In February 2015, the Ohio General Assembly introduced House Bill 64 (“H.B. 64”), which is the biennial operating budget bill for the biennium beginning July 1, 2015. H.B. 64 contains language that would restart the phase-out of tangible personal property tax and public utility tangible personal property tax replacement payments currently made to school districts and other local governmental units. The purpose of this alert is to describe the proposed language and summarize how that language may affect school districts and other local governmental units.
Background
In response to substantial reductions in personal property tax revenues received by school districts and other local governmental units in connection with public utility deregulation and the phase-out of the general business tangible personal property tax, the Ohio General Assembly provided for various replacement payments to those entities. As originally proposed, these replacement payments were scheduled to gradually reduce over time, with certain exceptions (e.g., bond levies would be fully reimbursed until the debt was retired; inside (unvoted) millage levies were to be fully reimbursed through tax year 2017, after which they would be eliminated). Replacement payments for fixed rate levies were made based on formulas designed to measure how reliant the school district or governmental entity was on the replacement payments. The payment scheme generally remained in place until tax year 2013, at which point most of the replacement payments were frozen, and continued to be paid at their tax year 2013 levels.
H.B. 64 Proposal
Under the “As Introduced” version of H.B. 64, the replacement payments would no longer be frozen, and would again generally be phased out based on the reliance calculations that were previously in place. The effect of the H.B. 64 proposal on counties is summarized in the below table:
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Type of Levy
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Fiscal Year 2016
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Fiscal Year 2017
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Fiscal Year 2018
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Thereafter
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School district current expense
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Payments made only if 2014 payment exceeds a certain percentage of “total resources” based on the district’s relative revenue capacity
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Threshold increases by a certain percentage each year based on the district’s relative revenue capacity
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Threshold increases by a certain percentage each year based on the district’s relative revenue capacity
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Threshold increases by a certain percentage each year based on the district’s relative revenue capacity
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Non-school district current expense
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Payments made only if 2014 payment exceeds 2% of “total resources”
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Payments made only if 2014 payment exceeds 4% of “total resources”
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Threshold increases by 2% each year
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Threshold increases by 2% each year
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Inside (unvoted) millage
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Full reimbursement based on 2014 levels
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Public utility payments reduced by 50%; tangible personal property payments made in full
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Public utility payments eliminated; tangible personal property payments reduced by 50%
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No reimbursement
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Bond
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Full reimbursement until debt is retired
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Full reimbursement until debt is retired
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Full reimbursement until debt is retired
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Full reimbursement until debt is retired
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School district emergency
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Full reimbursement
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80% of 2016 amount for public utility; full reimbursement for tangible personal property
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60% of 2016 amount for public utility; 80% of 2017 amount for tangible personal property
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20% reduction in each category until fully phased out
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The effect that the renewed phase-out proposed in H.B. 64 would have on a particular school district or other governmental entity depends largely on a number of factors, including the levies that are eligible for replacement payments, the total resources available and the payments received in prior years. The Ohio Department of Taxation has prepared estimates of the effect of these proposed changes on each school district and other eligible governmental entity, which can be found here: http://www.tax.ohio.gov/public_utility_property/dereg.aspx.
Conclusion
If enacted, the renewed phase-out of personal property tax replacement payments proposed in H.B. 64 could have a significant effect on school districts and other local governmental entities over the next few years. It is important to note, however, that H.B. 64 is still in its early stages. It is likely that this language will continue to change as the bill makes its way through the General Assembly. Benesch will continue to monitor the progress of H.B. 64, and will provide updates as necessary.
