MOUNT VERNON — Because local public school finances depend greatly on local property taxes, the recently passed capital budget bill — House Bill 562 — will affect local school districts. The bill calls for corrections related to the calculation of reimbursements due to school districts for the loss of tangible personal property tax; that stems from legislation passed three years ago.

In June 2005, the Ohio Legislature passed a tax-reform bill (HB 66) which called for the phase out of business tangible personal property taxes and public utility (telephone and telecommunications) personal property taxes. Those taxes, part of which support schools, were levied on business machinery, equipment and inventory. The tax on business tangible property will be totally eliminated by 2009 and the telephone tax will be eliminated by 2011. The bill also included the phase in of a new commercial activity tax, which is levied on the gross receipts of businesses.

To minimize the effect on school districts, the state promised to replace 100 percent of the lost personal property tax revenue for the first five years of the phase-out. That is called a “hold harmless guarantee.” The amount of reimbursement is based on a review of the property valuations in 2004, and levies in effect in 2004 or passed by Sept. 1, 2005. Some of the replacement occurred through direct payments from the state to the school districts and some through the school funding formula payments. This is referred to as the “offset.”

Beginning on July 1, 2007, the state education offset, which represents the increase in state aid due to the phase-out of the business tangible personal property tax, was calculated at the beginning of each fiscal year using projected data. A new bill (HB 526) enacted last month requires that the state education offset be recalculated at the end of each fiscal year, and then again in December of the following fiscal year using actual data. Theoretically, according to the Ohio House Web site, the calculations should not be very different from the projections.

However, when the recalculation for fiscal year 2008 was completed, the projected data was substantially different than the actual data. Some districts will receive back payments, in three installments starting this August; others will see a reduction in FY 2009 payments due to overpayments in FY 2008.

The local impact of the recalculation is as follows: Centerburg will gain $10,965; Danville will have to pay back $1,100; and Fredericktown lost, according to Treasurer Pat Miller, $119, 244 last year and will get it back this year; Mount Vernon lost $4,792; Northridge lost $12,847 and Highland lost about $3,000. Reimbursements to East Knox, North Fork and Johnstown-Monroe were unchanged.

School district treasurers can’t be certain what the offset will be until the final calculation is made each fiscal year. That is problematic, according to Centerburg Treasurer Ellen Scott.

“How can you develop an accurate budget if those projected revenues are incorrect?” she asked. “How do you do a reasonable five-year [financial] forecast?”

The hold-harmless funding is a temporary measure, and the Ohio School Boards Association, in its brochure “Making $ense out of $chool Finance” has stated, “A major shift from business taxpayers to residential and agricultural property taxpayers will need to occur in order to support the public schools at current levels. This will create a larger burden for property taxpayers in the form of higher millage rates and more frequent levies.”