Loss Reimbursement Overview
PROPERTY TAX LOSS REIMBURSEMENTS FOR SENATE BILLS 3
AND 287
Mike Sobul
Ohio Department of Taxation
August 2001
PROPERTY TAX LOSS REIMBURSEMENTS FOR SENATE BILLS 3
AND 287
Introduction
Beginning in Tax Year 2001, there will be significant
reductions in the valuation of certain types of public
utility property. Two bills enacted by the 123rd
General Assembly reduced the assessment rate for certain
tangible personal property of electric utilities and all
tangible personal property of gas utilities. For electric
utilities, including rural electric utilities, all property
except transmission and distribution property will have its
assessment rate reduced to 25 percent. All natural gas
personal property goes to 25 percent from 88 percent. The two
changes combined have been estimated to reduce property taxes
by about $300 million. To replace this money, new state
consumption taxes have been enacted, a kilowatt-hour tax (KWH
tax) on electricity and a thousand cubic foot tax on natural
gas (MCF tax). All of the money from the MCF tax and 37
percent of the money from the KWH tax will be earmarked into
two funds, the School District Property Tax Replacement Fund
and the Local Government Property Tax Replacement Fund. The
mechanisms for replacing the lost revenue from property tax
changes are contained in four sections of Senate Bill 3,
amended by Senate Bill 287, O.R.C. 5727.84 - 5727.87. Since
the tax changes first occur for tax year 2001, the first
reimbursements under these provisions take place in February
2002. Reimbursements are to be made twice a year, in February
and August.
Calculation of Base Loss (O.R.C. 5727.84)
Prior to January 1, 2002, the Department of Taxation is to
determine the tax losses due to the reduction in assessment
rates. Using 1998 data for electric utilities and 1999 data
for gas utilities, the department will calculate for each
taxing district in the state the difference between actual
valuation and what valuation would have been had the
apportionment and assessment rate provisions in Senate Bills
3 and 287 been in effect. This is defined in the bill as the
"Tax Value Loss." (The tax value loss is to be certified to
the Department of Education prior to January 1, 2002.) Based
on the calculated valuation losses, the Department of
Taxation will determine for each local taxing unit in the
state the estimated tax loss. For calculating the tax loss on
electric property, the department will use the greater of the
tax rates in effect in 1998 and 1999, except levies passed
after June 30, 1999 will not be considered. For calculating
the tax loss on natural gas property, the department will use
the greater of the tax rates in effect in 1999 and 2000. For
this determination, levies are categorized as one of two
types-- either fixed-rate levies (the gross tax rate is
constant) or fixed-sum levies (the gross tax rate is adjusted
annually to raise a specified amount of money each year;
these levies include bond, debt, and emergency levies).
The full amount of the fixed-rate levy loss will be eligible
for reimbursements, subject to the reimbursement schedules in
O.R.C. 5727.85 - 86. Reimbursement of fixed-sum levies is
restricted. Under existing levy law, if the total valuation
of a taxing unit declines, the tax rate charged all taxpayers
would increase to offset the lower valuation, insuring that
the appropriate fixed-sum is actually raised. To protect
non-utility taxpayers from large rate increases, Senate Bills
3 and 287 provide a threshold, above which the state would
absorb the costs. That threshold is 0.25 mills. In other
words, if the reduction in electric utility and natural gas
taxes results in adjustments to overall fixed-sum rates in a
taxing unit of less than 0.25 mill, the tax rates will
increase and no reimbursements will be made. If the overall
fixed-sum rates would otherwise increase by more than 0.25
mill, the rates would increase by the 0.25 mill. The
additional revenue needed to fill the gap between the amount
of money brought in by the 0.25 mill and the amount of money
that would have been brought in had the rate been allowed to
increase to the necessary level would be reimbursed by the
state. Bond levies are to be reimbursed for the life of the
levy, regardless of the number of years.
School district emergency levies are to be reimbursed at
least through 2006. If the emergency levy continues to be in
effect beyond 2006 due to renewals, it will continue to be
reimbursed as long as it remains in effect, up to a maximum
of 10 additional years. Preliminary estimates of the
fixed-sum levies have shown that fewer than 50 jurisdictions
in no more than 34 counties will be eligible for these
reimbursements.
Reimbursements to Schools (O.R.C. 5727.85)
The determination of the amount of money to be reimbursed for
fixed-rate levies directly to city, exempted village, and
local school districts from the property tax replacement fund
is done in two steps, except for the first payment. The basis
for reimbursement is the dollar loss calculated in O.R.C.
5727.84. In February 2002, direct payment is made for 50
percent of the annual loss. Beginning in August 2002, a
school aid offset is calculated each year. The offset is
equal to the additional state school foundation aid that
districts will receive because of lower valuations resulting
from S.B. 3 and S.B. 287. The amount directly reimbursed to
schools is the amount determined in O.R.C. 5727.84 less the
offset.
This method of reimbursement is used through August of 2006.
At that point, a calculation is made to determine if further
reimbursement is required. First, a determination is made of
the increase in school aid between fiscal year 2002 and the
current fiscal year. That amount is then compared with the
school district loss calculated in O.R.C. 5727.84, adjusted
for inflation from January 1, 2002 to June 30th of
the current year. If the school aid increase is greater than
the inflation-adjusted loss, no further reimbursement
payments are made. If the inflation-adjusted loss is greater,
full reimbursements are made during the following tax year.
For example, assume a school district has a tax loss of
$500,000 from the utility reforms. If inflation is three
percent per year, then the inflation adjusted loss in June
2006 would be $562,754. If school aid from fiscal year 2002
through fiscal year 2006 grows by more than $562,754 then
payments would stop. Otherwise the district would get a
payment of $500,000. This determination is repeated each year
through 2016. No reimbursements are made after 2016.
The reimbursement mechanism for joint vocational school
districts is not so cumbersome. Each JVS is reimbursed the
full amount calculated in O.R.C. 5727.84 for a full 15 years.
Beginning in August 2002, there is a calculated offset based
on the 0.5 mill charge-off in the JVS foundation formula.
Each year through 2006, and twice per year thereafter, the
Tax Commissioner is to determine if more money is available
in the school district property tax replacement fund than is
needed to make all payments. If there is a surplus of
revenue, all of the surplus is to be allocated to school
districts and joint vocational school districts on a per
pupil basis. Once no direct payments for losses are required,
all money in the fund is to be distributed in this manner.
Money distributed under this provision can only be used for
capital expenses.
By August 5, 2002, the Tax Commissioner is to determine if
more money is available in the school district property tax
replacement fund than is necessary to make the reimbursement
in that month. If there is excess revenue, it may be used to
make 4.5 years worth of reimbursement payments at once for
fixed-rate levies, wiping those obligations off the books.
Reimbursements to Non-Schools (O.R.C.
5727.86)
The amounts to be reimbursed to non-schools are fairly
straightforward. Each non-school is reimbursed the full
amount calculated in O.R.C. 5727.84 for the first 5 years,
with no calculated offset or reduction. For the next five
years, all non-schools receive 80 percent of the calculated
amount. Over years 11 through 15, payments are phased-out by
about 13.3 percent per year. No direct payments are received
beginning in year 16. There are two exceptions to this
payments schedule. Non-schools with qualifying fixed-sum
reimbursements are reimbursed for the life of the qualifying
levies, whether those are more or less than the 15 years.
Also, a special provision in the law allows one or two
jurisdictions in Lake County to receive 100 percent
reimbursement for 15 years, rather than being subject to the
sliding scale beyond year five.
Each year through 2006, and twice per year thereafter, the
Tax Commissioner is to determine if more money is available
in the local government property tax replacement fund than is
needed to make all payments. If there is a surplus of
revenue, the full excess is to be allocated to counties.
One-half of the excess is to be distributed based on county
population. The other half is to be distributed
proportionally based on each county's calculated loss
according to O.R.C. 5727.84 to the overall loss. Each county
must distribute these revenues to all non-schools based on
each non-school's current property taxes as a proportion of
all non-school property taxes in the county. Once no direct
payments for losses are required, all money in the fund is to
be distributed in this manner.
By February 5, 2002, the Tax Commissioner is to determine if
more money is available in the property tax replacement fund
than is necessary to make the reimbursement in that month. If
there is excess revenue, it may be used to make 9.4 years
worth of reimbursement payments at once for fixed-rate
levies, wiping those obligations off the books.
Recoupment of Auditor and Treasurer Fees (O.R.C.
5727.87)
County auditors and treasurers are allowed to recoup their
lost fees due to the lowering of assessment rates. For the
first five years, the recoupment is the tax value loss times
0.9659 percent in counties with over $150 million in total
tax collections or times 1.1159 percent in counties with
under $150 million in total tax collections. For the next
five years, the reimbursement is the difference between 1998
fees and fees in the current year. The fees are paid
proportionally from the reimbursements that go to all schools
and non-schools, as if the reimbursements had been property
tax payments.
SCHOOL DISTRICT EXAMPLE ONE
DISTRICT WITH NO NEW LEVIES AFTER 1998
Total assessed value: $1,445,000,000
Electric Loss: ($122,000,000)
Gas Loss: ($3,000,000)
Assessed value after loss: $1,320,000,000
Millage Rates
|
Levy Type
|
1998 Rate
|
1999 Rate
|
2000 Rate
|
|
Current Expense
|
37.3
|
37.3
|
37.3
|
|
Permanent Improvement
|
1.3
|
1.3
|
1.3
|
|
Bond
|
.27
|
.25
|
.24
|
|
Emergency
|
7.84
|
7.58
|
7.0
|
Tax Losses*
|
Levy Type
|
Gas Loss
|
Gas Loss Formula**
|
Electric Loss
|
Electric Loss Formula***
|
|
Current Expense
|
$111,900
|
$3,000,000 x 37.3 mills
|
$4,550,600
|
$122,000,000 x 37.3 mills
|
|
Permanent Improvement
|
$3,900
|
$3,000,000 x 1.3 mills
|
$158,600
|
$122,000,000 x 1.3 mills
|
|
Bond
|
$750
|
$3,000,000 x .25 mills
|
$32,940
|
$122,000,000 x .27 mills
|
|
Emergency
|
$22,740
|
$3,000,000 x 7.58 mills
|
$956,480
|
$122,000,000 x 7.84 mills
|
* The losses shown in this table for current expense and
permanent improvement levies are the actual amounts to be
reimbursed as fixed-rate levies.
** Value loss times the greater of the 1999 and 2000 tax
rate.
*** Value loss times the greater of the 1998 and 1999 tax
rate.
CALCULATION OF FIXED-SUM LEVY REIMBURSMENT
Fixed-Sum Loss = Gas Bond Loss + Electric Bond Loss + Gas
Emergency Loss + Electric Emergency Loss
which is:
Fixed-Sum Loss = $750 + $32,940 + $22,740 + $956,480 =
$1,012,910
Fixed-Sum Reimbursement = Fixed-Sum Loss - (.25 mills x
Assessed Value After Loss)
which is:
$1,012,910 - (.00025 x $1,320,000,000) =
$682,910
TOTAL REIMBURSEMENTS
Total reimbursements are the sum of the bold
numbers from the above two sections.
SCHOOL DISTRICT EXAMPLE TWO
DISTRICT WITH A NEW LEVY PASSED IN NOVEMBER 1999
Total assessed value: $95,000,000
Electric Loss: ($660,000)
Gas Loss: ($600,000)
Assessed value after loss: $93,740,000
Millage Rates
|
Levy Type
|
1998 Rate
|
1999 Rate*
|
2000 Rate
|
|
Current Expense
|
33.5
|
38.4
|
38.4
|
|
Bond
|
7.4
|
7.4
|
7.2
|
The new 4.9 mill levy in 1999 was passed in
November.
Tax Losses*
|
Levy Type
|
Gas Loss
|
Gas Loss Formula**
|
Electric Loss
|
Electric Loss Formula***
|
|
Current Expense
|
$23,040
|
$600,000 x 38.4 mills
|
$22,110
|
$660,000 x 33.5 mills
|
|
Bond
|
$4,440
|
$600,000 x 7.4 mills
|
$4,884
|
$660,000 x 7.4 mills
|
* The losses shown in this table for current expense and
permanent improvement levies are the actual amounts to be
reimbursed as fixed-rate levies.
** Value loss times the greater of the 1999 and 2000 tax
rate.
*** Value loss times the greater of the 1998 and 1999 tax
rate, for all levies passed before 7/1/99. Since the district
passed a new levy in November 1999, it is not reimbursed for
the electric loss.
CALCULATION OF FIXED-SUM LEVY REIMBURSMENT
Fixed-Sum Loss = Gas Bond Loss + Electric Bond Loss
which is:
Fixed-Sum Loss = $4,400 + $4,884 = $9,284
Fixed-Sum Reimbursement = Fixed-Sum Loss - (.25 mills x
Assessed Value After Loss)
which is:
$9,284 - (.00025 x $93,740,000) = -$14,151
Since the calculation of the fixed-sum levy reimbursement is
negative, there is no reimbursement.
TOTAL REIMBURSEMENTS
Total reimbursements are the sum of the bold
numbers from the above two sections.
Counties Estimated to Have One or More Jurisdictions Eligible
for Fixed-Sum Reimbursements
|
01
|
Adams
|
|
02
|
Belmont
|
|
03
|
Brown*
|
|
04
|
Butler
|
|
05
|
Clark*
|
|
06
|
Clermont
|
|
07
|
Crawford*
|
|
08
|
Cuyahoga*
|
|
09
|
Defiance
|
|
10
|
Fairfield
|
|
11
|
Fulton
|
|
12
|
Gallia
|
|
13
|
Guernsey
|
|
14
|
Hamilton
|
|
15
|
Hancock
|
|
16
|
Harrison
|
|
17
|
Highland
|
|
18
|
Jefferson
|
|
19
|
Lake
|
|
20
|
Lawrence
|
|
21
|
Logan*
|
|
22
|
Lorain
|
|
23
|
Mahoning
|
|
24
|
Marion*
|
|
25
|
Meigs
|
|
26
|
Montgomery
|
|
27
|
Ottawa
|
|
28
|
Pike
|
|
29
|
Shelby
|
|
30
|
Stark
|
|
31
|
Trumbull
|
|
32
|
Tuscarawas
|
|
33
|
Warren
|
|
34
|
Washington
|
* Has just one jurisdiction near the threshold. These
counties could drop off the list.
Note: In all, fewer than 50 jurisdictions are estimated to
receive fixed-sum reimbursements.
Ohio Department of Taxation
May 1, 2001