Addressing property tax problems

By Dr. Howard Fleeter

A new report from the nonpartisan Ohio Education Policy Institute (OEPI) tells the story of how Ohio residential and agricultural property taxpayer costs have increased significantly over many years as well as a series of options to address the problem.

Authored by R. Gregory Browning, former state budget director under Gov. George Voinovich, and Dr. Howard Fleeter, Ohio’s leading school funding expert, the report is titled “Analysis of Residential Property Taxes in Ohio: A Balanced Approach to Reform. It identifies four forces that have combined to raise residential property taxes to the point that Ohio ranks eighth nationally in the weight of these local taxes. The four forces include:

1) years of state tax reforms that include dramatically reduced state income tax rates, significant reductions to some and elimination of, other business property taxes, and reductions to the property tax “rollback” — the mechanism by which Ohio pays a share of local property taxes. These changes, done in response to significant economic challenges and tax fairness issues, have also come at a price:

• Since 1991, the residential and agricultural share of school property taxes has increased from 47.5 percent to 67.5 percent in 2023, while the business share of property taxes has decreased from 52.5 percent to 32.5 percent.
•  State tax revenue has not kept pace with inflation over the past 20 years, and Ohio is currently 42nd nationally in its ranking of state-only per capita taxation.
• State education expenditures over the past 20 years have not kept pace with inflation. While there has also been a decline in public school students over this period, per-pupil state education expenditures have increased an average of only 0.7 percent annually once adjusted for inflation. Ohio now ranks 45th in the state share of K-12 revenue, down from 35th in 2002.
• Overall, Ohio has fallen from 15th nationally in total per-pupil spending on K-12 education to 20th nationally, spending slightly less than the national average.

2) Dramatically escalating home values in recent years have turned into residential property tax increases despite long-standing legal constraints designed to stop this from happening.

3) A relatively slow-growing Ohio economy with a persistent pattern of below-average per capita personal income makes it relatively harder to pay ever-higher property tax bills.

4) The goodwill of residents to keep voting for local property tax increases — increases that arguably come more frequently with slower growth in state funding.

The report spells out a short list of policy principles, including tax fairness — particularly for low-income property taxpayers, people with disabilities and eligible veterans — and the need for the state-local school funding partnership to continue by sharing the burden of addressing residential and agricultural property tax reform.

The analysis ends with a list of policy options anchored in these principles and providing substantive ways to address real property tax problems in Ohio. These options include:

1) Limiting automatic property tax increases in school districts at the 20-mill (required) floor to the rate of inflation. School districts at this level include the majority of Ohio school districts.

2) Targeted and expanded property tax relief by meaningfully expanding the state’s existing homestead exemption and/or limiting taxation for these eligible people to no more than 1% of their property value, a rate that roughly approximates the national average.

3) Give local governments new tools to lower property taxes through a voter-approved local homestead exemption.

4) Provide schools and other local governmental entities with new tools to help them improve operational cost ediciencies, thereby reducing the need for further tax increases over time.

These ideas require further development but represent a balanced approach to real property tax reform. It’s an approach that will fix what is broken without destroying Ohio’s longstanding, largely well-working system of funding schools and other essential local governmental services.

Editor’s note: Dr. Howard Fleeter is a consultant with the Ohio Education Policy Institute.