Ohio property tax abolition bid spurs relief proposals
7 min read
Bloomberg News
Ohio lawmakers are racing to deliver property tax relief against the backdrop of a potential 2026 ballot initiative to eliminate all property taxes in the state.
A property tax reform working group convened by Gov. Mike DeWine will deliver a report at the end of this month. The Ohio legislature has also been hammering out possible solutions, through the budget passed this summer and in more recent bills.
Advocates for property tax relief say homeowners are being squeezed by rapidly rising tax bills. The working group is charged with finding ways to ease that pain, in an effort to ward off a ballot measure that would eliminate a major source of revenue for public schools and local governments.
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The latter proposal, House Bill 186, “is the Auditors Association’s baby,” working group member and Warren County Auditor Matt Nolan said by email. “The group will almost for sure endorse that in some form.”
Nolan said some current provisions — like the inside millage (the Ohio Constitution lets local governments levy up to 1% or 10 mills in property taxes without voter approval), or the
“That works in normal times when inflation and property value increases mirror each other,” he said. “But over the last decade, value increases have far outpaced inflation.”
The downside to HB 186 is that schools will get less revenue without voter approval. That might lead to more levy referendums and increasing levy fatigue among voters.
In Ohio, about 65% of property taxes go to local school districts, and as one working group member noted last week, school districts across the state have been seeing escalating costs.
“School districts (are) where we would probably see the greatest credit impact” from property tax reform, said Ashlee Gabrysch, Midwest region manager for local government ratings at Fitch Ratings.
Without the independent ability to raise revenue, schools are dependent on the school funding formula. And typically, she said, about 80% of school districts’ costs come from salaries and benefits, which are difficult to cut, with serious cuts risking a decreasing enrollment spiral.
Gabrysch cited Texas’
“An important difference there is that the state is saying it’s going to backfill the loss of property taxes, whereas Ohio is not,” she said.
“It’s essentially saying (to school districts), these rebates are coming from your reserves,” she said.
“Leadership in both the House and Senate have stated loudly and repeatedly that they do not intend to use state dollars. Hard stop,” Nolan said. “I disagree with this thinking, but I am not a legislator and not in their shoes, so I don’t really get a vote.”
Gabrysch said Ohio’s property tax reform push “could definitely have… concerning impacts on the more vulnerable local governments.”
Rob Marker, associate director at S&P Global Ratings, pointed to Ohio’s very high levels of reserves and healthy liquidity. The state isn’t putting its own bond ratings at risk, he said.
It would be tough for local governments and schools to make up for 70% of their revenue if property tax is abolished, he said. “It’s hard to say what the credit effect would be,” but S&P will be watching the size of the tax cuts; the reliance of local governments on those revenues; and the state’s willingness to help.
“I think that they’re trying to get ahead of this, to reduce the possibility that voters would take a proposal to completely abolish the state property tax to ballot,” Marker said.
Ohio Citizens for Property Tax Reform has
“I don’t know how marginal that may be,” Zach Schiller, research director at Policy Matters Ohio, a Cleveland-based policy think tank with progressive leanings, said about the group’s initiative.
“I hope it’s marginal,” he said.
“The proposals here are making schools and local governments pay,” Schiller said. “They want to play a game where whatever property tax relief is provided is done through cuts to schools and local services.”
Property taxes are unpopular, but the costs of repeal are steep, and raising alternative taxes can impact overall tax rates and housing affordability, the Tax Foundation’s Vice President of State Projects Jared Walczak said.
“That’s not a realistic goal,” he said of the property tax elimination push. “There’s just no way to make up that amount of revenue without creating distortionary sales taxes that would push people out of the state.”
Ohio’s property tax currently raises almost $24 billion a year, he said.
“Statewide, you’d probably need around a 12% income tax rate to even approach replacing the property tax,” he said. Empower local governments to figure it out for themselves, and you’d see rates of 10% to 27% in different counties, which is “just not sustainable.”
The ideal approach is a revenue limit that keeps property tax rates in check without limiting assessments, he said.
Policy Matters’ Schiller acknowledged lawmakers have been slow to act on rising property taxes, but he said the state — which has triple-A ratings across the board — has more flexibility than local governments.
“Valuations started growing two years ago,” he said. “When these increases started rolling in, and they were over 30%, people were shocked. Up until the budget bill, the General Assembly had not acted.
“The main things they came up with in the budget bill were to sock it to the school districts,” he added.
Ohio has a Republican trifecta in state government.
DeWine vetoed several property tax provisions in the budget bill, including one measure that would have reduced property taxes where school districts have reserves of more than 40%.
“This idea that the state might cap reserves at 40% would definitely be a credit concern for us,” Fitch’s Gabrysch said. “School districts… typically sit on much higher reserve levels, and that for us equates to a higher level of credit quality.”
The Ohio House overrode one of DeWine’s four property tax vetoes, on legislation limiting school districts’ ability to put emergency levies on the ballot or seek an increase in a current levy, according to
In the working group meeting last week, members discussed three main pieces of legislation:
Nolan said HB 156, while less impactful than HB 186, will probably also get a nod from the working group. It would expand the homestead exemption to reimburse seniors below $50,000 in household income for property tax increases tied to rising valuations.
As for SB 42, which would create residential stability zones, he’d only support the idea if school districts are involved.
“There are too many opportunities for problems if cities and townships are allowed to effectively spend other people’s money,” he said.
Nolan said he has repeatedly voiced concern that other groups besides seniors need help.
“It is not that I am not sympathetic to seniors, I am,” he said. “But in our political discourse, seniors have a much larger say than other groups. … It is far harder to be a young adult in our society.”
Property tax reform requires a willingness to tackle the school funding formula and the size, scope and number of taxing jurisdictions in the state, another working group member noted in the meeting. “Florida has twice the population and they do it with 73 (school) districts,” he said.
“Ohio is very unique in its funding structures,” Nolan said. “People in Ohio love local control as much as any state in the country… If you look at the states in the country with the lowest taxes, you will see a couple things. You will see a lot of tourism… But you will also see a lack of local control.”
Ohio faces a complex problem, Policy Matters’ Schiller said, and ultimately, the group that needs the most help is the one paying an outsized share of its income in property tax. Policy Matters sees a circuit breaker as the best solution.
“There are definitely significant numbers of people in Ohio who need property tax relief,” he said. “Everyone in Ohio does not need property tax relief. So what we need is targeted relief.”
