Ballot Example No. 2

The second ballot, presented in November 2001, is for a “replacement and increase.” It replaces a 0.3-mill existing levy and adds 0.2 mill:

“1 PROPOSED LEVY – (REPLACEMENT AND INCREASE)
GREENE COUNTY COMBINED HEALTH DISTRICT

A Majority Affirmative Vote Is Necessary For Passage.

A replacement of 0.3 mill of an existing levy, and an increase of 0.2 mill, to constitute a tax for the benefit of Greene County for the purpose of PROVIDING THE GREENE COUNTY COMBINED HEALTH DISTRICT WITH SUFFICIENT FUNDS TO CARRY OUT ITS HEALTH PROGRAMS INCLUDING BUT NOT LIMITED TO CHILD AND SENIOR CITIZENS SERVICES, CONTROL OF COMMUNICABLE DISEASES, FOOD AND WATER PROTECTION, HEALTH EDUCATION, AND AIDS/HIV DIAGNOSIS AND EDUCATION at a rate not exceeding 0.5 mill for each one dollar of valuation, which amounts to $0.05 for each one hundred dollars of valuation, for a period of 5 years, commencing in 2002, first due in calendar year 2003.”

This proposal amounts to two tax increases in one vote: the hidden increase in the replacement tax part of the levy and the obvious 0.2-mill increase.

The proposed tax for just the 0.3-mill replacement tax part of the ballot was this amount: 35% X $100,000 X $0.0003 X 87.5% = $9.19.

The 0.3-mill tax includes a hidden increase because what is not shown on the ballot is the effective rate of the existing levy that was to be replaced, which was only 0.283881 mill. Had the existing levy been renewed rather than replaced, the cost would have been this amount: 35% X $100,000 X $0.000283881 X 87.5% = $8.69.

Therefore, just the 0.3-mill replacement tax is nearly 6% percent greater than the existing levy. That’s without the obvious 0.2-mill increase.

The cost of the entire 0.5-mill proposal was this: 35% X $100,000 X 0.0005 X 87.5% = $15.31, which was a 76% increase over the existing levy.

Next–Part 8: Eliminating confusion-Step 3

Since much of voters’ confusion has come from their thinking that replacement levies are renewal levies or from their having no idea how much greater a replacement levy is than a renewal, the explanation for each of the examples below includes a comparison of what the tax was as a replacement levy versus what it would have been as a renewal levy.

For simplicity, the following examples all deal with only the residential-agricultural class of real property. A $100,000 typical city/town residence assessed at 35 percent of its value with 12.5 percent in rollbacks is used to show the cost of the levies. (The taxes are 87.5% of what they would have been without the rollbacks.)

Ballot Example No. 1

The first ballot, presented in November 1999, is the plain “replacement” levy for 1 mill:

“15 PROPOSED TAX LEVY (REPLACEMENT)
GREENE COUNTY

A Majority Affirmative Vote Is Necessary For Passage.

A replacement of a tax for the benefit of Greene County for the purpose of SUPPORTING CHILDREN SERVICES AND THE CARE, PROTECTION, AND PLACEMENT OF ABUSED, NEGLECTED AND DEPENDENT CHILDREN at a rate not exceeding 1 mill for each one dollar of valuation, which amounts to $0.10 for each one hundred dollars of valuation, for a period of five years, commencing in 1999, first due in calendar year 2000.”

On a $100,000 residence, the cost of this proposal was this: 35% X $100,000 X $.001 X 87.5% = $30.63.

This replacement levy represents an increase compared to the existing tax that it replaced. Because of House Bill 920, taxpayers were not being taxed on the full 1 mill that had been voted years before. Instead, as the aggregate value of properties in the county increased, the effective millage on which their tax was figured had gradually decreased in order to keep the revenue for the government on that levy at a fairly constant amount. In fact, the effective rate had decreased to 0.844364 mill.

If the 1-mill tax that had been in existence had been renewed instead of replaced, voters would have been voting on the then-effective millage of the existing levy, which was 0.844364 mill. (Even though the effective millage is less than 1 mill on such a renewal, the levy keeps its originally voted 1-mill “name.”) A renewal levy would have cost a homeowner with a $100,000 home this amount: 35% X $100,000 X $.000844364 X 87.5% = $25.86.

Comparing $30.63 with $25.86, or 1 mill with 0.844364 mill, the replacement levy cost about 18½ percent more than the existing tax.

Many voters thought they were voting for a renewal levy. The ballot provides no indication that the proposal is for a tax increase, much less, how great an increase.

Next–Part 7: Eliminating confusion–Step 2

PART 3: THE DECEPTIVE REPLACEMENT LEVY

The replacement levy, authorized by the Ohio General Assembly in 1990 (Ohio Revised Code, Section 5705.192), is a specific kind of property tax that has been used for the purpose of generating more money for a government subdivision or agency. Because it replaces an existing tax, it is a new tax. It is not a renewal tax.

Replacement levies have generated large amounts of revenue. Often that is not because voters have been so generous; rather, voters have been misled and are confused.

The problem with replacement levies is that the proposed millage is compared with the old, no-longer-in-effect, originally voted millage of the existing levy. This problem is reflected on the ballot. The old voted millage is not always shown or designated as such on the ballot; sometimes it is merely implied, as in Ballot Examples No. 1 and No. 3 below. To be clear and correct, the ballot should compare the proposed millage to the effective millage of the existing levy because that is the comparison that reflects what would happen to the property owner’s tax with passage of the levy.

Some local government officials and other levy proponents are well aware of the problem and have taken advantage of the deceptive ballot language and have put out misleading levy campaign advertisements, articles, letters to the editor, and speeches. For example, they have emphasized “no increase in millage” or “reduction in millage” by using the false comparison of the proposed millage with the irrelevant voted millage of the existing levy. They have even said “no increase in tax,” which is untrue no matter what millage is used. Unfortunately, some other public officials throughout the state still do not understand replacement levies. Also unfortunate is that newspapers and other media do insufficient investigative reporting and rarely publish information about tax issues other than what is handed to them by taxing authorities, including those seeking a tax increase.

Replacement levies are presented to voters in three ways: “replacement,” “replacement and increase,” and “replacement and decrease.” Not obvious from those terms is that all three are used to increase a tax. The operation of each and the reason they are so confusing to voters can best be shown with examples of actual tax issue ballots. The ballots reproduced in this treatise have been presented to voters in Greene County. The levies, ballot examples, and resultant voter confusion are typical of that found all over the state.

Next–Part 6: Eliminating confusion, Step 1

The simplest method is timing by local officials. The various government entities collaborate to put their many different levies on the ballot at different times because taxpayers would rebel were they to be presented with them all at once. Also, officials try to get new taxes passed right after the sexennial property reappraisals and triennial updates so as to get the most dollars for the millage. Other methods are more involved and are generally aimed at eating away at the benefit of H.B. 920.

Ohio law states that school districts may not have less than 20 effective mills of tax for current operating expenses for either class of property (ORC, 319.301[E]). This requirement is often called the “20-mill floor.” A school district might have, for example, 21 mills of voted taxes for current operation along with 3 inside mills that are also used for operation. While the 3 inside mills could not decrease in effective millage because the reduction factor does not apply to inside mills, the 21 voted mills could theoretically decrease over the years to perhaps, for example, 16.6 effective mills because of the aggregate increase in property values in the district and the reduction factor. Total effective mills for operation would then be only 19.6 mills (3 inside mills + 16.6 outside mills). To keep that from happening, taxes are adjusted upward by 0.4 mill, without a vote of the people, till the 20 effective mills are met (3 + 16.6 + 0.4 = 20). A similar non-voted increase continues year after year as long as the combined value of properties in the district increases and other current expense levies that count in the 20-mill floor are not passed. (Vocational schools have a 2-mill floor.)

Not all types of levies count in the 20-mill floor. School districts that are near the floor often purposely keep the millage from their levies that count in the floor low so those taxes automatically grow. They then levy other taxes that do not count in the floor, such as the income tax.

School districts also use certain kinds of property taxes, including “emergency levies” for the same purpose. Aside from a favorable vote that might be generated by the emotional term “emergency,” school districts use these levies in preference to regular levies because they are not counted in the 20-mill floor. The district benefits from the emergency levy while also benefiting from non-voted tax increases from other operating levies that do count in the floor. Emergency levies may be proposed to provide for an emergency or to prevent an operating deficit (ORC, 5705.194). However, that is often said to be the purpose of other kinds of levies, as well. School personnel have argued that emergency levies are for a fixed sum and not for a specific rate, or millage, and therefore they should not or could not be counted in the 20-mill floor. However, emergency levies are figured in mills for the ballot and for each year they are in effect, and at one time they were counted in the 20-mill floor by law. Their use is a strategy to get more tax money.

Schools use the “permanent improvement” property tax because that tax, like the emergency levy, does not count toward the 20-mill requirement for current operating expenses. The use of the permanent improvement tax is limited to assets and improvements that have at least a five-year life expectancy, but it frees up other taxes for current operations.

When a school district’s operating millage is at the 20-mill floor, another way the district can manipulate levies that might be advantageous to it and produce more revenue is to reallocate its
inside millage (a public hearing by the board is necessary for any such change [ORC, 5705.314]). With this action, current expense millage that had been inside millage would be changed to outside millage, and permanent improvement millage would be changed from outside millage to inside millage. The purpose of the swap is to get more of the millage for operations into outside millage where the reduction factor would work on it in order to provide even more automatic non-voted tax growth. Meanwhile, the permanent improvement mills that become inside millage would grow with property values (when they were outside mills, the reduction factor applied).

Yet another means to grow property taxes for schools came about with H.B. 530 in 2006. The law (ORC, 5705.211) authorizes an additional property tax for current operating expenses to be approved by the electors at such a rate that the total taxes charged by the levy each year are sufficient to offset any reduction in basic state funding caused by increases in real estate values. The rate of the tax could be set to cause revenue generated from the levy to increase by up to 4 percent, inclusive, each year, but it could be set at a lesser rate. The tax increase would occur each year for a minimum of five years, and may be continuing – year after year after year.

The legislature has also passed laws for real property tax increases that are not just for schools. With the gradual reduction of taxes on tangible personal property of electric companies (S.B. 3 in 1999) and natural gas companies (S.B. 287 in 2000), all fixed-sum levies that were in existence in 1998 and 1999, respectively, and continued to exist in the tax year preceding the distribution year, were automatically – and quietly – increased by up to ¼ mill, inclusive, to help compensate school districts and local taxing units for their “fixed-sum levy loss.” The fixed-sum levy loss is the gradual loss of tangible personal property taxes for emergency levies and levies for paying debts (ORC, 5727.84[H]). The state makes up any difference between the tax loss and ¼ mill. The added property tax and state payments began in 2002 and they even cover emergency levies that are continually renewed after 2002 through 2016 and debt levies beyond that if they are still in effect. (Details are located in ORC, 5727.84 to 5727.87.)

With H.B. 66 in 2005 (revised with H.B. 530 and S.B. 321 in 2006), the state is phasing out tangible property taxes on other businesses, and the property tax on qualifying fixed-sum levies is automatically increased by up to ½ mill, inclusive, to compensate local government units for the phased-out taxes on those businesses. State reimbursements for tax losses above ½ mill continue for levies that are in effect through 2017. Qualifying school district emergency levies include renewals through that time. Voted debt levies are reimbursed till they expire, regardless of when that is. (Details are located in ORC, 5751.20 to 5751.23.)

Questioning the legality of these non-voted, outside-millage add-on taxes, some people both in and out of government have voiced strong disapproval of them. Voters had not agreed to the extra millage when they originally voted for the emergency and debt levies. However, some legislators said that because the tangible property taxes would have been paid, it was all right to add non-voted taxes to fixed-sum levies.

The last tax to be addressed is the “replacement levy.” Because it is the most deceptive and confusing of all taxes, it is given separate treatment via Part 3.

Next: Part 5–The “place” where you raise your own taxes

PART 2: WHY PROPERTY TAXES CONTINUE TO GROW:
KINDS OF LEVIES AND GOVERNMENT MANIPULATION

Note:The following is part 2 in the original document.

The reader might be wondering why his property tax bill continues to rise despite the reduction factor provided by H.B. 920 and the rollbacks. The most obvious reason for the ever-increasing taxes is that citizens continually vote for new taxes. Some less obvious reasons are addressed below.

Taxes grow because the reduction factor of H.B. 920 does not apply to all levies. For example, according to the Ohio Revised Code (ORC), 319.301, the reduction factor does not apply to taxes “levied within the one per cent limitation imposed by Section 2 of Article XII, Ohio Constitution.” The one percent in the Ohio Constitution refers to the limit at which taxes can be levied on the true value of any property for all state and local purposes unless additional taxes are voted by the electors or are provided by the charter of a municipal corporation. This restriction is called the “one per cent limitation” or “one per cent limit.”

At this point, an inconsistency in definitions needs to be addressed. Contrary to the Constitution, ORC, 5705.02, defines the “ten-mill limitation” as a limit of ten mills of tax on each dollar of tax valuation, or assessed value (unless more is specifically authorized). That is one per cent. It then states that wherever the term “ten-mill limitation” is used in the Revised Code, it refers to and includes the “one per cent limitation.” However, in Section 5705.51, the terms are defined as being different and more in line with how they are generally used in the Revised Code: the “one per cent limit” pertains to true value of property, and the “ten-mill limit” pertains to tax valuation.

Using the last definition, within the ten-mill limitation, ten mills of tax are levied on each dollar of assessed value of property without a vote of the electorate. These are called “inside” mills. Taxes with inside mills grow as property values grow; that is, the reduction factor does not apply. These ten mills are divided among several of the government subdivisions as specified by ORC, 5705.31(D). Each of those taxing authorities is authorized to divide its share of inside mills into separate levies for current expenses (operation), debt charges, and special levies (ORC, 5705.04).

Levies that are permitted beyond the 10-mill limitation are said to have “outside,” or “voted,” mills (even though some are not voted by the electorate). While most levies with outside mills benefit from the reduction factor of H.B. 920, some grow with property values. For example, according to ORC, 319.301, the reduction does not apply to taxes authorized by the charter of a municipal corporation or taxes levied to produce a specified amount of money (called “fixed-sum levies”), such as school “emergency levies” (explained later), or taxes required to pay debt charges.^₄

As pertaining to debts of a subdivision, when certain other funds are insufficient for paying the “exempt obligations” and “any other outstanding non-voted general obligations,” a non-voted tax is to be levied “in excess of the ten-mill limit, but within the one per cent limit as to any property” (ORC, 5705.51). (Here the two “limits” are clearly different, and the reader can see – despite fuzzy definitions in the Code – that not all of the one percent of true value loses the reduction all the time, whereas the one percent [ten mills] of assessed value never receives the reduction.)

Government debt can make the rollbacks on real property disappear, too. The 10-percent non-business rollback and the 2.5-percent and elderly, disability, and surviving spousal rollbacks on homesteads are reduced or eliminated altogether when there would be insufficient funds for payment of debt charges (ORC, 319.302[B]; 323.152[D]).

In addition to those ways that make property taxes grow, local government officials and the legislature (prodded by local officials) have devised more methods to increase revenue from real property taxes. Some of these are discussed here.

__________________________________________________________________________

4 As used in ORC, 5727.84 to 5727.86 and 5751.20 to 5751.22, the definition for “fixed-sum levies” includes levies to pay debt charges.

Next: Part 4: “Schooling” the taxpayers

The various levies that a property owner pays generally apply to districts that are of different sizes and that have different types and values of property. The taxing district for a levy could be an entire county, a township, a school district, or so on. The reduction factor that is applied to each levy depends on the makeup of the properties in the taxing district and is therefore different for each taxing district.

After the reduction factor is applied to a levy, a 10-percent rollback (subtraction) is applied to each non-business real property owner’s tax (ORC, 319.302).¹

The “homestead” portion of one’s property is adjusted with an additional rollback of 2.5 percent (ORC, 323.152[B]). The homestead is defined as an owner-occupied dwelling (house) or a unit occupied as a home in a housing cooperative, with the land surrounding it that does not exceed one acre, and with no more than one attached or unattached garage (or comparable outbuilding).

The 2.5-percent rollback is not applied to the tax on any portion of one’s property that exceeds that. A homeowner whose property exceeds an acre or has extra buildings on it can ask the county auditor for the value of the homestead portion of his property so that he can compute his 2.5-percent rollback. The homestead of most city or town homeowners includes their entire property.²

Persons who have a certificate of reduction and are 65 years of age or older, or permanently and totally disabled, or surviving at age 59-64 when their elderly or disabled qualified spouse dies can receive a tax deduction on $25,000 of the true value of their homestead (ORC, 323.152[A]).³ (A note to dampen the gladness over all these rollbacks is that local taxing units are reimbursed for the rollbacks with state money. That means that people who pay state taxes are footing the bill for what would be part of their own property tax and that of some other property owners, as well.) Lastly, county commissioners may grant a partial real property tax exemption to each homestead in counties with major league teams (ORC, 323.158).

In calculating the most typical homeowner’s tax on the assessed value of his primary dwelling (when his “homestead” is his entire property), after the tax is computed with the effective mills, the figure is multiplied by 87.5 percent (100 % – 10 % – 2.5 % = 87.5 %), or .875, to find the total property tax he pays after rollbacks are applied. The tax on a homeowner’s total tax bill and on each individual levy is figured the same way.

Following is the computation for the property tax for a levy with 2.406458 effective mills on a $100,000 home on a typical city lot (assessed at 35 %) that receives the 10-percent and 2.5-percent rollbacks: .35 X $100,000 X $.002406458 X .875 = $73.70.

The above example could very well represent the tax on a renewal levy that might have been voted at 3 mills 15 years ago, for example. The ballot, however, would not show the effective 2.406458 mills. Rather, the ballot would say that the issue is for the renewal of 3 mills, which is the originally voted millage of the existing levy. That is, the levy continues to have its old “name” despite the fact that 3 mills is not the effective rate of the tax to be renewed. After the levy is renewed at 2.406458 mills, it would still be referred to as a 3-mill tax.

The tax on each new or renewal levy can commence (that is, be applied) the same calendar year that it is voted or the following year, depending on the resolution, but the tax is always collected the year after it is applied. Therefore, it is either one or two calendar years after a vote that a person begins paying the tax on a new levy. A property owner’s total tax bill is divided in half and is paid semi-yearly.

___________________
1 With H.B. 66 in 2005, businesses lost their 10-percent real property rollback, but they received gradual reductions on tangible personal property taxes.

2 To keep the explanation of property taxes simple, this treatise does not address taxes on manufactured or mobile homes.

3 H.B. 119 in 2007 removed an income requirement.

Next: Part 3: The REAL growth of government