How do tax abatements affect school district revenue?
What is a tax abatement, and how do they affect school district revenue?
A tax abatement is a reduction of taxes granted by a government to encourage economic development. The most common type of tax abatement is a property tax abatement granted to a business as an incentive to come to a city or expand existing operations within the city. They are for a specified time period.
How does a tax abatement affect school district revenue?
The abatement is for real estate taxes that would normally go to the City and the school district. Only school taxes are included in this report.
We are aware of five Loveland City abatements that run from eight, twelve, and two for fifteen years. One of the 15-year abatements had a prior school tax of 4.8 million and received a $4.1 million tax abatement. That means they only pay taxes on a base of $700,000 instead of $4.8 million. Where they would normally owe $670,070.00 in school taxes each year, they only pay $11,237.06. That means the school district loses $658,832.94 per year, $10,051,050.00 over the fifteen-year life of the abatement.
The district does get a little bit back as the company is required to make an annual donation equal to 15% of its tax savings the previous year. In this case, $ 1,685.56 yearly, $ 25,283.39 over the life of the abatement.
Does the school district have any say regarding tax abatement's?
According to the Ohio School Boards Association, For most TIF programs and for the Enterprise Zone tax abatement program, school board approval is required if the exemption period exceeds 10 years or the percentage of the property value exempted exceeds 75% (60% for the Enterprise Zone program in unincorporated areas).
For the CRA tax abatement program, school board approval is required for commercial and industrial projects (except in grandfathered CRAs), unless the sum of payments estimated to be received by the school district for each year of exemption equals or exceeds 50% of the amount of taxes that would have gone to the district.
Local governments can exclude school districts from tax increment financing, insulating them from revenue losses.
Resources
The role of school districts in community development – Ohio School Board https://www.ohioschoolboards.org/sites/default/files/5.%20%20Economic%20Development%20%28Daniels%29.pdf
Section 6. All recipients qualifying for abatement periods in excess of three (3) years shall present to the Loveland School District a cash donation equal to fifteen (15) percent of the tax savings experienced the previous year. Said donations shall be made annually on the anniversary of the effective date of the abatement.
Section 7. The Council and the Loveland School District, Board of Education, shall enter into a written Agreement establishing procedures for the collection, distribution, and expenditure of cash donations from tax abatement recipients. Pending execution of said Agreement, the Finance Director of the City of Loveland shall place all receipts in an escrow account.
The abatements came about because of the action of cities, villages, counties, and townships, but schools, as the recipient of nearly two-thirds of Ohio’s property-tax levies, are the ones that forgo the most revenue when such taxes are abated for economic development.[5]
The new accounting standard sheds new sunlight on how tax abatements affect schools in Ohio. The overwhelming majority of schools have adopted the standard and said so in their official financial statements, a positive step for transparency. However, that still leaves a picture that is woefully incomplete. The GASB standard doesn’t go nearly far enough in what it requires – and the state auditor should insist on consistent, uniform reporting that would add clarity even without any change in the standard. In New Mexico, the state auditor at the time the standard became effective delivered a spreadsheet to every local government in the state and instructed them to complete it, including the tax revenue forgone and any payments in lieu of taxes or similar compensation they have received from others.[22] Ohio’s auditor should do the same.
Ohio law already provides school districts with the authority to approve many significant abatement agreements. These vary according to the kind of abatement, with differing thresholds for when approval is mandated. A thorough assessment is needed to determine how school districts use these rights, whether the array of varying requirements needs standardization and, most importantly, if it provides appropriate protection. Another option: As some already have, local governments could consider excluding school districts from tax increment financing, insulating them from revenue losses.
Too often, school boards face the unpleasant choice of simply agreeing to new abatements or being perceived as opposed to economic development if they exercise their full rights and demand the best possible deal. While greater transparency won’t end this, it does allow for greater accountability.
Current news
City of Cincinnati and Cincinnati School District Agreement
Hamilton County Auditor – 15 year abatement property
https://wedge.hcauditor.org/view/re/6210016003400/2019/summary