Senate proposal makes a sensible modification to the “20 mill tax floor”

With property values soaring throughout Ohio—and property taxes climbing upward—state lawmakers have been giving more time and attention to local tax policy. Last year, a joint committee held extensive hearings on property taxes and produced a report with findings and recommendations. Legislators have also introduced various solutions to insulate homeowners from tax hikes, while attempting to make Ohio’s complicated property tax system more intelligible. GOP gubernatorial candidates Vivek Ramaswamy and Dave Yost have also recently spoken about a need for reform.

There are many reforms worthy of consideration. One promising idea, proposed by Senate lawmakers via Senate Bill 66, is to modify the calculation of the “20 mill floor” by including emergency levies and school district income taxes in that tax rate.

To understand what that means and why it matters, a quick primer on relevant local tax policy is necessary. Under a longstanding state law known as “HB920 tax reduction factors,” property owners are shielded from tax increases associated with rising valuations. In other words, if a home value increases $50,000 upon reappraisal, the homeowner isn’t automatically sent a higher tax bill. Instead, the property tax rate is reduced to ensure the owners’ taxes (and school districts’ revenues) remain consistent with what was originally approved by voters.

There are exceptions, however, including when school districts’ tax rates hit the 20 mill floor.[1] At this level, rates are no longer adjusted downward even if property valuations rise. This can mean an (unvoted) tax hike for residents, as they are no longer protected by HB920 when their home values rise. From a district perspective, this means that increases in property values actually translate to more dollars coming into their coffers.

This creates a strong incentive for districts to tax at the 20 mill floor, so they can capture inflation-driven property tax revenue. Yet a district might want to further enhance their revenues by seeking voter approval for a higher tax rate. Passing an ordinary operating levy would cause its tax rate to rise, which would in turn eliminate its ability to capture inflationary revenues.

But there’s a loophole: Under current policy, certain taxes are excluded from the 20 mill calculation. One of those exceptions is emergency levies, while the other is school district income taxes. As a Fordham-Bellwether report once put it:

This allows savvy districts to have their cake and eat it, too, raising additional revenue through increased tax rates while also ensuring the district will benefit from increases in taxable property value.

Indeed, many districts seem to be strategically using the 20 mill floor and excluded levies to generate extra tax revenue. According to the Legislative Service Commission, 418 school districts were at the 20 mill tax floor in 2023 (roughly two in three statewide). Of those districts, 209 had passed an emergency levy,[2] while 192 districts had a voter-approved income tax (some imposed both). Committee testimony suggests that these numbers do indeed reflect a strategic exploitation of the loophole. As one county auditor put it, “Some school districts became familiar with the nuances of the 20-mill floor calculation and designed their funding and budgets to maximize HB 920’s loopholes.”

The sketchiness of the “emergency” levy makes the exploitation all the worse. For one, a district need not be in official fiscal emergency to put this type of levy on the ballot—and just one district is in such status. All districts have to show is that an emergency levy is needed to “avoid an operating deficit.” The broad language opens the door to budget projections that yield deficits on paper, even though in reality a district has the ability to balance its budget. The potentially misleading and alarmist language could also unfairly tip the scales in favor of the tax request, as voters are led to perceive a greater urgency to approve the levy than actually exists.

SB66 would curtail this type of gamesmanship by including emergency levies and school district income taxes[3] in the 20 mill floor calculation. This would have the following benefits.

First, by moving some districts off the floor through inclusion of excluded taxes, the bill would extend taxpayer protections to more Ohioans. Citizens living in districts with rates above 20 mills benefit from HB920 tax reduction factors, while residents in 20 mill districts get socked with an unvoted tax increase when their property values rise. That’s hardly fair. SB66 would be a step toward a system that applies HB920 more evenly across the state.

Second, the bill would promote local accountability. Instead of being able to count on automatic revenue increases when valuations rise, school districts would need to periodically convince voters to approve revenue enhancements. Tax referenda serve as an important accountability check on schools, but this process can be circumvented when districts sit at the 20 mill floor.

Third, SB66 would discourage emergency levies. By counting them in the 20 mills, districts would be less likely to resort to a questionable emergency levy simply to maintain their position at the floor. Instead, districts would be more likely to pursue conventional, neutrally-framed operating levies that are fairer and more transparent to voters.[4]

There are big problems that need to be resolved in Ohio’s school funding system. This applies to both the state funding formula and local taxes. While not a wide-ranging bill, SB66 proposes an important step toward a fairer and more accountable local tax system.