A House bill would eliminate a significant source of revenue for local schools

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ATHENS, Ohio (WOUB) — Homeowners could be paying more property taxes to make up for commercial landowners paying less than they should if a House bill becomes law.

Alexander High School
Buses wait for summer students outside of Alexander High School, in Albany, Ohio. [Joseph Scheller | WOUB]
The bill would eliminate a decades-old process that allows anyone to challenge the value used to calculate taxes for a property.

These challenges are filed mostly by school districts, which are funded in large part by property taxes and have the most to gain from increased tax collections.

Challenges filed by the Athens City School District over the past two years resulted in raising the values of multiple properties by nearly $9.7 million combined.

This translates into hundreds of thousands of dollars in additional property tax revenue, although in some of these cases the new value is not final because the property owner has appealed.

In each case, the school district was asking that the property be valued at its most recent sale price. This is a long-established standard in Ohio for determining the fair market value of property for tax purposes.

If a property owner is paying taxes on an amount substantially less than the fair market value, then other taxpayers are paying more for certain tax levies than they otherwise would be.

“We’re protecting the rights of all property owners,” said Tom Gibbs, superintendent of the Athens school district. “Why should a major business … be permitted to not pay their fair share of local taxes?”

Big commercial property owners have lined up in support of the bill. It’s not the first time they have sought to make changes to the process through legislation, but the previous efforts were unsuccessful.

The latest effort, House Bill 126, initially proposed some procedural changes that would have required school districts to jump through more hoops when filing complaints against property values.

But after the final committee hearing in the Senate, meaning there would no longer be an opportunity for the public to appear before legislators and testify for or against the bill, it was substantially amended.

The bill now says that challenges to a property’s value cannot be initiated by anyone other than the property owner. What this would mean in practice is the only complaints filed would be to lower property values, since it’s highly unlikely property owners would try to raise their taxes.

This last-minute switch has drawn opposition from groups that previously supported at least some of what the bill was proposing to do. This includes the County Auditors’ Association of Ohio, the County Commissioners’ Association of Ohio and the County Treasurers’ Association of Ohio.

In a joint statement to the Senate, these three groups wrote:

“Existing procedures and the measures initially proposed in HB126 would have increased public awareness and accountability for local government decisions. Unfortunately, the current version of the HB126 upends the complaint process by making all claims one-sided and cutting off the ability of local governments to participate in this process.”

The bill is now back before the House, which must vote to concur in the Senate amendments before it goes to the governor. The House is expected to take up the bill on Wednesday.

Here’s a primer on property taxes

To understand what the bill, if it becomes law, would mean for property owners and school districts, it’s helpful to understand just how property taxes are assessed in Ohio.

It starts with levies, most of which go to voters for approval. These levies are often for specific purposes, such as funding for roads, parks and recreation, fire and police services, and schools.

The levies assess a certain mill rate, which is the amount of the tax for every $1,000 in taxable property value. Properties are not taxed on their full value, but on 35 percent of the total. So a property valued at $100,000 will be taxed on $35,000 of that value. For a 1 mill levy then, which is $1 for every $1,000 in taxable value, the tax would be $35.

Property values for tax purposes are determined by the county auditor. Every six years, the auditor’s office reviews every parcel and decides whether the value should be adjusted up or down. Auditors don’t have the resources to physically examine every property, so values are determined using a computer-assisted mass appraisal process that feeds property data into an algorithm.

Every three years in between these appraisals, property values are adjusted using a less extensive procedure that looks at market trends in a given area and raises or lowers values in that area based on these trends.

In between these appraisals, if a property is sold the sale price can become the new value for property tax calculations. The Ohio Supreme Court has said that a recent sale is the best evidence of a property’s value.

But auditor’s offices typically do not try to chase down every sale and make immediate adjustments, said Athens County Auditor Jill Thompson. So depending on when in the appraisal cycle a property sells, it could take a few years before the auditor’s office catches up with the new value.

In the meantime, the owners of those properties are paying less in taxes than they would be if the value was adjusted sooner to reflect the recent sale price.

For some levies, the annual tax is simply based on the taxable value of the property at the time. If the value goes up or down, the property owner pays more or less.

But for other levies, a certain amount must be collected each year. So if property values go down, the tax rates are increased so that the amount of money that must be collected gets collected.

What this means is that if the value of a property goes up significantly, resulting in much higher property taxes, the auditor doesn’t have to collect as much from others to meet the required amount for a levy.

On the flip side, if the owner is paying significantly less in taxes because the auditor has not yet caught up with the new value of their property, others are paying more than they otherwise would be.

Here’s how challenging property values works

There is a way to get a big shift in a property’s value recorded more quickly for tax purposes. Several decades ago the Ohio Legislature created a process that allowed anyone to challenge a property’s valuation. These complaints are reviewed by the county’s Board of Revision, on which sits the county treasurer and auditor and a county commissioner.

Over the years, school boards in particular have routinely used this process, especially in cases where a commercial property has recently sold for substantially more than its previous market value.

“We’ve literally brought hundreds of thousands of dollars into the district that we’ve been able to use to help give our kids a better education,” said Phil Howard, superintendent of the Jackson City School District.

Howard mentioned a case in his district where a large distribution facility valued at $17 million sold for $50 million. The district filed a complaint that resulted in an additional $200,000 per year in revenue.

Critics of this process argue that it results in a financial windfall for school districts at the expense of property owners. School districts argue that property owners should expect to pay more in taxes if they pay significantly more for a property than its previous valuation.

“Whether it’s bonus money or not to me is irrelevant because the goal is to find the true market value of the property in the interest of fairness for all taxpayers,” Howard said.

Besides, he said, “school districts are strapped. I mean it’s really tight financially. And so we’re not going to leave any money on the table if it’s out there for us to be able to get it.”

Businesses say the challenging process is abused

Not all valuation complaints are based on recent sales. Some school districts file complaints against properties in areas where values are rising or because the owner has made substantial investments in the property, raising its value. The district will have a property appraised and use this as the basis for a complaint.

Supporters of House Bill 126 argue this creates financial uncertainty for business owners and makes Ohio less attractive for commercial investors and businesses that might be considering a move into the state.

“Attorneys representing districts have grown overzealous, aggressive and abusive in filing complaints and appeals challenging valuations determined by the local government,” Michael Deemer, president and CEO of the Downtown Cleveland Alliance, said in testimony before the Senate Ways and Means Committee in November. The alliance represents the interests of business owners.

“This results in a disturbing lack of uniformity among similarly situated owners and properties that is extremely costly, redundant and repetitive, raising significant equal protection and due process concerns,” he said.

Stan Bahorek, chief financial officer of the Columbus City School District, opposes the bill, but acknowledged in testimony before the same committee in November that it is the result of the “overzealous actions of a few.”

Bahorek singled out the practice of some districts in filing complaints that are not based on a recent sale of the property.

Katie Johnson, deputy executive director of the Ohio Association of School Business Officials, told the committee that instead of this bill, school districts should be required to set parameters on what kinds of challenges they file.

This would include a minimum threshold so that challenges are only filed in cases where there is a significant gap between the auditor’s valuation and what the district argues is the current market value.

Johnson was testifying on behalf of several organizations that oppose the bill, including groups that represent school administrators, school boards and Ohio townships.

Legislators want to tweak other parts of the process with the bill

The bill includes some other restrictions on the complaint process.

When a property owner files a complaint to reduce their valuation, school districts can challenge that by filing a counter-complaint. In these cases, the district is trying to preserve existing tax revenue.

In Jackson, for example, the property where Walmart is located was valued at $7.5 million a few years ago. The company hired an appraiser who put the value at $4.7 million. The district intervened and hired an appraiser who valued the property at around $9.5 million. This resulted in a compromise that saved the district about $60,000 a year in what would have been lost revenue had Walmart won its case, superintendent Howard said.

The bill would require that each counter-complaint be approved by the school board.

The procedure in place in many school districts is that school boards authorize superintendents to file counter-complaints where they see fit. If the superintendent has to seek board approval in each case, the extra step could make it difficult in some cases for the district to get the paperwork filed in time.

Howard said he also worries that requiring board approval for each counter-complaint could end up politicizing the process because the case may involve someone a board member has a personal or professional relationship with.

The bill also would prohibit school districts from negotiating their own settlements with property owners.

In some cases a district will agree to drop a complaint or counter-complaint if the property owner agrees to pay a negotiated amount directly to the district. This has advantages for both parties. The district gets a guaranteed amount and the property owner doesn’t end up with a higher valuation and won’t have to pay higher taxes until the auditor’s office eventually catches up with the sale.

The Athens City School District negotiated a settlement in several of the complaints it initiated over the past two years. Most of these required the property owner to make payments to the district based on a recent sale price and using the same calculation for determining property taxes.

Athens auditor Thompson said she doesn’t like these agreements. The school district ends up getting the revenue it would have gotten if the property’s valuation had been raised. But the other government entities that get a share of the annual property tax revenue collected don’t get anything.

Thompson said that if a property should be valued higher because of a recent sale, then that’s what should happen so that everyone benefits from the additional property taxes collected as a result.

“For the school to be the only taxing entity that benefits really leaves everybody else out in the cold,” she said.