- Schools should have a reliable source of funding. Laws governing property taxes should be amended to provide districts with a funding mechanism that allows them to keep pace with inflation and spend less energy seeking passage of school levies.
Ohio school districts place more operating levies on the ballot than in any other state - by some estimates, 10,000 levies since 1975. One of the main reasons districts must go back to voters so often is an aspect of Ohio law known as House Bill 920.
What is HB 920?
House Bill 920 is a provision of state law that essentially puts a cap on how much money can be generated by a property tax levy. Enacted in 1976, it was designed to protect Ohioans from tax bills that escalated rapidly as property values increased. Four years later, its provisions were included as part of an amendment to the state constitution.
The law in effect reduces the tax rate so that throughout the life of a tax levy property owners as a group pay the same amount after a reappraisal as they did before. This freezes the revenue collected from any voted levy at the amount generated the day the levy took effect.
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Why is HB 920 a problem for school districts?
It doesn't allow districts to keep pace with inflation. Because of HB 920, while a school district's expenses typically rise over the course of a levy, its revenues do not. School districts are forced to decide whether to cut spending or go back to voters with additional levy requests.
Example
It reduces state funding to districts. The way HB 920 works to control taxes conflicts with the state formula that allots aid to districts, creating a phenomenon known as "phantom revenue" and reducing how much districts receive.
What is phantom revenue?
The problem known as "phantom revenue" created by HB 920 is unique to Ohio. It results from the interaction of the state funding formula and HB 920's tax reductions.
The state determines how much an adequate education should cost, and requires each local district to pay part of that amount. The state then makes up the difference. The formula the state uses to decide how much a district should contribute does not take into account the way HB 920 holds down tax revenue - in essence, counting tax dollars the district will never receive. This is the phantom revenue.
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To learn more about Ohio tax law and House Bill 920, read our Policy Report, "Property Taxes for Funding Public Education: Ohio's Unique Method for Controlling Tax Increases.