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Phantom revenue

The tax control provisions of Ohio law known as House Bill 920 and the state funding formula interact to create a phenomenon called "phantom revenue." This interaction results in reductions of state aid to school districts.

How it works

The state school aid formula requires each district to contribute a share of basic education costs. In simple terms, it then subtracts that amount (sometimes called a "chargeoff") from the total cost and provides the difference.

However, when the state determines how much each district should pay, it does not take into account the effects of House Bill 920 reductions. It assumes districts are earning taxes on the full appraised property value.

Example: A hypothetical school district had $200 million in property value in 2005, and the value of that property increased 15% in each of two reappraisals.

In 2005, the district earned a total of $5.4 million in property tax revenues, $1 million from 5 "unvoted" mills that are exempt from HB 920 and $4.4 million from 22 voted mills.

Because House Bill 920 held tax revenue from the voted mills constant, by 2009 the district’s effective tax rate had gone from 27 mills to 21.64 mills. The amount it earned from unvoted mills increased to about $1.32 million, but the levy still brought in $4.4 million, for total revenue of just more than $5.72 million.That was an increase of about 6%. (Learn more about how HB 920 and reappraisals affected the district in this example.)

Over that time, the district's required contribution - the amount the state assumes local districts can afford based on their tax base - grew at the same rate as property values, about 32%. As a result, the state decreased its aid by about $1.5 million by the end of that period, even though local tax revenues grew only by $322,500.

The effect was that the district was left with a sizable amount ($1.16 million in 2009) that it must fund through a new levy or cut from its budget.

The amount the state assumes local districts are earning from property taxes is money the districts never receive: phantom revenue.

Year

Taxable

Value

Contribution

Rate

Local

Contribution

Required

Growth in

Local Contribution/

Decrease in State Aid

Growth

In Total

Revenue

Amount District Must Fund or Cut

2005

$200,000,000

23 mills

$4,600,000

 

 

 

2006

$230,000,000

23 mills

$5,290,000

    $690,000

  150,000

$540,000

2007

$230,000,000

23 mills

$5,290,000

    $690,000

  150,000

$540,000

2008

$230,000,000

23 mills

$5,290,000

    $690,000

  150,000

$540,000

2009

$264,500,000

23 mills

$6,083,500

 $1,483,500

  322,500

$1,161,000

Return to House Bill 920 page.