Understanding Your Real Estate Taxes and other impacts on SMFCSD funding

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1 Understanding Your Real Estate Taxes and other impacts on SMFCSD funding $ An informational guide provided by

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3 Fall 2008 Dear Stow-Munroe Falls Citizen: This brochure has been prepared by the Stow-Munroe Falls City School District in order to help you understand real estate tax definitions, how to calculate your taxes, how much of those taxes go to Stow-Munroe Falls, and other valuable information impacting our district. We hope that you find this information useful and invite you to contact our offices should you have any questions. Sincerely, Stow-Munroe Falls Board of Education Denny J. Mariola, President Dick Spangler, Vice President Pat Matthews Karen S. Powers Karen Wright Dr. Russell D. Jones, Superintendent Catherine M. Bulgrin, Treasurer/CFO Thomas G. Adams, Business Manager 4350 Allen Rd., Stow, OH

4 School Finance Definitions Understanding school finances can be difficult because of the terminology used to describe the process. The following terms are some of the most common ones used. Market Value - Term used representing the County Auditor s appraised value of a home; this appraisal is adjusted every three years. Assessed Value - Term representing 35 % of a home s market value that a homeowner is assessed to pay taxes. Millage The unit of value representing the rate used to calculate property taxes in Ohio. In cash terms, it is one-tenth of a penny (.001). One mill produces 10 cents for every $100 of assessed value (.001 x 100 = 10); or, $1.00 per $1,000 of assessed value (.001 x 1,000 = 1 ). Outside Millage - The total millage approved by voters, also referred to as voted mills. Inside Millage Mills that, under the state constitution, local governments are permitted to share, aka unvoted mills. They may tax up to 1% of a property s assessed value or 10 mills (.010) without the vote of the people. Out of the 10 unvoted mills, Stow-Munroe Falls City School District s share equals 5.4 (.0054). Of that, 4.74 mills (.00474) are targeted for general operations and 0.66 mills (.00066) are targeted for permanent improvements. Effective Millage - The rate of taxation, expressed in mills, multiplied by the assessed value, raises the same dollar amount that was voted. Since 1976, House Bill 920 prohibited an inflationary increase in the amount of taxes levied against real property. In other words, as property values increase, the taxes charged may not be increased; therefore, the millage multiplied by the new value must be reduced so that the dollars received by the District are equal to the dollar amount the voted mills would have generated. This reduced millage rate is referred to as effective mills and is less than voted mills. Rollback Under Ohio law, a 10% reduction is applied to Class 1 property that is reimbursed to school districts by the State. An additional 2.5% reduction is applied to owner-occupied residential property that is reimbursed by the State. For owner-occupied property, the total reduction rollback is 12.5%. 4

5 School Finance Definitions - continued Homestead Exemption - The Homestead Exemption refers to the reduction in taxes for senior citizens and permanent and totally disabled Ohioans, reducing their property tax burden. The tax exemption is limited to homestead owners that, defined by Ohio law, own a dwelling and up to one acre of land. The value of the exemption may not exceed the value of the homestead. This amount is reimbursed to school districts by the state. General Operating Fund - Public purpose fund used for general operating purposes that include, but are not limited to, salaries, benefits, utilities, textbooks, supplies, repairs, equipment, etc. Permanent Improvement Fund - Fund used to account for capital outlay that include building improvements, buses, fixed assets, equipment, and textbooks. Understanding Your Property Taxes Calculating Your Real Estate Taxes Property taxes levied on Class 1 and Class 2 real property (buildings and grounds held by for-profit businesses and individuals) and tangible personal property (business machinery, equipment and inventory) produce the majority of the School District s local revenues. Taxes are determined based on 35% of the market value of your home and property. This is known as the assessed valuation and is the only portion that is subject to taxation. Taxes are calculated by multiplying the fair market value of the homeowner s property by the County Auditor s assessed valuation rate of 35%. For example, if a home has a fair market value of $100,000, the homeowner is taxed on the assessed value of $35,000. The School District is paid taxes from the County Auditor when they are collected. Tax bills are generated bi-annually with collections for the first half of the prior year taxes assessed in the subsequent January; and the collections of the second half of the prior year taxes assessed in the subsequent July. Sample Tax Calculation Fair Market Value of Home $100, x Assessed Value Rate x 35% = Taxable Rate $35, x Effective Millage Rate x SMF s residential tax rate = Total Taxes $1, (tax year 2007) Less State Credits (12.5%) $ Total Annual Taxes Owed $1,

6 Stow-Munroe Falls City School District Voted/Effective Mills Type of Levy Month/Year Voted Outside Millage Effective Mills Continuing 1976 & Prior Continuing Additional Nov Emergency (Current Expense) Nov * Emergency (Current Expense) Nov ** *Emergency Tax Levy voted for a five-year period generates $4.6 million, expiring December **Emergency Tax Levy voted for a five-year period generates $7.3 million, expiring December Unvoted Millage - Mills that, under the state constitution, local governments are permitted to share (unvoted mills). Inside Millage = 5.4 for Stow-Munroe Falls City School District. Mills voted/unvoted for Stow-Munroe Falls City School District Current Total SMFCSD mills: General Operating Mills (Voted) = General Operating Mills (Unvoted) = Permanent Improvement Mills (Unvoted) = Total Mills =

7 How much am I paying in property taxes to the Stow-Munroe Falls City School District? Approximately 60% of your property taxes go to the Stow- Munroe Falls City School District. Summit County receives 22%. If you are a resident of Stow, the City gets 17%. (Those who live in a home within the SMFCSD boundaries, but outside the city limits, pay the same taxes for the School District but pay their local government taxes for Hudson, Kent or Cuyahoga Falls.) Sample of your tax bill A mill (.001) produces $1.00 for every $1,000 worth of property it is levied against. Tax District Stow-Munroe Falls City School District Tax Distributions For Tax Year 2007 / Collection Year 2008 Municipality SUMMIT COUNTY S-MF CSD STOW CITY S-MF PUBLIC LIBRARY Residential Agricultural Commercial Industrial Other Rate Tax Rate Tax $ $1, $ $ $ $1, $ $32.85 TOTAL $1, $1, DISCLAIMER Tax calculation is based on property value of $100,000. The total amount may be a few dollars off because of rounding. Special assessments are not included. Residential tax without 2.5% discount. Source: Summit County Fiscal Office 7

8 Millage Adjustments H.B. 920 effective millage adjustments In Ohio, the tax rates charged to the property owners may change when the tax base increases or decreases. The new assessed value is multiplied by the number of mills that will generate the voted dollar amount. In other words, the amount of money a school district may collect cannot exceed the dollar amount that was originally generated when the levy was voted. This occurred when Ohio passed House Bill 920. As the value of your home increases, the adjustment to the millage tax rate reflects a decrease; and, viceversa, if the value of your home decreases, the adjustment to the millage tax rate increases. This adjustment to the millage is known as effective mills and results in the school district collecting only the same amount as the year it was voted. Therefore, the millage rate multiplied by the assessed value may be lower than the millage tax rate that appeared on the ballot and was voted. A negative impact to the School District occurs when the community s valuation overall increases, the District may not receive more than the voted dollar amount, when that happens the effective millage rate is decreased resulting in taxpayers actually assessed at a lower rate. The County s triennial valuation update is scheduled to occur in calendar year First-half taxes for calendar year 2008 will be billed and collected beginning in January Second-half taxes for calendar year 2008 will be billed and collected beginning in July The School District s fiscal year begins July 1 and runs through June 30 of the following year. Inside millage is not reduced as a result of inflation or deflation nor subject to the H.B. 920 adjustment. 8

9 Millage cannot be adjusted below 20 mills Laws in Ohio guarantee a minimum of 20 mills for School Districts (excluding emergency levies and bond retirement levies). This is referred to as the 20 mill floor. The Stow-Munroe Falls City School District is considered on the floor. That means that whenever the effective millage drops below 20 mills, the property owner is taxed at 20 mills of their assessed valuation. Some levies are not calculated as part of the minimum millage, such as emergency levies. These levies are voted for a specific period of time and bring the stated dollar amount requested from the voters. The millage rate is reduced or increased to produce the same dollar amount annually. No reduction factor exists for emergency millage. Other types of levies not impacted by the reduction factor: Income Tax levy Bond levy 9

10 The School District Resources The Stow-Munroe Falls City School District (SMFCSD) receives money from Local, State and Federal sources. The majority of revenues the District receives come from the local and state sources. The local source comes from property taxes and the state source comes from the State of Ohio. In fiscal year 2007, SMFCSD received 58% of its revenues from property taxes and 39% from state sources. Federal sources provide federal financial assistance in the form of grants to be used for restrictive purposes. The State also provides financial assistance in the form of grants to be used for restrictive purposes. State law mandates that all grant dollars be accounted for in separate funds and cannot be co-mingled with the District s general operating funds. 10

11 Where the Money Goes Education is heavily reliant on people. In 2007, 84% of our resources were spent on wages and benefits with 16 % spent on instructional supplies for the classroom, custodial and maintenance supplies, utilities, fuel, textbooks, county auditor and county treasurers fees, debt and capital outlay, etc. 11

12 Other factors that affect School District Funding The State requires Boards of Education to function like a business. The business of schools produces an intangible product unlike a business that produces a saleable product for distribution and profit. Also, where a business may sell its product for an increased price to cover its cost and create a profit, schools must rely on the local community s taxes and the state for funds to operate. In order for schools to increase their revenues, they are faced with the dilemma of asking the constituents to increase their property taxes to cover our cost of living and cost of doing business increases as well as covering additional expenses, some of which are indicated below. Over the years, the legislature has passed many mandates that are either unfunded or under-funded by the State, causing the local community to bear the costs. Some of these are: Collective Bargaining (1983) Charter Schools (1992) Fingerprinting and background checks (1993) EMIS (1998) No Child Left Behind (NCLB) (2001) Teacher Certification law changing to Licensure requiring MA degree that could be a permanent certificate requiring a BA degree Increasing the number of High School Credits needed for graduation (1950, 1960, 1998, 2003) Special Education mandates 12

13 The Legislature also passed HB 920 (1976) that eliminates the growth in real property taxes, as well as HB 95 (2000) that began phasing out tangible personal property tax owed by businesses and HB 66 (2005) that accelerated the phase out to zero by The state is holding districts harmless for the first five years of the phase-out of the Tangible Tax by reimbursing districts for their loss of revenue. However, beginning in 2012 through 2018 the state will gradually eliminate the reimbursements forcing the District to go to the voters to replace those dollars. The cost of this tax loss to the Stow Munroe Falls school district is $4 million or 8% of the district s revenue source. Over the past several years, the state has eliminated the Cost of Doing Business Factor. This was a multiplier on the foundation money from the state that was used to equalize the cost of inflation; it varied by district. This eliminated approximately $750,000 from the State s funding to the Stow-Munroe Falls City School District. 13

14 Who determines how much I pay in taxes? 1. The State Legislature determines the level of state aid given to schools by setting the amount of homestead credit and inside millage. 2. The Summit County Auditor assigns each piece of property a market value and classification such as residential, agricultural, etc. 3. The Stow Munroe Falls School Board determines the needs of the district to provide each student with an adequate and efficient education and, if need warrants, they ask for tax dollars to meet those needs. The County Auditor determines the mills needed to raise the dollars hence a levy is placed before the voters. 4. The Voters must approve a levy request at the ballot box for it to be implemented. How does the School District determine how much to levy? The district must address increasing costs when current revenue sources are flat-lined. The only authority to increase revenues the School Board has is through a property or income tax levied on the constituents. There is no authority to ask for a sales tax. The Treasurer by law must submit a five year forecast twice a year to the Ohio Department of Education. The Five-Year Forecast is used as a management tool to determine the Districts future revenues and expenses with assumptions that are based on historical trend and available information at the time of the projection. Available information would include, but not be limited to, the state of the economy, current market conditions, and local economic indicators. Current budgets are evaluated addressing the basic needs of the students and their education. Calculations of levy amounts are modeled into the forecast to determine how many mills should be levied to stave off future deficits. By law, schools are not allowed to operate with a deficit or close their doors and cease operation. 14

15 What is the future of my property taxes paid towards Schools? The Stow-Munroe Falls City School District is rated an Excellent District for providing programs and services to our students that result in their achieving success in college and in future careers. Our Cost-per-pupil rate of $8,796 for fiscal year 2007 is lower than similar districts that pay $9,050 annually per student and is less than the state average cost per student of $9,623. (Taken from Ohio Department of Education District Profile Report formerly known as the CUPP Report) Based on the current school funding structure in Ohio, it will be necessary for schools in Ohio to continually ask for tax increases from its constituents in order to continue doing business. The Stow-Munroe Falls City School District s revenue remains flat-lined until the passage of a new levy. As costs increase, new levies must be proposed in order to meet its daily operations. Fiscal Year 2007 Estimated Daily Cost to Educate a Student $60 $50 $49.18 $40 $30 $20 $21.19 $10 $- Daily Cost to Educate a Student Resident Share of Daily Cost 15

16 Stow-Munroe Falls City Schools 4350 Allen Rd. Stow, OH SMFHS 100 th GRADUATING CLASS A Century of Excellence Postal Customer NON-PROFIT ORG. U.S. POSTAGE PAID CUY. FALLS, OHIO Permit No. 329