Schools could need additional revenue by 2030

by Melissa Martin

Aug. 24 board of education meeting

The Highland Board of Education approved the district’s fiscal year 2027 financial forecast, with a warning from the district’s treasurer that escalating expenses, new property tax laws and state funding uncertainty could create financial challenges in the years ahead.

Treasurer Neil Barnes informed the board that the financial forecast is designed to help the district identify potential long-term budget challenges, particularly those resulting from recent state property tax legislation. One of those measures, he said, is House Bill 186, which limits unvoted growth in tax revenue for school districts that have reached the state’s 20-mill floor by temporarily suppressing tax rates below the floor during sharp valuation spikes.

The 20-mill floor in Ohio is a property tax provision that sets a minimum effective tax rate of 20 mills, or $20 per $1,000 of taxable value, for public school districts. Under Ohio’s 1976 H.B. 920, when property values rise during reappraisals, tax rates normally drop so that school districts do not automatically collect a windfall of extra revenue from inflation. The 20-mill floor acts as a bottom limit. Historically, if a school district’s general fund effective operating millage dropped down to 20 mills, it could not go any lower. That meant when property values spiked significantly, districts at the 20-mill floor could not reduce tax rates further to compensate, causing property owners’ tax bills to increase automatically without a local vote.

More than 400 of Ohio’s school districts have hit or fallen to the 20-mill floor, leaving property owners vulnerable to sudden tax spikes during real estate revaluations. H.B. 186 was passed to address this by capping that revenue growth. Had H.B. 186 not taken effect earlier this year, Barnes said the district anticipated a 23% growth in tax revenues following the most recent property reappraisal. Instead, the district saw only 13% growth, resulting in about $4 million in additional revenue from the increase in local property values.

Highland is poised to see approximately $2.47 million less in new potential revenue during the current year because of the cap, with the cumulative unrealized growth projected at roughly $7.5 million over the forecast period.

Barnes said the district also is monitoring other property tax changes, including H.B. 129, which changes how emergency and substitute levies are counted toward the 20-mill floor, and H.B. 309, which expands county budget commissions’ authority to determine whether tax collections are unnecessary or excessive.

In reference to H.B. 309, Barnes said the bill creates uncertainty because its application can vary among Ohio counties as it empowers county budget commissions to reduce, or roll back, certain voted property tax levies. He said Highland experienced what he calls an “aggressive application of the law” this year when the Medina County Budget Commission, comprising the county auditor, treasurer and prosecutor, attempted to use its perceived authority under this sweeping tax reform package to claw back voter-approved school funding across the county.

The commission targeted Highland for a $2.8 million budget rollback and later asked for a voluntary $1 million reduction for 2027. However, its March 6 rate recommendations missed the March 1 deadline to certify school tax rates and enforce a reduction.

Highland receives approximately 75% of its revenue from local sources, primarily property taxes, while about 25% comes from the state.

Surplus turns to deficit

The latest forecast projects approximately $45.3 million in operating expenses for fiscal year 2027. Wages account for 58.1% of the operating budget, while benefits account for another 21.2%. Together, the two categories make up 79.3% of the total operating budget.

Revenue is expected at approximately $46.6 million in that same time period, an increase of about 1.4% from fiscal year 2026.

A surplus of approximately $1 million in fiscal year 2027 is followed by deficits in subsequent years. While the district maintains positive cash balances throughout the period, Barnes cautioned that the forecast projects only 46 days of cash reserves by the end, far below the board’s 120-day goal.

For now, he concluded, the district remains in a relatively strong financial position through fiscal year 2029, but its reserves become more strained by fiscal year 2030, placing Highland in a position to seek additional revenue.

Accordingly, Barnes said the district could potentially consider a new property tax levy or income tax request around fiscal year 2029. The alternative would be reducing expenditures, though he said Highland already ranks among the top 50 Ohio districts for lowest expenditure per pupil, making significant additional cuts difficult.