April 17, 2017 -- Ohio’s 610 public school districts, 49 joint vocational school districts, and approximately 370 community schools receive a majority of their funding from combined state and local funds, with limited assistance from federal grants and incentive programs. Excluding these federal funds, slightly more than half of all school funding statewide is locally generated, with almost all the money coming from property tax.
First, State Funding
The Ohio Department of Education bases its funding on the State Foundation Formula, a complicated formula which takes into account student enrollment and property wealth in a district. The intention of the formula is to award more assistance to lower, rather than higher, wealth districts. But in 1991, the Ohio Coalition for Equity and Advocacy of School Funding, representing more than 550 Ohio school districts, sued the state for failing to provide adequate funding for educating Ohio’s public school students. Six years later, the Ohio Supreme Court ruled in DeRolph vs. State of Ohio that this funding system was unconstitutional and ordered the state government to enact a constitutional school funding system. The Court ruled three more times (in 2000, 2001 and 2002) that the state’s school funding process was unconstitutional, however the Court provided little guidance to the legislature and the formula for school funding remains largely the same today.
Next, Local Funding
Real property owners pay the lion’s share of local funds for Ohio’s school districts through property taxes. A small number of districts also include income taxes.
What’s a mill?
Local property taxes are expressed in mills, or $1 per $1,000 of assessed valuation. Property taxes are based on the assessed valuation of a property (35% of the appraised value). In Ohio, there are two types of millage:
- Inside millage—Levied without the vote of the people and set by the Ohio Constitution. Inside millage is limited to 10 mills.
- Outside millage—Millage voted in by the public, including bond levies.
More about Levies
A levy is a request to residents for money by a school district for a specific purpose. There are three common levies:
- Operating Levy—Pays employee salaries and day-to-day costs associated with operating a district.
- Permanent Improvement Levy—Used for tangible assets (or services on those assets) with an anticipated lifespan of five or more years.
- Bond Issue—Used for construction and maintenance of a property. The district receives the funding all at once and repays it over time, typically 20 years.
However, as property values increase, outside millage rates decrease so that school districts do not collect additional money on voted millage due to inflation. Why? Because of HB 920.
HB 920—What is it?
HB 920 was passed in 1976, largely in response to sharply increasing property values. The state legislature did not want inflation to increase outside millage and sought to protect property owners from unvoted tax increases. Since the bill was passed, all outside millage is adjusted for inflationary increases so that a school district cannot receive additional money from the originally voted levy.
The revenue generated from a levy is constant, yet education costs increase. This means Ohio districts must return to their local taxpayers every two to five years with a new levy to support costs. District funding is further affected by “phantom revenue,” which is additional property tax revenue the State includes in its school funding calculation for districts, but that’s not actually received by a school district because of HB 920. In recent years, the state legislature has worked to phase out phantom revenue.
"School funding in the State of Ohio is complicated and still very much in need of an overhaul,” says Meryl Johnson, who represents District 11 (which includes most of Cuyahoga County and some of Lake County) on the Ohio School Board of Education. “Until the State determines a way to reconcile the rising cost of education with HB 920, Ohio's school districts have little choice but to repeatedly seek funding from voters to cover operating costs and capital expenses."
Learn more about School Funding in Ohio.