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Ohio - Funding Schools Through a Tax Swap

by Morgan Thomas, Chicago, August 2012

Ohio's system for funding public schools has repeatedly been declared unconstitutional because it relies heavily on property tax revenues that are often higher in wealthier districts.


Lawmakers are holding hearings across the state this summer to try and find a more equitable solution for funding the state's 612 school districts. One suggestion is to replace local property tax revenue for schools with an increase in the state sales tax.


A Risky Move


Legislative analysts say Ohio's state sales tax would need to more than double from 5.5 cents on the dollar to 13.2 cents in order to raise the $9.9 billion needed to eliminate school property taxes.


Principal economist for the Ohio Legislative Service Commission cautioned that swapping sales taxes for property taxes might be risky. That's because consumers don't like to spend as much when the tax rate on their purchase is high.


Funding Crisis


State aid to schools fell by an estimated $2.9 billion last year. It was due to the loss of federal stimulus funds and a decision not to offset district losses from the phase-out of business personal property taxes.


Officials realize it's going to be difficult to find ways to make up those tax revenues. A report by Public Finance Resources Inc. found that more than 40 Ohio school districts would need to get voters to agree to another 5 mills of taxation just to fill the gap. One district – St. Bernard-Elmwood Place in Hamilton County would need 29 new mills.


The Ohio General Assembly goes back to work in mid-November to try and craft a new and improved school funding plan that relies less on local property taxes.