to, you know, say we're gonna now start taxing people's income at the state level, so we're gonna give you a break on your taxes. The state could use that income tax revenue and help subsidize people's taxes. And so it's been around before House Bill 920, actually. And so at the end of 2013, the state made a change where they eliminated the tenant percent and two and a half percent rollback on uh new levies. Okay. They also eliminated on something called a replacement levy. We don't have to talk about that. They're they're used very rarely. Um but you know, for new property tax levies starting in, I believe, November of 2013, the um taxpayers pay 100% of the cost of it, and the state doesn't have to kick in their one-eighth share. What's going to happen with the elimination of the emergency and substitute levies? And there's you know, all emergency levies can only be for a maximum of ten years, which means there's almost 300 emergency levies out there for schools, and they're all going to expire at some point in the next eight or nine years. But at the point they expire, schools are going to lose whatever fixed amount of money those levies were going to bring in. And if they want to replace that loss, that revenue that is expiring, they're going to have to put a new regular operating levy on the ballot. And that regular operating levy is not going to qualify for the rollback. And so, you know, that that, you know, almost 75% of the emergency levy money that's out there gets the rollback. And so, by my calculations, you know, if all the expiring substitute and emergency levies are replaced with a new levy that would raise the same amount of revenue as the one that is expiring and can't can't and has now been eliminated, then that's going to increase um taxpayers' bills by almost $100 million. Right? So rather So this is a change that really doesn't have anything to do with the problems that we've just spent 15 minutes discussing, which is people's property tax bills are going up. This is something that was different, that was just based on the idea that these types of levies are misleading or confusing to voters. And, you know, they they could solve that problem by, you know, I th I think everybody admits that most emergency levies are not for an emergency, right? When they started, the idea was, you know, if you have a flood, if your roof collapses, right? If say it's like it was truly an emergency, you need to fix something and it's got a price tag on it, and so you have a levy which is for just that amount of money. And it morphed into something where, you know, a levy which cannot be continuing and is for a certain amount of money is appealing to voters in a way where you can say we're only gonna raise this much from it. And you know, if you get you know a new subdivision or an office park or something like that, everybody's rate will go down no matter what happens to the tax base. You're never gonna raise more than that amount of money. And so it it's it's a useful tool for schools, and I think it's a it's it's a useful option for property taxpayers. A lot of property taxpayers, I think, prefer that type of a levy to a regular operating levy. And, you know, so we had been told for the last year and a half or so that they wanted to sunset the term emergency levy and then just replace it with something that you know we called a fixed sum levy that would be more clear to voters. Only that part of the equation never got implemented in the budget.

SPEAKER_03 20:35

So it sounds like to me, uh But there are solutions out there. I mean we were we were talking uh before the podcast what Michigan has done, right? Can you talk about that a little bit?

SPEAKER_02 20:46

Yeah, so if you know you we can stop talking about the emergency levy thing, which like I said is really not directly getting at the issue of rising property tax bills. You know, there are ways that you can help um homeowners with with their property tax bills. And you know, we have something called the homestead exemption, which works for people over 65 and for disabled people, and you have to be below a certain income level. And essentially we'll exempt the the first nearly $10,000 of your property value and you don't have to pay taxes on that. It's, you know, since properties have a taxable value, much more than $10,000, it's a small thing. But it would not be hard for the legislature to expand that and to include more people and to make it more generous, and it's something that they could easily do based on what we have in place. The problem seems to be that the legislature does not want to spend the money to provide direct tax relief like that. And then the thing that you mentioned is Michigan does something called a circuit breaker. And it works similarly to the homestead exemption, but it works by basically saying your taxes can't be more than X percent of your income, right? And again, the same thing you can, I believe. Michigan's goes up to $60,000, and it provides tax relief, interestingly, not just to homeowners, but also to renters, because property taxes have to be paid on rental units as well as they are on owner-occupied units, and they filter through to the rent, as anybody who's ever rented an apartment or a house can tell you. And so Michigan does Michigan's been doing this for years. And in fact, depending on how you categorize these things, there's anywhere between 15 and 30 states that do something like a circuit breaker or a homestead exemption. And Ohio could easily implement it. I mean, Michigan and Ohio are substantially similar states in terms of their demographics, in terms of their size, in terms of their economics. And the thing that seems to be distinguishing those two states is that Michigan had the political will to implement something like this. And Ohio has had two opportunities in the last two years in both this budget and the preceding budget from two years ago to make some changes that would help people in real time reduce their tax bills, and the legislature, for whatever reasons, has declined to do the most obvious thing to help people.

SPEAKER_03 23:09

Nicole, where where do we see uh this all headed now as we we go into fall and then we obviously will close out the the session in December?

SPEAKER_01 23:17

Um we won't close out in December. So we have a year and a year and a half left of this General Assembly. Um so the uh the work group I mentioned that the governor has, that is a topic that they are talking about is the deferment plans, the surgo breakers and the homestead exemptions. Um so again, not sure what the legislature will do with their recommendations, but I think there are others around the state who are looking at those and see that as to what Howard said, something that can be done fast and now and be applied to all, even um not having to wait for a reappraisal year for any of these to kick in. So again, legislature could implement some sort of circuit breaker or homestead and provide relief to homeowners now.

unknown 24:07

Yeah.

SPEAKER_02 24:08

And there are yeah, and if I can just add to that, that there are several um proposals that would do that type of thing kicking around at the legislature. Nicole, I'll tell you, when you said that there were over 50 property tax proposals, I knew there were a lot. I stopped counting. I didn't know it was that many. Uh now I know why I've been so busy the last year and a half.

SPEAKER_01 24:26

I have a separate spreadsheet for those.

SPEAKER_02 24:28

I yeah, you and you'll need it. Um but you know, the there um the if you if you don't do something like expand the homestead exemption or implement some kind of a circuit breaker, the other types of bills that are out there are trying to provide relief to taxpayers in different ways. And by and large, the you know, that there's really only two ways to help taxpayers with their property taxes. One is for the state to subsidize their taxes like they would with a homestead exemption or a circuit breaker, or for something to happen where their tax bills just go down, which means that schools and other local governments will not have as much revenue and it's going to be harder for them to provide the services. And the other proposals that are out there, including you know three of the proposals that the governor vetoed in the budget, are all things that in different ways would would basically provide the tax relief to homeowners by reducing revenues for schools and other essential local services. And so this is the dilemma that the state has put itself in right now by not doing the utmost obvious thing. They're trying to do other things which are going to solve one problem but create an other problems. And a number of these wouldn't even provide ongoing tax relief. It would just be one times tax relief and and would make things more confusing, not less confusing to taxpayers. It's been, I'll I'll level with you, it's been very frustrating to work on these issues the last year and a half because of the reluctance of the legislature that they seem to be taking some uh uh obvious approaches which have been used in many other states, and they seem to be taking them off the table, which is leaving them with other proposals which are problematic in uh various ways.

SPEAKER_03 26:24

Well, Howard, uh thank you for your expertise. Nicole, uh, thank you for helping us understand what's been going on at the State House, and I want to uh thank our sponsor, Lincoln Learning Solutions, and be sure to hit the subscribe button, and we'll see you on the next uh leading the way episode.