OEPI President’s Message on Value of OEPI

Thank you for your membership in the Ohio Education Policy Institute (OEPI). Without the resources made possible through OEPI, there would be no widely recognized and credible source of information on school funding issues available. In 2020, OEPI continued to provide credible and insightful information to assist policymakers and educators in making important decisions about education public policy.

At our December 1 annual membership meeting, OEPI consultant Dr. Howard Fleeter provided an overview of the various research projects undertaken by OEPI this past year. With a proven track record, Dr. Fleeter is respected by legislators on both sides of the aisle. In addition to arming the education community with solid data, he provides state leaders with non-partisan analyses and reports to aid in their decision making. Following is a summary of Dr. Fleeter’s December 1 report to OEPI members. It is a sampling of the projects that you made possible through your membership in 2020.

EdChoice Vouchers
The impact of EdChoice vouchers on school districts was analyzed as legislation has grown the voucher system over the last two years. Recent changes to the EdChoice voucher eligibility criteria resulted in an increase from 255 eligible buildings in FY19 to 517 eligible buildings in FY20, and 1,227 eligible buildings for FY21.

Despite a partial freeze on implementing the FY21 eligibility list, EdChoice voucher applications still increased by 2,104 students for FY21 (roughly 7%). The main reasons for the application increase in FY21 are a new sibling policy and the continuation of a policy started in FY20 that removes the requirement that high school students must have attended a public school in the previous year before receiving a voucher from the school. Because of the freeze in the state aid formula in FY20 and FY21 the cost of the expanded EdChoice program has come from local tax dollars as EdChoice deductions increased.

OEPI analysis concluded that Ohio’s EdChoice voucher program would have functioned better if certain changes were made, such as returning to the performance criteria that determined building eligibility that had been in place up until FY19 (D or F on both Performance Index and Value Added), eliminating the sibling policy and restoring the requirement that a high school student must have attended a public school in order to receive a voucher, providing payment by the state of the local dollars used to pay for EdChoice expansion in FY20 and FY21, and freezing of the EdChoice deduction at FY19 levels for all districts until Ohio has a functioning state aid formula.

Unfortunately, the Senate inserted a new EdChoice voucher plan into SB 89, enacting it through conference committee with no public testimony. While SB 89 reduces the number of EdChoice eligible buildings in FY22 to fewer than 500, OEPI analysis indicates that it is still problematic in many significant ways. Further analysis will be crucial as the conversation regarding Ohio’s voucher programs continues.      

Fair School Funding Plan
In September of 2019, OEPI released its analysis of HB 305—the Cupp-Patterson Fair School Funding Plan. This year, OEPI worked with Rep. John Patterson regarding modifications to HB 305 to address issues of equity and adequacy. Almost all of OEPI’s findings were implemented into Substitute HB 305, which was passed by the House of Representatives 87 to 9. Particularly, changes were made to the State/Local share mechanism and Targeted Assistance wealth calculation due to the information provided by OEPI.

Most recently, OEPI worked to help legislators understand and rebut Senate criticisms of HB 305’s adequacy methodology and teacher salary calculations. Continued analysis of the Fair School Funding Plan will be essential as the budget process begins with the 134th General Assembly.       

K-12 Budget Cuts and CARES Act Funding
In May, the Gov. Mike DeWine’s administration implemented $775 million in budget cuts for the FY20 school year in response to budget difficulties resulting from the onset of the Coronavirus pandemic. K-12 education bore the brunt of these cuts, totaling $300 million. On a full-year basis, these cuts amounted to roughly 4%; however, by implementing them with only two months left in the school year, the cuts amounted to over 20% of remaining funding. The cuts were extended into FY21.

OEPI worked to analyze the impact of the cuts on Ohio’s school districts and has also assessed the need for additional allocations of federal pandemic funding. In order to counter persistent misinformation suggesting that districts were not spending their CARES funding, OEPI analyzed OASBO survey data of Ohio’s school districts’ COVID spending. This data indicated that over 90% of districts anticipate using all of their CRF funding and that over 80% of districts expect to spend more than their current CRF allocation. This information will continue to be valuable as the federal government prepares to provide additional pandemic-related relief funds to states.   

Territory Transfer
At the 11th hour in the FY20-21 budget process, a little noticed provision was inserted into the conference committee version of HB 166. This provision allows school district residents to vote to move their property from one school district to another, thereby bypassing the existing territory transfer process which involves approval from the State Board of Education. The residents must live in a township that is shared by at least two school districts.

Residents may place a transfer issue on the ballot for a primary, special, or general election by submitting a petition to the board of education of their current district. The only requirement of the petition is that it must be signed by at least 10% of the qualified electors residing in the territory proposed to be transferred who have voted in the most recent general election. Only the electors residing in the territory proposed to be transferred are allowed to vote on the ballot initiative. Other township residents and residents of the school districts that the territory would be transferred from or to are not allowed to vote on the territory transfer. Additionally, the legislation does not establish a minimum number of petitioners required, which means that a single person could successfully file a territory transfer petition as long as that person voted in the most recent general election (this has in fact happened already).

This legislation has been declared unconstitutional by a U.S. District Court; however, that ruling has been appealed. In addition, SB 89 contained a provision that sunsets the territory transfer law on September 1, 2021, but permits a transfer ongoing at the time of the repeal to continue in accordance with the provision as it existed prior to the repeal. OEPI has tracked the impact of the territory transfer law on school districts and will continue to do so until this issue is resolved.

Rover and Nexus Challenges to Gas Pipeline Values
An issue involving the Rover and Nexus gas pipelines involves the valuation of these pipelines that snake through more than 100 Ohio school districts, transporting natural gas extracted from the Marcellus and Utica shale preserves via fracking. According to Ohio law, gas pipelines are classified as Public Utility Tangible Personal Property (PUTPP), and the property value is set by the tax department based on the actual construction cost of the pipeline and then apportioned across the school districts (and other local governments) that the pipeline traverses.

This should be a fairly straightforward process as the cost of the pipeline is a known figure that is supplied to the tax department by the pipeline company itself. The pipeline gets valued and becomes taxable in the year it is placed into service (primarily 2018 and 2019). However, the Rover and Nexus companies are contesting the valuation of their gas pipelines set by the tax department. The reason for this appears to be that the recent steep decline in natural gas prices has made the pipelines less profitable than anticipated during construction.

Once the pipeline company contests the valuation of the pipeline, it is allowed to only pay taxes on the lower (or “uncontested”) value. This means that school districts (and other local governments) receive less tax revenue than they were expecting, and often less than the pipeline companies told these communities when they were garnering support for the pipeline project in the first place. Thus far, the Nexus and Rover valuation appeals have both been rejected by the Tax Commissioner, but they have both now appealed to the Board of Tax Appeals (BTA) where a ruling is expected sometime in 2021.  If they lose at the BTA, they can then appeal in state court, all the way to the Supreme Court, a process which could take years.

In the meantime, school districts and other local governments are receiving a fraction of the tax revenue they expected, and those with emergency levies are particularly adversely impacted. The scope of the pipeline makes this an unprecedented issue. OEPI has been and will continue to work with these districts to strategize about how to proceed both now and in the future.

Power Plant Devaluations
Electricity generation facilities (aka “power plants”) are among the highest valued pieces of property in the state, whether they are coal-fired, natural gas or nuclear in nature. Furthermore, because they typically need to be near a water source, they are often in smaller school districts where they comprise a very significant fraction of the tax base. As a result, when recent major changes in the energy market caused coal and nuclear power plants to decline in value (and in a number of cases, shut down entirely) the loss in property tax revenue had a devastating impact on district finances and the community in general.

The negative fiscal impact is further compounded when the state aid formula fails to accurately reflect a district’s current local revenue capacity (because of three-year averaging). The situation is made even worse when the state aid formula is frozen and the impacted districts do not receive any increase in statewide aid at all as result of their property tax base decreasing significantly.

For the past several years, OEPI has worked with Ohio’s power plant districts to quantify the fiscal impact of devaluations and closures of coal-fired and nuclear power plants and to craft policy solutions which will provide additional state revenue in a timely fashion in order to cushion the loss of local tax revenue. These solutions have included modifications to the state share index (SSI), the “028 adjustment” and the creation of short-term supplemental state revenue streams.

Student Wellness and Success Funding
The FY20/21 state budget created a new funding stream known as Student Wellness & Success (SWS) funding. This funding is outside of the state foundation formula and is distributed in accordance with US Census poverty data measuring the percentage of school age children in each district that are at or below 185% of the Federal Poverty Level.

In FY20, $248 million in SWS funding was allocated to traditional K-12 school districts, an amount which was increased by roughly 40% to $352 million in FY21. However, it became clear that there were significant deviations in FY21 between the estimated amount of SWS funding and the actual amount received by many districts. It turns out that this is because the Census poverty measure appears to fluctuate more than expected from year to year and also does not always track closely with the ODE percentage of economically disadvantaged students. OEPI has engaged in discussions about how to stabilize SWS funding in the next budget.

On behalf of OEPI members, Dr. Fleeter also provides constantly updated analyses of state revenues as provided by the Office of Budget and Management and levy passage and failure rates across the state. Articles with in-depth information on these two issues are included in this edition of the OEPI newsletter.

School district membership in OEPI is crucial. The reasonable dues for districts are a small price to pay for the return on investment. The important work of OEPI could not continue without the support of our members. Invoices for 2021 were recently mailed to school districts. Please continue to partner with us in 2021 as OEPI addresses a variety of education funding and policy topics crucial to a strong system of public education in Ohio.

-Kevin Miller – OEPI President