Delinquent taxes new burden for schools
THORNVILLE – As school districts across the state struggle with passing levies and living within shrinking state funding, now they must cope with delinquent property tax revenue.
“It’s a very frustrating situation,” said Northern Local School District Treasurer Elizabeth Arnold. She said district residents who are delinquent on their taxes strain the school’s budget.
According to the Perry County Auditor’s office, as of July 27, 2009, delinquent property taxes in the Northern Local School District totaled $497,443.07.
Arnold explained that school districts have just two major sources of income – revenue from the state and revenue from local property tax levies. Local revenue is dependent upon people paying their taxes on time. “We’re so bound by the two funding sources,” she said. “That’s all. When one isn’t flowing, we’re stuck.”
Arnold said the district has little control over its funding sources once they’re in place. The district is forced to adapt. “It may push the district back to the voters,” she said. On the other hand, said Arnold, if people can’t pay their taxes now, how could they pay an increased amount?
Arnold explained that school districts base the next year’s budget on anticipated revenues which includes property tax revenue. Once the budget is approved, the district is obligated to pay teacher’s contracts and other expenses. The district’s finances become seriously strained when property tax collections fall below expectations. Since the district must still meet its contractual obligations, it has to dip deeper into its reserves. “That’s how we get in the hole,” said Arnold. “It never gets caught up.”
Another Catch-22, said Arnold, is it’s tough to pressure people into paying their taxes when these are the same people who vote on levies. “These are the people you want to be supportive of you,” said Arnold. “It’s a bad place to be.”
She said the copunty auditor certifies a dollar amount for the district every year and the state bases its contribution on real estate value. “We’re really losing twice,” said Arnold. “We just lose all the way around.” She said the problem is really a symptom of Ohio’s school funding system, which was deemed unconstitutional in Ohio. A lawsuit on behalf of Nathan DeRolph, a Northern Local student, was the vehicle for the landmark decision. “It’s all part of the system that’s broken,” said Arnold. She said the district hired Carlyle Patchen & Murphy attorney Jackie Hager for assistance.
Licking County Treasurer Michael Smith said the amount of delinquent property tax in Licking County has remained fairly steady over the past five years. He said delinquent amounts are often paid up to a certain point, and then other properties go unpaid. Those properties catch up, and then other properties go unpaid, and so forth. “It’s a bit like a dog chasing his tail, but our efforts are very much worth the pursuit,” said Smith.
Smith said the Lakewood School District’s delinquent total is $402,459.42. This total is down from $720,459.42 at the end of second half collection this year (August).
In an effort to collect delinquent taxes, Smith said the county sent delinquent bills during September across entire county, plus 880 letters to property owners with a targeted amount owed. That effort cut Lakewood’s delinquent taxes nearly in half. The listed amounts don’t include collection fees, so the district’s actual receipts will be less. The collection effort prompted some taxpayers to get current while others accepted payment plans..
Liberty Union-Thurston School District Superintendent Paul Mathews said his district’s delinquent taxes total $392,800. Walnut Township School District Treasurer Kirk Grandy said his district is owed $469,884 in delinquent taxes.
The schools aren’t the only ones feeling the pinch.
“It’s worth keeping in mind that the national recession has had a dramatic effect on revenue for most government agencies,” said John Kohlstrand, communications director for the Ohio Department of Taxation. He said state government, for example, has seen income tax revenue fall from its peak of $9.1 billion (during the 2008 state fiscal year, which matches the 2007-2008 school year) to roughly $7.2 billion (during the 2010 state fiscal year, which matches the 2009-2010 school year). “This is an enormous decline,” said Kohlstrand, “mostly due to national economic conditions.” State government has to find savings where it can.
Kohlstrand said most people think of property tax as a more stable source of revenue than other taxes, but a housing bubble characterized the recession, and delinquencies are hurting local tax revenue more than what would normally be expected.
“This is obviously a difficult challenge to address in the short term,” said Kohlstrand. But, as school treasurers look ahead, he said they might want to factor the current delinquency rate into their planning when they consider future levies.
State aid to schools is based, in part, on the amount of property value within a district – specifically, on the revenue that 22 mills would have hypothetically generated two years earlier without any adjustment for delinquencies or other local factors, Kohlstrand explained. For example, school year 2010-2011 state aid is based on 2009 property tax year valuation. “It must be said that a more complex system that adjusted for local rates of tax delinquencies would be potentially difficult to administer,” he said, since it’s been historically difficult for the state to obtain current information on delinquencies.