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Tax losses point to school budget deficit
(by Sue Hoffman - May 28, 2009)
Tax losses point to school budget deficit
By SUE HOFFMAN
Loss of revenues and a shrinking tax base are affecting the school district's bottom line, Solon School District Treasurer Timothy Pickana said last week.
He said the loss of tangible personal property taxes on business and projected lower tax valuation have led to projected deficits in fiscal years 2012 and 2013, as shown in his five-year forecast for the district. The projected deficits are $10.83 million in 2012 and $26.28 million in 2013.
"During this fiscal year, we anticipate that the district's expenses will begin to exceed revenues, and there's no additional funding to offset that," he said.
Mr. Pickana referred to a graph showing that the revenue and expenditure lines are crossing. He said significant reductions were made in expenditures in 2007 and 2008 "to make certain that revenues exceeded expenditures."
Mr. Pickana said the primary reasons for the deficit are Ohio House Bill 66, which phases out the tangible personal property tax, "and the current state of the economy." In 2006, the district's 6.9-mill levy generated $8.95 million for the school district, while the same levy generates $8.17 million in 2009, he said.
Real-estate-tax revenues grew from just over $30 million in fiscal year 2005 to over $40 million in fiscal year 2007 and then leveled off, Mr. Pickana said. In fiscal year 2009, the revenues will equal $41.7 million, he said.
"Based on the housing market," he projected that real-estate-tax revenues will increase a slight 1 percent in fiscal 2010 through 2013. "That projection could be optimistic based on the current state of the economy."
Cuyahoga County "could be realizing an 8 1/2 percent decrease in housing values over the next couple of years," Mr. Pickana said he learned recently from the Ohio Department of Taxation. He said he expects Solon to fare better than that.
School Superintendent Joseph V. Regano agreed. "Hopefully, if the schools will remain strong, people will continue to want to move here," he said, which will improve the valuation.
Both school officials said the loss of the tangible personal property tax on business has been significant. The district has generally received $11 million from the tax each year and received as much as $15 million in fiscal 2003.
"That's before House Bill 66 took effect," Mr. Pickana said. "Since then, we have been frozen at our 2004 values."
While the tangible personal property tax is being phased out, the state agreed to "hold districts harmless" for five years, Mr. Pickana said. The state has been reimbursing districts for the lost revenues through collection of the commercial activity tax. "In 2012, the state will begin to phase out the reimbursement," he said.
In the past, the tangible personal property tax comprised 20 percent of the district's revenues. It now represents 5 percent, Mr. Pickana said.
State aid comprises 5 percent of all of the district's revenues. It can be misleading when the state shows a 13 percent increase in funding, he said. "When the state is going to give us an additional $300,000 or $350,000, from a percentage standpoint of what they normally give, that sounds great." However, he said, "You're talking about a $350,000 increase and an $11 million decrease."
In his valuation trend analysis, Mr. Pickana talked about the "shrinking tax base," mainly from the loss of tangible personal property taxes. He said that 68 percent of Solon's valuation is residential-agricultural, 27 percent is commercial-industrial, and 5 percent is tangible personal property tax.
"One key component to think about is not only the revenue we're going to lose in the immediate future," Mr. Pickana said. When considering a levy, "our tax base is shrinking" because of the taxes being taken away from the district, as well as the current state of the economy, he said. "Our property valuations are significantly less because of the loss of the tangible personal property tax," he said.
"What that means is, if we put a levy on the ballot, 1 mill is not going to generate what it used to. That's going to be a significant difference for us."
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