Finance Facts
With ongoing discussions about redevelopment at the Liberty Ford site, it is important to understand the potential school finance implications related to major community projects such as this. One effect is the utilization of a TIF, or Tax Increment Financing.
A TIF is a funding tool used by local governments in Ohio to pay for infrastructure projects that support commercial and residential development.
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A local government creates a TIF district in an area it wants to develop. The TIF district may last for up to 30 years or more.
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Per Ohio law, property taxes in the TIF district are frozen at the current, or base, amount at the time the TIF is created. This means developers of the project with the TIF only pay property taxes on the base value before development, not on the full increased value. This is because a TIF works by allowing the increase in assessed value or an improvement to real property to be exempt from real property taxation and the developers pay PILOTS (Payments in Lieu of Taxes) on the increased value instead.
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As the development progresses, property values in the TIF district increase. However, instead of being paid to the school district as property taxes, an amount equal to the increased tax revenue – the PILOTS – are paid by the developer into a special TIF fund.
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Money from the TIF fund is used by the developer to pay back loans, bonds or other debt needed to finance the project.
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The school district continues to receive the amount of property tax revenue for the TIF district that it would have if no development project took place.
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Any TIF exemption for more than 10 years or 75% of the increased valuation and affecting property tax revenue to a local school district requires a compensation agreement between the local government enacting the TIF and/or the developer and the Board of Education.
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The goal of the compensation agreement is to balance the common good of community development while also protecting the interest of local taxpayers and making certain the school district exercises due diligence and is fiscally responsible to the community.
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A TIF district is being proposed for the project at the Liberty Ford site. The required negotiated agreement between the developers and the Solon City Schools is ongoing. The district is working with the developers on an agreement to ensure the fiscal path of the district going forward. Details about the agreement will be shared when it is finalized.
As part of the Strategic Plan, the district is working to continuously disseminate information to our entire community on how our Solon City Schools are funded. Last month, we provided information on how Ohio limits the collection of levied dollars to the amount approved in a ballot measure. In this issue, we are outlining a few common types of funding for districts like ours that are heavily reliant on locally raised revenues.
Schools are funded in a variety of ways; state and federal funding, grants, property and income tax levies, and bond issues just to name a few. The three that we hear about most often are bond issues, operating levies and permanent improvement levies.
Bond issues are utilized for capital projects and significant improvements in school facilities. These projects may involve constructing new buildings, renovating existing structures, acquiring land, or purchasing major capital assets. Bond issues essentially represent loans that the school district takes out, and the repayment, along with interest, is funded through property taxes over a period of time. Similar to operating levies, bond issues require voter approval, enabling the school district to address long-term infrastructure needs and enhance the overall learning environment.
Operating levies function as a form of taxation aimed at supporting the day-to-day operational expenses of a school district. These levies contribute to funding salaries, benefits, instructional materials, utilities, and other routine operational costs. Voters decide on operating levies, and if approved, property taxes within the school district increase to ensure the sustained quality of education.
A permanent improvement levy is a form of property tax designed to fund ongoing upkeep of public facilities and infrastructure. Unlike operating levies, which cover ongoing operational expenses, permanent improvement levies are specifically earmarked for capital expenditures. The generated funds serve a range of purposes, including the renovation or repair of buildings and other vital infrastructure. Additionally, these levies can finance technology and security upgrades, ensuring the maintenance and enhancement of technology and security systems throughout the district.
These funding mechanisms play crucial roles in the financial landscape of Ohio schools, with their approval directly impacting property taxes within the community.
Accountable to our community, the Solon City Schools look to maximize savings wherever possible. One way the district accomplishes this is through participation in the Ohio Schools Council, which leverages the cooperative purchasing power of a consortium of school districts through volume discounts. The district has participated in the Ohio Schools Council for many years and has reaped savings benefits from cooperative purchases of goods and services ranging from school buses and security enhancements to software and energy.
A 2022-23 school year Statement of Savings for the district from the Ohio Schools Council shows just under $64,000 in savings for items such as natural gas ($46,306), security film ($10,359), media center software ($3,888) and a safety plan program ($2,400). Since 2018, the district has realized $112,510 in cumulative savings in natural gas energy costs alone through the Ohio Schools Council, providing more budget certainty.
HB 920 Ohio Law Curbs Local Revenues to Schools
At the same time, pursuing opportunities for savings is not nearly enough to overcome the complexities and limitations of school funding in Ohio.
To address large-scale increases in property values in the mid-1970s, Ohio enacted legislation to curb inflationary growth in local property taxes. The provisions in the law, HB 920, were codified in Ohio’s Constitution in 1980. HB 920 limits local real estate revenues for schools by imposing an inflationary cap that does not allow funds to school districts to increase with the addition of new homes or higher-valued homes in the community. The law restricts school revenues, prohibiting them from rising with inflation. So although it seems counter-intuitive, revenue to schools from property taxes do not increase on a per-home basis. HB 920 is one of the most restrictive property tax limitations in the country, according to the Ohio Education Policy Institute.
Delving into all the specifics and nuances of HB 920 and its full impact on Solon and Glenwillow residential and business taxpayers is difficult in a newsletter such as this. To enable you to read more in depth about HB 920 and the limiting effect it has on schools – especially in a district like ours that is heavily reliant on local support due to low state funding – we encourage you to read the Ohio Education Policy Institute’s white paper on HB 920 linked here and posted on the district website under About Us/Finance.
We will continue to share information about how the Solon Schools are funded to build understanding throughout our community. If you have questions about school funding at any time, please reach out to Superintendent Fred Bolden or Treasurer Tim Pickana.
As a public entity, the Solon City Schools are as efficient and effective with our finances as possible. This includes continually looking for grants and applying for those where we meet the qualifications for consideration.
Over the past few years, the district has taken advantage of many Ohio School Safety grants. These grant awards help us meet additional safety needs while at the same time freeing up funds from our Safety and Security levy to meet other appropriate needs. The Raptor Visitor Management System is the most recent example of a safety enhancement funded through a combination of Ohio Schools Safety grant monies and our local Safety and Security levy.
In an effort to share more information about the district’s finances with the community, the district publishes an annual Popular Annual Financial Report. This report makes our district’s finances easier to understand and communicates our financial situation in an open and accountable manner.
The report focuses on providing information about the district's finances in a user-friendly format. It includes financial highlights such as a summary of receipts/disbursements, outstanding debt, property tax and state funding information, tax rates, assessed property values, and student achievement data. The report conveys the district's financial stewardship and commitment to academic excellence. The district has maintained an "Excellent" state rating for 23 years while keeping tax rates competitive. Community members can read the Popular Annual Financial Report on the district website under Finance or by clicking here.
UPDATE: Thanks to efforts by the education community, this legislation did not pass as proposed. But it is important to read and understand the continuing challenges to school funding in Ohio.
Finance Facts - HB 1 - March 2023
HB 1 Talking Points - Putting the Implications of HB 1 Into Historical Context for the Solon Schools