Saturday, June 14, 2008

Comparing Tax Burdens - We Pay More

Thanks to Jim Fedako for telling us about this report, published by the State of Ohio (up until 2006 at least). There's a wealth of good information in this report, useful for comparing the funding profile of our school district to the rest of the county and state, as well as for learning some basics about the way school funding works in Ohio.

The first chart that interested me is Table Seven on page 18. It shows overall statistics about how much annual revenue is raised per pupil by one mill of property tax. The average is about $130/yr statewide, but the range is huge - from $575 in some districts to $37 in the lowest. Our school district collects $146.84/mill/pupil.

This chart also makes the point I've been saying for years - a balance of residential and commercial development is crucial to creating an affordable school funding program. Those districts which raise $500/mill/pupil collected over half their local funding in 2004 from commercial sources. The average school district received only 30% from commercial sources, and the lowest only 2%.

We in Hilliard collect 66% of our school taxes from residential and agricultural property taxes, and 22% from commercial property. Both numbers are right on the state average. We collect another 3% from properties owned by the public utilities and 9% from business tangible personal property taxes, again right on the state averages. By the way, that 9% we get from business tangible personal property tax is being phased out by the State, so we'll have to cover that locally as well.

We shouldn't be surprised that among Franklin County school districts, Columbus has the highest fraction of their local tax income coming from commercial sources - 38%. Nor should we be surprised that Upper Arlington and Bexley have the lowest, at 9% and 5% respectively.

But here's a telling comparison. In Hilliard, we collect $32.75/mill/pupil from commercial sources. Dublin collects $54.60/mill/pupil, or 67% more.

At first glance, one might think this says Dublin sticks it to the businesses in their community. But the correct analysis is that Dublin collects more per pupil from business because there are more businesses in Dublin! Because of this, they can raise the same amount of money with 3 mills that takes us 4 mills. To raise $20 million addition per year to operate the schools, we need a 9.5 mill levy - Dublin needs only 7 mills. So if you are a business, you would rather locate in Dublin than in Hilliard because there are more other businesses in Dublin with which to share the tax burden.

Table Ten on page 21 is another interesting chart. It shows what local residents contribute to school funding as a percentage of income, which in this case is defined as the Adjusted Gross Income on the Federal tax return. The statewide average is 2.00%, with a range from 3.82% (Patrick Henry Local School District, 25 miles SW of Toledo) to 0.81% (Indiana Hill, near Cincinnati). For this statistic, it is generally true that the lower the percentage, the higher the wealth of the community, because a small fraction of a big number can be the same as a large fraction of a small number.

But it isn't quite that simple. I've often mentioned Dawson-Bryant schools in Lawrence County as being one of poorest systems in the state, receiving all but $100/student of its funding from the State of Ohio. However, Dawson-Bryant residents pay well below the average portion of their AGI in school taxes - only 1.32%. Why is that?

It has to do with the concept of disposable income. When your income is very low, as is the case for the folks in the Dawson-Bryant district, virtually all of your income is consumed just paying for the essentials, such as food and housing. But as personal income goes up, the fraction of your income needed for essentials goes down and more money is available for discretionary spending.

This is the reason our income tax tables are graduated - or "progressive." The theory is that the greater your income, the more of it you should be able and expected to pay to run the government institutions.

When talking about school taxes, there are a couple of things going on. One is the condition I've just mentioned - that the people of the poorer districts pay a below average fraction of their AGI in school taxes because the State of Ohio (ie the rest of us) carries much of their funding burden. And the people of the wealthy districts also pay a below average fraction of their AGI in school taxes because a smaller fraction still generates a lot of money when the income level is high.

So who is it that pays the above-average fraction of their income in school taxes?

That's right, the middle-class school districts in the bedroom communities with little commercial development. Districts like Hilliard. We pay 2.58% percent of our AGI to fund our schools, which is by the way is the third highest in Franklin County. Only Canal Winchester (3.05%) and Upper Arlington (2.63%) pay more.

THIS is the fundamental funding issue in Hilliard; that our local politicians (Mayors, City Councils) have permitted - perhaps assisted - the loading up of our community with houses full of school age kids without bringing in a commensurate amount of commercial development. Said another way, the municipal politicians could have restricted the issuance of residential building permits to pace commercial development, but chose not to.

The people who run Dublin are smarter than this, or maybe just more concerned with creating a viable and sustainable community.

Sadly, no White Knight is going to ride to our rescue, and there is no other short-term solution for us other than to lower expenses and raise local revenue. The degree of each is what we have to figure out, and we must do so pretty quickly as the paperwork has to be filed with the Board of Elections by August 21st, just 68 days, to get the levy issue on the November ballot.

Early/Absentee voting will begin in 108 days.


  1. Paul, some more additional educational information that is valuable.

    If the 2.58 figure is in the ballpark
    then I would question shifting of blame all the time to the individual taxpayer.

    1. We dont support our schools ?
    2. We are responsible ourselves for all of our funding issues because we bought a place or rented a place to live in the district
    3. That little blame should be placed on the developers, city leaders, district officials, etc
    4. That we should not be concerned about the 20% increases added to our tax bills while spending can be reined in?
    5. That business as usual and we will fix it next time has caused us to be in the position that we are in.

    Getting everyone to 50.1% will present some challenges. Telling taxpayers who are struggling to get over it may not wash properly !

  2. Rick:

    Re your #2, I agree with you. We as homeowners shouldn't take too much of the blame for causing the funding mess. We're paying our reasonable share and are being asked for more. We each made an individual housing (and school) choice, without any particular insight or even interest into the mechanics of school funding.

    It's the role of the Mayors and City Councils to understand these economic factors and use the tools available to them (annexation, zoning, building permits) to keep the community healthy. Instead it's being run as though the priority is helping the developers and homebuilders make as much money as they can as quickly as they can.

    The failure of the municipal leaders to manage these things leads to bizarre solutions, such as New Albany schools buying up farmland to keep it from being developed.

    What would cause the Mayors and members of the City Councils to care more about the developers and homebuilders than their own constituents?

    And what kind of message is being sent by the people of the community when a Mayor runs unopposed for reelection?

  3. Paul,
    Do you know if the HSD receives any portion of the commercial property taxes collected in the City of Columbus part of the District? I seen to recall hearing somewhere that we did not.

  4. Edjr:

    Yes, HCSD receives 100% of the school property taxes on commercial property within in the bounds of the school district, regardless of which municipality the property lies in. School Board member Doug Maggied said, during the Board Candidate's Night last October, that HCSD collects about $10 million from the part of the school district which is in the City of Columbus.

    But there's a cost: HCSD also has to educate 100% of the kids who live within the bounds of the school district, regardless of which municipality the residence lies in. This costs about $20 million/yr.

    And we have to pay about $1 million in ransom to Columbus City Schools.

    It's all part of a thing called the "Win-Win Agreement" which was created in the 1980s. There are additional details in an earlier post if you'd like more background.


  5. I noticed that the figures were for Tax Year '04. I'm curious as to what Hilliard's numbers would look like now, both relative to other districts and with the relocation of BMW Financial Services from Dublin to here. My guess is probably pretty similar, but it would still be interesting.

    Just for the sake of comparison, here are the figures for other districts similar to Hilliard in economic makeup.

    Pickerington 3.33
    Worthington 2.53
    Westerville 2.28
    Gahanna 1.80

    Not surprisingly, Pickerington's number is higher, since there is very little commercial development within Pickerington LSD. Gahanna's number is lower. There's a decent amount of commercial development there and their district enrollment is substantially smaller than the others. Hilliard, Worthington and Westerville seem like they're in a similar situation.

  6. So long as the discussion focuses on revenue and not expenses, you will never get anywhere. It doesn't matter who pays what, what matters is that the entire pie is rapidly becoming unaffordable without a major paradigm shift.

  7. I agree - it's a two-pronged problem.

    The elephant in the room is this: we are now seeing the beginning of a significant flow of wealth from private sector workers to those who work in the public sector.

    Watch for the next post

  8. 3:23,

    Yes, the data is old. The problem is the time that it takes for the Dept. of Taxation to certify income taxes for a given year.

    With a little work (truly, just a little), you could generate the approximate values through 2006 (Taxation does a number of tweaks to the data that consume a lot of time but do not change the bottom line above the de minimis -- just love that word). All the data is on Taxation's website.


    The same holds for Olentangy and Polaris. It has always been my statement that the supposed tax benefit of Polaris is wiped away by the number of students in the Columbus areas of Olentangy (especially given the density of Columbus v. the old density of Orange Twp).

    That said, Olentangy has benefitted -- and continues to benefit due to the current funding guarantee -- from Polaris being a TIF and not a part of our valuation for the state funding purposes.