Senate Bills 3 and 287 Question and Answer Guide
What are Senate
Bills 3 and 287?
Senate Bill 3 (enacted in June 1999) and Senate Bill 287
(enacted in December 2000) made both regulatory and tax
changes for electric and gas utilities. This document
addresses one part of the tax changes, the reduction in
assessment rates for tangible personal property and the hold
harmless payments for schools and local governments to
reimburse them for the local tax losses due to these
reductions in property taxes.
Prior to these
bills, how were property taxes for these utilities
Prior to enactment of these two bills, the tangible property
of most public utilities was assessed at 88 percent of
depreciated cost. Exceptions to this were production
equipment of investor owned electric utilities, which was
assessed at 100 percent of true value (defined as 50 percent
of original cost) and all property of co-operative electric
utilities, which was assessed at 50 percent of true value.
All tangible property of non-utility businesses is assessed
at 25 percent of depreciated value.
How did the bills
change the property taxation?
Effective January 1, 2001, the assessment rates on all gas
utility property and all electric utility property except
property used for the transmission and distribution of
electricity were reduced to 25 percent of true value. Because
utilities pay taxes on the same schedule as real property
taxpayers, this will first impact local tax revenues in the
February 2002 settlement.
What does this mean
for schools and local governments?
The reduction in assessment rates will reduce the property
tax revenues for all jurisdictions with such tax levies.
However, the state will fully reimburse schools and local
governments for the losses.
What is the source
of revenue for the reimbursement?
Two new taxes were created to replace the reduced taxes on
tangible personal property. S.B. 3 created a kilowatt hour
(KWH) tax on the consumption of electricity. S.B. 287 created
a thousand cubic foot (MCF) tax on the consumption of natural
gas. All of the MCF tax and 37 percent of the KWH tax are
split between two permanent, dedicated funds, the school
district property tax replacement fund and the local
government property tax replacement fund (the remaining 63
percent of the KWH tax replaces the state gross receipts
How are the
property value losses determined?
The valuation losses used to calculate the reimbursements are
based on taxable values from previous years. The electric
valuation losses are based on values from 1998. The gas
valuation losses are based on values from 1999. The
methodology for calculating the value losses for both
electric and gas property are the same. For electric
utilities, the loss was determined by calculating the
difference between the actual valuations for 1998 and what
the valuations would have been in 1998 had the 2001 property
tax structure been in effect. For gas utilities, the same
calculation is done, but for 1999. The valuation losses can
be found by school district and by taxing district in
spreadsheet files on the Internet at: http://tax.ohio.gov/government/government_certified_tax_value_losses.html
What tax rates are
used to calculate the tax losses?
The tax rates used are generally from the same years as the
valuation losses, but with some adjustments. For electric
property the tax rates in effect for 1998 are used, except
that the 1999 rates are used if they are higher than the 1998
rates (not including levies passed after June 30, 1999). For
gas property, the higher of the 1999 and 2000 tax rates are
used, regardless of the dates of elections.
How are the
reimbursement amounts calculated?
The amounts to be reimbursed are calculated in two different
ways, depending whether the levy is a fixed-rate levy or a
fixed-sum levy. A fixed-rate levy is one that has a set rate
and produces whatever dollars it can. This would include all
levies except voted bond levies and school emergency levies.
Voted bond and emergency levies are fixed-sum levies, meaning
the rate is set each year to generate a defined amount of
For a fixed-rate levy, the amount of the reimbursement is the
levy rate multiplied by the tax value loss from the
assessment rate changes.
Determination of the amount of a reimbursement for fixed-sum
levies requires a two-step calculation. First, the aggregate
tax loss for all fixed-sum levies is determined using the
same method as is used for fixed-rate levies. Second, the
1999 total taxable value of the district less the tax value
loss from the assessment rate changes is multiplied by 0.25
mill. The numbers from the two calculations are compared. If
the second calculation is greater than the first, meaning
that the fixed-sum loss is less than 0.25 mill times total
valuation, there is no reimbursement for fixed-sum levies.
Otherwise the reimbursement amount is the difference between
the two calculations. Under existing property tax law, if
valuation goes down, the tax rates on fixed-sum levies are
increased to insure the levies produce the required dollar
amount. The SB 3 and 287 language restricts the adjustment
due to assessment reductions to no more than 0.25 mill.
The reimbursement amounts for both fixed-sum and fixed-rate
levies are available in spreadsheets on the Internet
There are eight different spreadsheets, six for fixed-rate
losses (one each for counties, schools, joint vocational
schools, municipalities, townships, and special districts),
and two for fixed-sum levies (one for schools and one for
reimbursements begin and how often are they received?
The first reimbursements will be received in the last week of
February, 2002. Direct payments will be received each
February and August. Beginning in fiscal year 2003 (July
2002), schools and joint vocational schools may get a portion
of their reimbursements through the school foundation program
monthly disbursements because of lower property tax values
being used to determine the local contribution to basic aid.
Generally, any school district not on the foundation program
guarantee will receive part of their reimbursements through
the foundation program.
How long do
reimbursements continue to be paid for fixed-rate
For non-schools, the reimbursements continue for 15 years.
For the first five years (2002-2006), the reimbursements are
for 100 percent of the losses. For the next five years, the
reimbursements are for 80 percent of the losses. For the
final five years, the percentage declines steadily until it
reaches zero in year 16.
For joint vocational schools, the losses are fully reimbursed
for 15 years.
For schools, losses are guaranteed to be reimbursed for five
years. After five years, the Department of Education makes a
determination as to whether reimbursements should continue.
The determination requires two calculations. First, the total
fixed-rate tax loss is adjusted for inflation from 2002 to
2006. Second, the difference in state basic aid between
fiscal year 2002 and fiscal year 2007 is determined. If the
difference in basic aid is greater than the inflation
adjusted fixed-rate loss, direct payments end after August
2006 (districts continue to receive additional aid through
the foundation formula due to lower valuations because of the
assessment rate changes). If the fixed-rate loss is greater,
the reimbursement payments continue in full for another year.
This comparison is made each year for the next 10 years to
determine if direct payments are to continue.
How long do
reimbursements continue to be paid for fixed-sum
For bond levies, reimbursements continue for the life of the
For emergency levies, reimbursements are guaranteed for five
years. They can continue for another 10 years as long as the
original emergency levies that were used in the loss
determinations continue to be renewed.
What happens to the
dedicated funds once direct reimbursements are no longer
For schools and joint vocational schools, any excess money in
the dedicated funds not needed to make direct reimbursements
will be distributed on a per capita basis to be used for
For non-schools, one-half of the excess revenue is
distributed to each county in proportion to each county's
population. The other half is distributed to each county in
the proportion that the tax losses from the utility property
tax changes for all taxing units in the county is of the
total amounts all local taxing units in the state.
Who distributes the
The Department of Education distributes the money directly to
schools and joint vocational schools. The Department of
Taxation distributes the non-school reimbursements to the
county auditors, who distribute it to the non-schools.