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School Official Explains Reason for Seeking Income Tax

By Michael Sobul

As published in the Newark Advocate January 24, 2018

In the latest academic report card from the State of Ohio, Granville schools scored highest among all districts in Central Ohio and second highest among all districts in the state in student academic achievement and career readiness. Granville goes beyond test scores and prepares students for life. Academics, athletics and the arts round out an education in Granville that is about the whole-child. Our educational opportunities provide a venue for students to explore their passion and purpose in life.

The high quality of the schools is an essential element of a strong, vibrant community, including being the primary driver for maintaining and growing home values. Costs for maintaining and further improving upon high quality schools increase each year. Unfortunately, the basic state system of funding schools in Ohio does not adequately allow revenues in most districts to keep up with increasing costs.

The Ohio School Funding System and Its Impact

Schools are funded in Ohio through a combination of payments from the State and local taxes. The amount coming from the state is driven by local wealth, generally measured by total property valuation per pupil. Since Granville is a wealthy district by this measure (the amount is among the highest 20 percent of all school districts), most of the funds for operating the schools come from local property owners through relatively high property taxes.

Under state law, property tax revenue is generally prevented from producing more revenue as property values increase due to inflation. As these valuation increases occur, the rate of taxation is lowered to offset the higher property values. With the limits on inflationary growth, the main way school districts increase revenue to keep up with inflation is through the passage of additional tax levies, which Granville last did in 2013.

Because district expenditures each year are once again higher than annual revenues because of restricted revenue growth, the district needs to act to preserve and enhance upon the high quality academic product it now provides.

The Board of Education’s Decision

At the January Board of Education meeting, the Granville Schools placed a 1.25 percent, five-year, earned income tax on the May 2018 ballot to pay for the operating expenses of the district, which are used for the costs of educating, transporting, and ensuring the safety and security of its students. The levy would also allow the district to effectively address its long-term capital needs. If passed by the voters, the tax would take effect on Jan. 1, 2019 and would be collected in the same manner as the state income tax. At the end of five years, the district will let voters decide whether to renew the tax.

Should voters pass the income tax, property taxes in the district will be reduced by about five percent a year later. The district WOULD NOT place a renewal of its 1.7 mill levy that pays for district capital expenses on the ballot, allowing it to expire after 2019. A 0.5 mill levy that pays for capital maintenance also expires after 2019 and CANNOT be replaced. Finally, the districts bond millage rate will be reduced by about 0.5 mill after 2019 to reflect lower interest payments that resulted from the bond refinancing that was completed successfully in late 2016.

Why an Earned Income Tax?

The decision to move forward with an earned income tax marked the end of a year-long process undertaken by the Board of Education. Board members and district administrators considered a number of different alternatives to address the long-term fiscal needs of the district, not only for general operations but also for maintaining and improving the district’s aging facilities. The strategy the Board has chosen to generate the needed additional funds will create a local funding structure with a diversified tax base and more ability to meet increasing costs of operations and maintenance and improvements to facilities.

The impetus for considering an earned income tax goes back to 2013 and the adoption of the district’s last operating levy in November of that year. Prior to the 2012/2013 school year, Granville Schools reduced its budget by more than $1 million from the prior school year to better align staffing and spending to its enrollment and needs. The subsequent levy passed by just 41 votes. The comments district officials consistently heard, especially from more senior residents, was that homeowners wanted to support the schools but could not afford additional property taxes.

This concern over the property tax is supported by data. In the most recent tax year, Granville School residential property tax rates were among the 50 highest school districts (out of 608 total districts) in the state. In addition, business property tax rates were among the 25 highest in the state and the highest in Licking County by almost 30 percent. High business property tax rates contribute to the difficulty of generating economic development. The lack of business property, only about 15 percent of total valuation in the district is from businesses, causes more of the burden of paying for schools on residential taxpayers than in most other area of the state.

The property tax concerns, especially among senior citizens, were exacerbated by the reappraisal in Licking County that occurred in 2017 for property taxes to be paid in 2018. On average, senior homeowners received a 6.6 percent increase in school property taxes due to the reappraisal. This is the equivalent of a new three mill levy. All other homeowners, on average, saw a slight reduction in their school property taxes due to the reappraisal.

The earned income tax better reflects an ability to pay than the property tax. The income tax would only be levied on earned income reported on a W-2 and small business income that is reported on lines 12 and 18 (Schedules C and F) of the federal form 1040. The earned income tax would not apply to Social Security, pensions, interest, dividends, pass-through income, and capital gains. Revenues to the school district would also be able to grow over time as earned incomes grow.

Summary

Based on the data laid out in the paragraphs above, Board of Education members, with the support of district administration, opted to place an earned income tax before the voters. An earned income tax would allow the district more long-term financial stability by providing a revenue stream that can grow with inflation. An earned income tax would ease some of the burden on fixed income residents, including seniors, while still ensuring that all parts of the community contribute meaningfully to the support of our schools. The 1.25 percent rate gives the district enhanced capability to address any unforeseen changes in the state portion of school funding or extraordinary, one-time issues related to the district’s aging infrastructure.

Finally, and most importantly, the earned income tax will allow Granville Schools to maintain and enhance its academic programs, which are already among the finest in the state by any objective measure. Even with this additional levy, the district would continue to do this at a cost per pupil that is below comparable school districts. Having an academically strong and financially healthy school district is the core of a vibrant, desirable community that can maintain and grow home values.

Michael Sobul is CFO/Treasurer of the Granville Exempted Village School District.

Anne Weinberg