In recent years small subsets of Ohio’s 610 traditional K-12 districts and 49 JVSD districts have experienced significant decreases in their Public Utility Tangible Personal Property (PUTPP) valuation. The underlying reason for the valuation decreases is changes in Ohio’s energy market which have made it increasingly difficult for coal-fired and nuclear power plants to remain competitive with natural gas power plants. As a result, the taxable value of the coal and nuclear plants has been significantly lowered, and in several instances the plants have closed entirely (which reduces the PUTPP value to zero). In either case, the result has been significant reductions in local property tax revenue for the school districts where the power plants are located.
In FY18 and FY19 the Ohio Department of Education (ODE) “028 Adjustment” called for a recomputation of state foundation funding in districts that experienced a decrease in PUTPP value of more than 10% from either Tax Year 2016 to 2017 or Tax Year 2017 to 2018. However, because the state foundation funding formula has been frozen at FY19 levels in the current biennium, there is no 028 adjustment in FY20 or FY21. This means that districts that have experienced a loss in PUTPP valuation in Tax Year 2019 will not receive any additional state funding under current law to help offset their loss of local tax revenue. The same will be true for districts that experience a loss in PUTPP valuation in Tax Year 2020.
In addition, the FY18 and FY19 028 Adjustments had a provision which “clawed back” state funding from districts that experienced more than a 10% increase in PUTPP valuation. In one of these districts (Felicity Franklin in Clermont County) it was later learned that the valuation increase was based on incorrect data. The negative 028 adjustment cost Felicity Franklin over $400,000 in state aid it should have received had the valuation been correct in the first place.
Senate Bill (SB) 313 was introduced in Spring 2020 to address the above issues by providing two types of supplemental funding for school districts. First, traditional K-12 school districts that have experienced more than a 10% reduction in PUTPP valuation from TY17 to TY19 would be eligible for supplemental funding in FY20. Additionally, districts that have experienced more than a 10% reduction in PUTPP valuation from TY17 to TY20 would be eligible to receive supplemental funding in FY21. Second, districts which were subject to the negative 028 adjustments which occurred in FY18 were scheduled to receive a one-time reimbursement payment. Three districts qualify for this one-time payment.
OEPI analysis identified several modifications which could be made to the provisions contained in the as-introduced version of SB 313. These changes (which only modify the power plant valuation decrease provisions and not the 028 Adjustment repayment provision) would provide more comprehensive state support to the school districts impacted by declining power plant values caused by Ohio’s evolving energy marketplace. The recommended changes were:
- Joint Vocational school districts should also be eligible to receive supplemental funding based on their PUTPP valuation loss.
- School districts are eligible for supplemental funding in FY20 if their PUTPP valuation loss is greater than 10% from any of TY17 to TY18, TY18 to TY19 or TY17 to TY19.
- Similarly, school districts are eligible for supplemental funding in FY21 if their PUTPP valuation loss is greater than 10% from either FY19 to FY20 or FY17 to FY20.
- To be eligible for supplemental funding, a school district must also have a power plant within its jurisdiction.
- Districts that meet the above criteria will receive either their recomputed formula funding amount or a minimum amount of supplemental funding based on their amount of lost local tax revenue as a result of the decrease in PUTPP valuation (whichever amount is greater). The OEPI report suggested that the minimum replacement amount could be 50%, 75% or 100% of their local tax loss.
OEPI Estimated Cost(s) of a Modified Version of SB 313
Dr. Howard Fleeter provided “interested party” testimony on SB 313 to the Senate Finance Committee on June 9, 2020, discussing the modifications described above. The table below shows that the estimated cost to the state of modifying the as-introduced version of SB 313 would be relatively modest.
Table 1: SB 313 As Introduced and With Modifications, OEPI Estimated Impact by School District
|District||County||LSC Change in Property Taxes TY17-TY19||SB 313 As Introduced (LSC Fiscal Note)||SB 313 Modified 50% Replacement||SB 313 Modified 75% Replacement|
|Recomputation of FY19 State Aid|
|Manchester Local SD||Adams||-$1,337,022||$1,337,022||$1,337,022||$1,337,022|
|Perry Local SD||Lake||-$1,492,559||$1,045,912||$1,045,912||$1,119,419|
|New Richmond EV SD||Clermont||-$772,135||$293,667||$386,068||$579,101|
|Gallia County Local SD||Gallia||-$805,300||$3,954||$402,650||$603,975|
|River View Local SD||Coshocton||-$138,370||$0.00||$69,185||$103,778|
|U.S. Grant JVSD||Clermont||-$172,167||$0.00||$86,084||$129,125|
|.028 Adjustment Reimbursement|
|Felicity-Franklin Local SD||Clermont||N/A||$400,266||$400,266||$400,266|
|Weathersfield Local SD||Trumbull||N/A||$144,811||$144,811||$144,811|
|Lowellville Local SD||Mahoning||N/A||$189||$189||$189|
Table 1 shows that the as-introduced version of SB 313 was estimated to cost the state $3,225,821. Modifying the as-introduced version of SB 313 with a 50% minimum replacement level was estimated to increase the cost to the state by $646,365 to $3,872,186. Implementing a 75% minimum replacement level was estimated to increase the cost by $1,191,865 to $4,417,686.
Power Plant and 028 Adjustment Fixes Included in HB 164
In order for the legislative changes to be effective for FY20, the provisions providing replacement payments for the property tax losses experienced by the power plant districts and the reimbursement of the negative FY18 028 adjustments were included in House Bill (HB) 164, passed and signed into law in June 2020. The legislature opted to include most of the changes outlined by OEPI: including JVS districts, requiring that districts must have a power plant to be eligible, basing eligibility on single year or multiple years of valuation change (whichever is more beneficial), and implementing a minimum replacement payment of 50% of the property tax loss.
Final HB 164 replacement payment and reimbursement payments are shown in Table 2 below. Note that Southern Local is included because it was learned that they have a small generating facility, and under HB 164, Felicity Franklin receives tax loss replacement payments in addition to the refund of its negative 028 adjustment.
Table 1: HB 164 As Enacted, ODE Estimated Impact by School District
|District||County||ODE Change in Property Taxes TY17-TY19||SB 313 As Introduced (LSC Fiscal Note)*||HB 164 50% Replacement Minimum (ODE Data)|
|Recomputation of FY19 State Aid|
|Manchester Local SD||Adams||-$1,318,834||$1,337,022||$1,318,834|
|Perry Local SD||Lake||-$1,437,183||$1,045,912||$1,061,237|
|Gallia County Local SD||Gallia||-$732,091||$3,954||$366,046|
|New Richmond EV SD||Clermont||-$651,725||$293,667||$325,863|
|Felicity-Franklin Local SD||Clermont||-$231,017||$0.00||$115,509|
|River View Local SD||Coshocton||-$211,492||$0.00||$105,746|
|Southern Local SD||Meigs||-$1,246||$0.00||$623|
|U.S. Grant JVSD||Clermont||-$147,926||$0.00||$73,963|
|.028 Adjustment Reimbursement|
|Felicity-Franklin Local SD||Clermont||N/A||$400,266||$400,266|
|Weathersfield Local SD||Trumbull||N/A||$144,811||$144,811|
|Lowellville Local SD||Mahoning||N/A||$189||$189|
*Note ODE figures differ from LSC figures as a result of updated data