Property Valuations, HB920 and the Adversarial Process

Over the years, I've had a few conversations with a commercial property owner here in Hilliard about property valuations. He has appealed the valuation of those properties in hope of reducing his property tax bill, the bulk of which represents revenue for the school district.

He is angry that the school district has opposed these revaluations, saying he doesn't understand why the school district spends his own tax dollars to oppose his tax reduction request.

Part of this has to do with the technicalities of a provision in Ohio law often called "HB920," after the 1970s legislation which causes the dollar amount of property taxes collected to remain constant on the set of parcels in existence when the levy was passed. The original purpose of this legislation was to prevent rising valuations from automatically raising taxes, which at the time were particularly burdensome for folks in poor urban neighborhoods that were being regentrified, such as The Flats in Cleveland.

So if that original set of parcels were given a market value of $1 billion by the County Auditor, and a property tax of 1 mills were passed, the amount of money generated by that levy would be:

Tax = ($1 billion * 35%) * (1/1000) = $350,000

In other words, property collectively worth $1 billion would generate $350,000 in property taxes if a 1 mill levy is passed. The 35% is the fraction of a property's value which is considered taxable.

Let's say that 10 years later, those same parcels would have risen in value to $1.25 billion, as determined by the County Auditor. HB920 would still restrict the total tax collected to $350,000. This is implemented by way of a "Reduction Factor" applied to the tax calculation.

In this case, the reduction factor would be 0.800000, applies as follows:

Tax = ($1.25 billion * 35%) * (1/1000) * 0.8 = $350,000

All this works in the other direction as well - when property values decline. Let's say that instead of going up 25%, property values went down 25%, to $750 million:

Tax = ($750 million * 35%) * (1/1000) * 1.333333 = $350,000

This same calculation is applied to every parcel in the school district. But over time, individual properties do not necessarily change in valuation as the same rate as the whole district. Some may have greater increases, and some may have decreases. All get the same reduction factor applied, and in the end the total amount of tax collected remains the same.

Here's the subtlety built into this:  when one property owner is successful in getting their valuation reduced, the consequence is that everyone else has their property taxes increased in order to keep the total amount collected constant. As the value of one property is decreased, the overall Reduction Factor applied to everyone has to be increased to compensate.

So who represents the "everyone else" when a property owner files an appeal for a reduction in valuation?

In most cases, it's the school district. As with so much of our legal process, the various sides in a case present their arguments to an impartial "court," who listens to the arguments and renders an opinion. Whether the case is a capital murder or a property revaluation, the theory is that justice is best reached when opposing parties argue vigorously, and an impartial judge makes the final call.

That's what's going on here. Nothing evil or unfair - just the wheels of justice turning as designed.

But someone has convinced some of our lawmakers that this approach needs some tweaking. Language has been inserted into House Bill 483, the midterm budget bill, modifying section 5715.19 to prohibit parties such as school districts from opposing reappraisals unless the reappraisal was requested by the property owner.

In other words, if the County Auditor changes the valuation (remember all the arguments about the valuation of Nationwide Arena?), the school district has no right to argue in opposition.

Who then represents the interests of the property owners who will have their taxes raised as a consequence?  No one.

Contact your state legislator if you think this isn't fair. For those of us in the Hilliard School District, this is:

• Representative Stephanie Kunze or Cheryl Grossman
• Senator Jim Hughes

Their Education; Their Choice; Our Money

The final issue of the year of Bradley student newspaper, The Reporter, includes an editorial titled "Our Education, Our Choice."

First off, The Reporter is a well written and well edited student newspaper. I support and applaud the effort of our students to engage in political discourse. The School Board heard from students when changes were made to the Honors/AP class grade weighting, and it led directly to changes in the policy. We're hearing from them these days in regard to potential changes to the German programming.

The most dangerous threat to democracy is apathy. I've said it many times on this blog. Democracy is designed around discourse and debate. Not everyone will get their way all the time. To reach a majority, compromises must often be made.

So I'm glad that there is a student voice being heard about changes in course offerings. But they are also naive in regard to the economic reality.

Our school district offers an incredibly rich catalog of course at the high school level. Last year, students were scheduled in 209 uniquely number courses in our high schools. The Program of Studies for 2014-15 looks like a college course catalog.

When I went to high school some 40 years ago, our course options numbered about 30.

I'm not saying that offering 200+ courses each year is inappropriate. I'm just pointing out that it's not free. Every one of those courses must be taught by a licensed teacher, who gets a decent paycheck and great benefits. There has to be a place for the class to meet in a school building (except for the online courses). Those buildings are pretty nice in our district, and our community pays a boatload of taxes to repay the bonds (ie mortgages) on those buildings and to keep them maintained.

The range of what school districts spend, on a per-student basis, ranges widely in our state, from $21,776.student in Orange City Schools in Cuyahoga County to $6,000/student in Washington Court House. This is a consequence of both the differences in teacher compensation, and the number of teachers per student. And the number of teachers/student is heavily influenced by the variety of courses offered. You can be sure that the course catalog in Washington Court House pales compared to Orange. Or Hilliard.

I'm glad we have such a rich course catalog. But it's expensive. If we want to keep it so, then it has to be supported by regular tax levies to generate the revenue to pay the ever-escalating cost of faculty, staff and administrators.

The students don't bear these costs - the property owners of the community foot the bill. They're the ones who get to decide how much we spend to run our schools. They do so  by electing their neighbors to serve on the School Board, and more directly by voting whether or not to increase their property tax burden when we put an operating levy on the ballot.

A desirable school district is good for everyone. It makes our community a great place to raise kids, and it makes it a place where one can have confidence that the homes we buy retain their value.

Many kids want more. Nothing should be cut - only new things should be added. Meanwhile the voters tell us that it already costs plenty to run our school district, and they're not eager to increase the rate of spending. In fact, they'd like to see it slow down.

Economic discussions are about choice, when you can have some, but not all of what you desire. This editorial in the student newspaper doesn't acknowledge that because the students don't understand or participate in the cost side of the debate. Sadly, few voters do either. A parent showed up at a recent Board meeting to angrily tell us that he would campaign aggressively against us in the next election should the German program be terminated. He's free to make that threat.

I wish I had asked him that if we do not make any changes to the German program, would he be equally energetic in his support of the next levy...