Ohio’s Proposed Income Tax Cut for the Rich Would Impose a $929 Million Property Tax Increase on Ohio’s Homeowners and Farmers

The Ohio House Ways and Means Committee is considering Ohio House Bill 1, a convoluted and labyrinthine proposal to cut state taxes by substituting a flat tax for the state’s current graduated income tax.

Why?  To provide a tax cut for Ohio’s wealthiest citizens.  The Plain Dealer‘s Lucas Duprile quotes the bill’s sponsor, Rep. Adam Matthews: “Bill proponents pitch the bill as a way to lower taxes, simplify the system and increase consumer spending by putting money back in taxpayers’ pockets, Matthews said. The disproportionate benefit to wealthy families is part of a strategy to encourage upper middle class and wealthy families to live, work and pay taxes in Ohio, Matthews said. ‘Higher income families are increasingly mobile… We want those with the ability to pick up and move to stay in Ohio.'”

How Would Ohio House Bill 1  Work?

Ohio’s school finance guru, Howard Fleeter has continued to revise and clarify his earlier report on how the proposed HB 1 would work:

“House Bill 1 proposes an estimated $2 billion reduction in Ohio’s state income tax. The income tax would be changed from the current graduated rate structure… to a flat rate structure with a single rate of 2.75%.” To pay for the state tax cut, “HB 1 also proposes the elimination of a property tax relief program commonly referred to as the 10% rollback… The 10% rollback… currently saves residential and agricultural taxpayers $1.221 billion in local property taxes as the state pays this amount to schools and local governments…  Because the 10% rollback means that the state pays roughly 10% of each residential and agricultural taxpayer’s property taxes, elimination of the rollback will automatically increase every residential and agricultural taxpayer’s property taxes by the amount of their rollback.  In order to offset this automatic increase in residential and agricultural property taxes, HB I includes a provision which reduces the assessment percentage on residential (and) agricultural property from 35% to 31.5%…  Reducing the assessment percentage from 35% to 31.5 % on residential and agricultural property is intended to offset the elimination of the 10% rollback by reducing the amount of taxes owed on all ‘fixed rate’ property tax levies in place across the state.  School operating and permanent improvement levies, that were approved by the voters for a specific millage amount, are fixed rate levies. ” (emphasis in the original)

Fleeter then introduces the complication introduced by Ohio House Bill 920: “The ultimate impact of the reduction in the assessment percentage depends on whether or not the HB 920 tax reduction factors will be triggered by the reduced property valuation resulting from the reduction in the assessment percentage to 31.5%.”  He continues: “In 1976, after the setting of the 35% assessment percentage and following very rapid inflation in home prices, Ohio enacted HB 920, one of the most stringent property tax limitations in the country. The goal of House Bill 920 was to insulate homeowners from the effects of inflationary increases in their property. House Bill 920 aspired to accomplish this goal by introducing ‘tax reduction factors,’ which were reductions in voted property tax rates designed to adjust the tax rate downward when property increased in value after property reappraisal.”   He adds: “A final point about HB 920 is that it also works in reverse. If property values after reappraisal are lower than they were previously, then the HB 920 reduction factors will actually increase in order that property tax revenue from fixed rate levies does not decline.”

Fleeter concludes by pointing out the impact for local governments, school districts, and other institutions and for local taxpayers.  There are only two possible outcomes.  First, if HB 920 doesn’t apply to the legislature’s new proposal: “Schools and local governments will lose local revenue for all inside millage and fixed rate levies, compromising their ability to provide local services.”

If HB 920 does apply, HB 920 will protect the tax revenue from residential and agricultural property for schools, local governments and other local institutions, but homeowners and farmers will experience an unvoted, automatic leap in their local property taxes.  However, because HB 920 does not apply to commercial and industrial property, property taxes for businesses would be reduced and local governments, school districts, and other essential institutions across the state would lose that stream of property tax revenue.  The loss of property tax revenue from businesses and industry would make up the bulk of $538 million, which will ultimately be lost under HB 1 to school districts, local governments and local institutions.

It Looks As Though Ohio House Bill 920 Would Apply to the Proposed Ohio House Bill 1

The big question has been, of course, whether HB 920—enacted in 1976 and inserted into the Ohio constitution in 1980—would apply to the implementation of the proposed HB 1 currently being considered by the Ohio House.

According to Howard Fleeter’s new summary of the Ohio Legislative Service Commission (LSC) Fiscal Note, the LSC accepts that House Bill does apply to what would be the operation of the proposed House Bill 1.  Across the state, according to the LSC, there would be an automatic, unvoted property tax increase amounting to $929 million for residential and agricultural property owners, while at the same time schools and local governments and other agencies would still lose $538 million primarily from property tax cuts for owners of commercial and industrial property.

What’s Wrong with the Proposed House Bill 1?

The Legislature is currently considering a plan to impose nearly a billion dollars in unvoted property tax increases upon Ohio homeowners and farmers at the same time their public schools would lose more than half a billion dollars.

Even though the proposed HB 1 is labyrinthine and impenetrable, what’s wrong with the proposal on a practical level is pretty simple.  At a March 14 hearing, the ranking Democrat on the Ohio House Ways and Means Committee, Rep. Dan Troy formulated the practical problem clearly: “Nobody likes taxes… but the problem is we need to have something to underwrite the cost of critical services.”

There is also the ethical problem.  Over 25 years ago, the Ohio Supreme Court found Ohio’s school finance formula unconstitutional because of overreliance on local property taxes.  We all know that wealthy communities where property is expensive can raise school funds more easily than impoverished communities, because property values themselves are lower in poor communities.  And poorer people cannot afford tax rates high enough to compensate for the community’s overall lower property tax valuation.  The basic principle of school funding equity is that the state will compensate poorer communities with additional funds to enable them to offer their children an education that is comparable to what wealthy communities provide; state funding is supposed to compensate for school districts’ unequal fiscal capacity.  I don’t suppose the legislative sponsors of HB 1—people who prioritize slashing income taxes for the rich—can be expected to worry about the ethical concept of equity in school funding.

Maybe the political problems with this bill will carry more weight with Ohio’s legislative Republican supermajority.  There is a political lesson a lot of us in Ohio have learned over the years: In Ohio, we can’t ever have unvoted property tax increases.  I know that in some states, school boards can raise their millage rates when expenses grow, but not in Ohio.  As a parent I would certainly prefer that we didn’t have to exhaust ourselves to pass our school levies, but decades of preaching by Ohio Republicans and the laws they have put in place have taught me that in Ohio, unvoted tax increases cannot happen.

Here is how I learned this lesson—and how thousands of parents, grandparents, teachers, and good citizens will realize, if HB 1 becomes law, that Ohio’s supermajority Republican legislature has done something outrageous by imposing unvoted property tax increases amounting to almost a billion dollars across the state. We know from what Howard Fleeter explained earlier in this post, that HB 920 freezes the revenue from any voted school operating levy at the amount the levy yields when it is passed. So, for generations, to enable their school districts to respond to inflation, parent and citizen volunteers have been spending thousands of hours—literally months—running ballot campaigns to pass school levies to keep their school districts solvent.

In 1993, exactly 30 years ago, my friend Ellen and I—parents with children in our public schools—volunteered to chair the campaign to pass an 8.9 mill school levy in the November election. Back then, without computer data base programs, we kept all the records written by hand on legal pads.  Beginning early in July, we led a committee that recruited over 700 volunteers to serve as street captains who promised to talk to their neighbors on three different designated weekends and to deliver the brochures we raised money to print. We recruited people to manage this army of volunteers, collected hundreds of endorsements, sent out speakers to community events and churches and synagogues, and made special outreach to senior citizens.  After the failure of two previous levies (whose campaigns had also taken months to organize), we raised community awareness high enough to pass that levy by a margin of 2,000 votes.  It kept our district from having to lay off teachers

Across Ohio’s 610 school districts, school levy election campaigns are repeated every few years when there is a need for increased funding.  We would all prefer not to have to fund our schools this way because it is exhausting, but it is the process which, for decades, Ohio Republicans have mandated for raising local school taxes.  Now we learn that our Republican legislature is promoting a plan that, by legislative fiat, would impose a set of unvoted property taxes totaling $929 million on Ohio homeowners and farmers—all for the purpose of cutting state income taxes for Ohio’s wealthiest citizens.

Did the sponsors of this legislation have any idea what they were doing?  Shouldn’t we hope that the anticipated political backlash from property taxpayers will cause the Legislature to recognize that HB 1 is a politically untenable proposal?  Will the Ohio House Ways and Means Committee be foolhardy enough to pass House Bill 1 out of committee for a vote on the House floor?

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