Senate Bill 208 Modifications to the TPP Supplement and TPP Replacement Payments

The FY 16-17 budget (HB 64) included further reductions to Tangible Personal Property (TPP) tax replacement payments to schools. Districts still receiving TPP or Public Utility TPP payments in FY 15 would see reductions varying from a maximum of 1% of total resources to 2% of total resources depending on the district’s local wealth. House Bill 64 specified that the TPP replacement payments would continue to be phased out in the manner described above until all TPP replacement payments have been eliminated.

In order to cushion the impact of these reductions, the legislature included a “TPP Supplement” in both FY 16 and FY 17 as part of the budget package. The TPP supplement ensured that no district would receive less combined formula funding plus TPP replacement payment amounts in FY 16 and FY 17 than they received in FY 15. In essence, the TPP supplement serves as a temporary “hold harmless” on the impact of the TPP replacement reductions. However, Governor Kasich vetoed the TPP supplement for FY 17. LSC estimated that 116 districts would have received a total of $84.2 million in TPP supplement payments in FY 17 had the provision not been vetoed.

The OEPI Summer 2015 Newsletter contained an article summarizing and analyzing the HB 64 changes. (Go to the OEPI website for article.) This article will provide a summary of changes made to the TPP Supplement and TPP replacement payment schedule in Senate Bill (SB) 208, a budget corrections bill passed in October 2015.

SB 208 made two types of changes relating to TPP. The first change was to reinstate the TPP supplement for FY 17 at a reduced level. Under SB 208 in FY 17 all districts are guaranteed to receive combined formula funding plus TPP replacement of at least 96% of the FY 15 total of foundation funding plus TPP replacement. While it does not fully reinstate the original FY 17 TPP supplement vetoed by the Governor (as many districts were urging the legislature to do by overriding the Governor’s veto), LSC estimates that 75 districts will receive an additional $43.9 million as a result of this provision.

The second change that SB 208 made was to modify the TPP replacement payment phase-out formula in FY 18 and beyond. LSC estimates that under the HB 64 TPP provisions there will be 132 districts receiving a total of $182.4 million in TPP replacement payments in FY17. SB 208 specifies that beginning in FY 18 each district that is still receiving TPP replacement payments will see an annual reduction of a maximum of 5/8 of a mill of local property valuation rather than a maximum percentage of total resources.

The SB 208 TPP phase-out formula will slow down the loss of TPP replacement payments for many districts (although some districts fare the same under SB 208). No “regular” K-12 district would be worse off under SB 208 than they were under HB 64.

However the three JVSDs that still receive payments in FY 18 will see them phase out more quickly. This is because JVSDs consist of multiple school districts, and 5/8 of a mill of their larger property tax bases allows for larger annual reductions than would be the case under the percentage of total resources approach used in HB 64. JVSDs also do not receive the TPP supplement, an oversight which could have been corrected in SB 208 but was not.