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.