Financial FAQs
FREQUENTLY ASKED FINANCIAL QUESTIONS
How are schools funded in Ohio?
Why do schools keep asking for more money?
How do schools raise additional funds?
How is a property tax bill calculated?
What do the Euclid Schools do to control costs?
How are the Euclid Schools’ Books Audited?
How are schools funded in Ohio?
Schools are funded mostly through a combination of local support, mainly property taxes, and state support through the State Foundation Program and property tax credit reimbursements.
Local Support
Property Tax
The property tax is the predominant method communities use to raise additional revenues in Ohio. The property tax comes in two forms:
Real property tax – This is a tax levied on land and buildings located within the school district. Private individuals, businesses and public utilities that own land and buildings pay this tax.
Tangible personal property – This is a tax levied on furniture, fixtures, machinery, equipment and inventory owned by business. Recently enacted legislation is phasing out this form of revenue. Euclid’s tangible personal property collections in 2004 totaled $5.4 million. Collections will cease after 2010. The State is providing reimbursements to school districts as a hold harmless measure for a number of years. This funding is scheduled to also be phased out beginning in 2011.
Income Tax
Income tax levies are available to school districts in Ohio. Typically, income tax issues are more popular in farming communities where owners of large tracts of land prefer paying an income tax rather than a property tax.
Euclid, however, has a shared income tax with the City of Euclid. This measure, an 0.85% tax approved by voters in 2004, is divided 0.47% to the schools and 0.38% to the City.
State Support
State Foundation
The State Foundation Program is the State of Ohio’s primary mechanism used for funding public K-12 education. This complex formula was developed to provide districts a basic level of support based on a determined per pupil amount. Inherent in the formula is an assumed level of local tax revenue which results in relatively higher levels of state support to property poor districts and lower levels of support to property rich districts.
In addition to the basic formula, other provisions are included such as weighted funds for special needs students, poverty based assistance for low wealth districts and transportation reimbursements. Many variables and factors are included in State Foundation calculations for each school district on a report called the SF-3. Euclid School’s current SF-3 can be found on the Ohio Department of Education’s website at www.ode.state.oh.us.
It should be noted that the State legislature is currently considering changing the State’s funding formula as part of the State’s biennial budget. A major change in the formula referred to as an “evidence based model”, has been proposed by the Governor.
Homestead Rollback
The Homestead Rollback revenue category represents reimbursements to the district for state tax credits given to property owners on their real estate bills. Specifically, all property owners receive a 10% property tax credit, and persons owning and residing in their homes receive an additional 2.5% credit. Any changes in the homestead rollback revenues from year to year are directly related to changes in real estate collections.
Federal
There is very little that comes from the federal government in the way of funds for operations. However, grants and entitlements do exist to be used for specific purposes such as reading and special needs.
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Why do schools keep asking for more money?
The short answer to this question is that while most of the revenues available to schools are fixed and inflexible, the cost of education continually rises. Many of the rising costs are out of the control of local school boards.
As consumers, school districts encounter inflation in most goods and services purchased. In addition to inflation, legal requirements, unfunded mandates and expanded services expected by communities add to increased operating costs of school districts. There are numerous legislated enactments, which have had significant cost implications to public schools in Ohio. For example, Ohio law requires bus transportation for all students in grades K-8 who reside more than two miles from school, and public schools must provide the same level of transportation service to nonpublic students as they provide to their own students. Special education services must be provided for all children in the district who qualify under state and federal guidelines, regardless of cost. As service organizations, most dollars in school district budgets are used for personnel, typically 80 to 85%. Ohio collective bargaining laws require school boards to negotiate salary and benefit levels with employee groups. Balancing fairness to employees, keeping pace with the market in order to attract good people, and accomplishing this with limited resources is a challenge for all school boards.
House Bill 920
While costs continue to rise, the major source of revenue for schools districts, property taxes, do not rise unless new levies are approved by voters. House Bill 920 is a State law that “rolls back” millage rates as property values rise. This is done to maintain the total property tax collection at the same level as the first year of collection. For example, if a 5 mill levy was passed ten years ago, brought in $3,000,000 to a district, that tax may be collected at 3 mills today so that no more than $3,000,000 is collected.
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How do schools raise additional funds?
The property tax is the main funding mechanism available to school districts to increase revenue. State law makes a distinction between operating funds and capital improvement funds. Proceeds from an operating levy can be used for any legal expenditure by a board of education. These levies are mostly used for the normal operating costs of a school district, such as salaries and benefits for personnel, textbooks, classroom supplies, utilities and repairs. Following are the types of operating levies:
- Regular Operating Levy for Current Expenses – A millage rate is submitted to the voters for approval, not a dollar amount. The millage rate will be adjusted as property values change pursuant to HB 920. This levy can be voted in for one to five years or for a continuing period of time.
- Emergency Levy – This type of levy is submitted to the voters as a dollar amount. For example, “The emergency levy will raise $1,000,000 per year.” An emergency levy can only be voted in for a period of time from one to ten years, and expires after the time has elapsed unless renewed by a vote of the public.
- Incremental Levy –This can be either in terms of millage incremental or dollar incremental. In these instances, millage rates or dollar levies are phased in over a number of years up to five. Millage incremental levies can be for a continuing period of time or one to ten years in duration. Dollar incremental levies can have a duration of one to ten years.
- Replacement Levy – A replacement levy can replace all or a portion of an expiring levy. It is used when the effective rate had been lowered and can restore the rate of the tax to its original rate, thus generating increased dollars. A replacement levy can raise more revenue than the levy it replaces because the original levy may have been through one or more reassessments. With each reassessment, if the value of real property in the school district had increased due to inflation, the HB 920 tax credit factor will have been applied to the voted levy, reducing the effective mills.
Capital improvements can be funded in two forms – Permanent improvement levies and bond issues. All funds received by school districts from permanent improvement levies and bond issues must, by law, be used for the purposes intended and cannot be used for operating expenses of the districts.
- Permanent Improvement Levy – Permanent improvement levies for specific projects can last from one to five years. Permanent improvement levies for general ongoing permanent improvements can be levied for a continuing period of time.
- Bond Issue – A bond issue is a tax, the proceeds of which can only be used to pay bonds and notes issued by school districts for the purposes of permanent improvement. Bond issues are normally used for building new or additions to buildings. However, proceeds of a bond issue cannot be used for operational costs of the new facility(ies). This is often a source of misunderstanding. People remembering a bond issue was passed for a new building can’t understand why “the district built a new building without having the money to operate it.” Many times an operating levy must also be passed to help pay for the operational costs when the new building was necessitated by increased enrollment.
How is a property tax bill calculated?
Property taxes are calculated in terms of millage rates. Simply put, a mill equals $1 for every $1,000 of assessed valuation. In Ohio, the assessed valuation of property equals 35% of market value as determined by the County Auditor. Therefore, a home valued at $100,000 has an assessed value of $35,000. 1 mill would equal $35 per year in property taxes. Furthermore, homeowners receive tax credits totaling 12.5%. So the actual amount of property taxes paid in this case is $30.63.
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What do the Euclid Schools do to control costs?
The Euclid Board of Education has enacted several policies to ensure costs are controlled. For example, all contracts for construction or repairs of facilities in excess of $25,000 must be awarded through a formal competitively bid process. All purchases exceeding $500 are expected to be awarded only after three price quotes are received.
The District has been a party to several cooperative-purchasing programs for many years which has saved literally millions of dollars over time. Examples include:
Natural Gas
Electricity
Fuel
School Buses
Paper Products
Property & Liability Insurance
Cafeteria Food and Supplies
Employee Prescription Drug Coverage
Maintenance Vehicles
Additionally, contracts negotiated with employee bargaining units have resulted in wages at or below averages in Cuyahoga County in addition to employee participation in health care costs.
How are the Euclid Schools’ Books Audited?
The District undergoes an extensive audit by the Auditor of State each and every year. So extensive, in fact, that it takes several months each year to complete. The District recently received the State Auditor’s “Making the Most of Your Tax Dollars Count” Award. The District’s 2007-2008 fiscal year audit, as well as previous years’ audits can be accessed through the Auditor of State’s website at http://auditor.state.oh.us
Additionally, the Board of Education has established the Financial Oversight Committee. This is a committee comprised of citizens and business people of Euclid who review the District’s finances.