Pickerington Area Taxpayers Alliance

Dear friends and neighbors:

You can't understand the PLSD's reasons for placing another operating levy on the ballot this November without understanding the infamous House Bill 920, an Ohio statute enacted some years ago to keep the drastic real estate inflation then occurring from producing excessive real estate tax increases. Next to uncontrolled residential growth, our weak tax base, and the current economic recession, House Bill 520 is the most fertile source of the PLSD's financial woes.

Due to this strange law, the rate approved by a school district's voters for operating millage (the ''Voted Rate'') is seldom the rate at which such millage actually is collected (the ''Effective Rate''). This is a truly strange notion, and one that is difficult to grasp. So let me say it again. In Ohio, operated millage usually is collected, not at the Voted Rate, but at a lower and continually decreasing rate.

In the PLSD, for example, the aggregate Voted Rate for all operating millage that PLSD voters have approved over the years, and that is still on the books, plus the unvoted or ''inside'' millage that the PLSD collects, is 58.8 mills. Due to House Bill 920, however, this millage currently is collected on residential property at an aggregate Effective Rate of less than 22 mills. The 3 mill levy that PLSD voters approved in conjunction with the bond levy for the new high school and junior high school is now collected on residential property at an Effective Rate of only 2.6 mills.

This is because House Bill 920 prohibits school districts from collected more tax revenue on existing properties just because they have increased in value. This statute requires county auditors to recalculate, and generally reduce, each school district's Effective Rate each year so that the school district collects no more total operating revenues from existing, or ''carry-over,'' properties than it did the previous year. The amount of any such rate reduction is termed a ''tax reduction factor.''



By Bruce Rigelman

Bruce Rigelman

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Here is an example. Suppose the aggregate taxable value of all residential real estate in a school district at the end of last year was $500 million. Suppose, further, that the Effective Rate for the school district's operating millage last year, as applied to residential property, was 25 mills. This would have yielded total tax revenue of $12.5 million. Suppose, finally, that, due to reappraisal, the aggregate taxable value of these same carry-over properties increased this year to $600 million.

In that case, the school district's Effective Rate would have been reduced so that, going forward, the school district could collect no more than $12.5 million on its carry-over properties. The new Effective Rate can be estimated simply by dividing this $12.5 million limit by the new $600 million aggregate taxable value of the carry-over properties. In this case, the school district's new Effective Rate would be 20, rather than 25, mills. This new Effective Rate would be applied, for the next year, to all residential property on the tax roll, both new and carry-over.

This does not mean that a homeowner's taxes cannot increase due to a reappraisal; only that the aggregate tax collections on carry-over properties cannot increase. Obviously, when reappraisals are done, the valuations of some properties increase more than others. For those homeowners whose valuations increase more than average, there usually is a tax increase. For those homeowners whose valuations increase less than average, there may actually be a tax reduction.

These Effective Rate recalculations are done separately for residential and commercial property. Thus, over time, the Effective Rates on these two types of property tend to diverge. In the PLSD, for example, the Effective Rate for residential property is now slightly less than 22 mills, whereas the Effective Rate for commercial property is now 20 mills.

It should be noted, however, that House Bill 920 applies only to operating millage, not bond millage or income tax. By law, county auditors are required to collect bond millage only at the rate necessary to pay principal and interest on outstanding bonds, whatever that might be. If those bonds are repaid in level installments of principal and interest, as home mortgages typically are, then the amount required each year should stay the same. Thus, whenever the tax base expands, due to either growth or reappraisal, the effective rate of the bond millage in force generally declines.

By House Bill 920 - 2

House Bill 920 - 3

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If, however, a school district has issued bonds that require increasing installments of principal and interest, as the PLSD did to finance the new high school and junior high school (and as homeowners sometimes do to finance homes they cannot afford), there may be no such reductions at all, and even increases, in the effective rate at which bond millage is collected from year to year. School districts that use such so-called ''minimal new millage'' or ''no new millage'' financing structures, which I consider fiscally irresponsible, may thereby be induced to spend more on new schools than they can afford, may have difficulty financing additional schools, and must depend on residential growth to keep effective rates within reach. This is why I opposed, and actually voted against, the bond levy for the new high school and junior high school.

In any case, the bottom line is that, due to House Bill 920, the Effective Rate of most school districts' operating millage does not keep up with inflation and, indeed, gradually evaporates. That is one clear advantage of income tax over property tax. Income tax rates do not change from their voted rates, and income tax collections thus generally do keep up with inflation. House Bill 920 also explains why school districts, such as the PLSD, that rely heavily on property tax must go back on the ballot, year after year, for new millage. Due to House Bill 920, it takes new voted millage just to maintain existing Effective Rates.

Two final points: First, House Bill 920 only applies to operating millage in excess of 20 mills. Once a school district's Effective Rate reaches 20 mills, it drops no further. As noted above, the PLSD's Effective Rate for commercial property already has reached that level and, without new voted millage, the Effective Rate on residential property will soon follow.

Second, the state of Ohio presumes an Effective Rate of 23 mills, and actually deducts from a school district's state funding each year an amount equal to 23 mills times the districts property tax base, whether the school district actually collects tax at that rate or not. Thus, in essence, the state imputes ''phantom revenue'' to school districts, such as the PLSD, with Effective Rates below 23 mills.

Obviously, I have rounded off some rough edges in describing these matters. Tax matters are never easy to describe, especially those that are as bizarre as House Bill 920. But the foregoing should give you the basic idea, and also explain why the PLSD keeps going to the ballot box. Under House Bill 920, the PLSD must run just to say in place.

By Bruce Rigelman

Real Estate Values

I want to thank Dr. Rigelman for the information he posts on this WEB site. He has the ability to take complicated issues and explain them so that even those of us that don?’t do this for a living can easily understand them. You are doing a great service to the community Dr. Rigelman.

I wanted to fill in a little history to Dr. Rigelman?’s comments concerning this HB 920. In the mid seventies this country was experiencing double digit inflation. I believe it was 1977 and I was living in Fairfield County down in Bloom Township. Back then you were required to pay a large down payment on your house loan and you paid your own real estate taxes. My neighbors and I received the first half tax bills for 1977 and they were either double or triple the amounts over the last year?’s bill. Many of us were expecting something slightly higher than last year?’s bill but nothing in the range that we received. It not only happened in Fairfield County but in the entire State of Ohio. The outcry was deafening to the lawmakers. Many of us don?’t want to ever go there again.

For the state to reform HB 920 it would require a number of things to happen in the basic way the State and County does it?’s reappraisal of real estate. Currently that reappraisal is done every six years. Fairfield County had a reappraisal last year and they will have another in 2007, which means we will have a jump in taxes for the bond levy for the new High School. I believe the reason the state has a reappraisal every six years is based on technology concerns of yester year.

In the mid-seventies computers were slow and storage space was both limited and expensive. The input to computers was still punch cards. If you filled one punch card up it would only hold 80 characters. The devices we call monitors today were very rare and very slow in operation. In large computer rooms in this city to store 2.7 giga bytes of data it took over 110 disk drives the size of your dishwasher. You can fit many more times that amount of disk storage into your pants pocket today.

Reappraisals, for the most part, are done by computer today. In fact, most counties in Ohio contract that service out to companies that may not be even located in Ohio. It is obvious that if you can store all of the sales data for a year from a county and all of the amenities of those properties you can determine, for the county, an estimate of the value of any property in the county. With the constant turn over in residential property in Violet Township those estimates would be very accurate in my opinion.

My point here is that to fix this law we must reappraise our real estate properties every year. Then on that six year cycle send an auditor out to look at the property because some properties will have been either improved or deteriorated from its neighbor?’s.