Capping Local Property Taxes: Understanding H.B. 186 & the Taxpayer Credit

By Ernie Strawser posted 16 days ago

Like

By Ernie Strawser and MegeLearninghan Homsher, Frontline, Senior Advisors, Ohio Analytics

Key Learning from H.B. 186:

· Continues current law in the calculation of taxpayer property tax bills.

· Uses a growth cap, approximately 13% currently, to reduce the taxpayer’s taxes owed.

· Reduces/caps 20-Mill Floor district revenue growth.

· Does not provide reimbursement to the district for the taxpayer credit.

Capping Taxpayer Property Bill Increases

House Bill 186 utilizes an established credit method to reduce a taxpayer’s amount owed. Currently, credits like the Homestead and Rollback credits reduce the taxpayer’s payment, with the state directly reimbursing the district for these amounts. However, with the Growth Cap Credit, although the taxpayer's bill is reduced, the state does not provide direct reimbursement.

In the example shown, the taxpayer pays $384 less than the calculated taxes, reducing the district’s total revenue since the credit is not reimbursed by the state.

Without the Growth Credit, the district’s property tax revenue from this property would have increased by $1,000 from 2024 to 2025. Instead, with H.B. 186, growth is limited to $616 – still an increase, but lower than it would have been.

What Drives the Growth Cap?

At the cornerstone to calculating the cap on growth is the use of the Gross Domestic Product Price Deﬂator (GDP-PD), which adjusts GDP quarterly for inﬂation. The credit is based on the cumulative change over the past three years. Essentially, from the example, it limits growth from the 25% reappraisal to 13%. However, the credit only applies if the increase due to reappraisal or update exceeds the change in GDP-PD.

The cap is only applied to the district’s ﬁxed rate outside operating millage. Growth on inside millage would continue at the full reappraisal.

Tax Year YOY Change

2022 7.0%

2023 3.6%

2024 2.4%

Three-Year Total

13.0%

The Math Behind the Credit

Under H.B. 186, tax calculations remain unchanged – reduction factors to tax rates still apply where relevant, and the 20-Mill Floor remains unchanged. The 20-Mill Floor has driven the most revenue growth during recent era of inﬂation.The table below details school district revenue from our working example. Rollback and homestead adjustments are not reﬂected and may slightly alter credit amounts.

The overall blended (inside/outside millage) growth under H.B. 186 of 15% is higher than the GDP-PD cap of 13% because full growth is allowed on the inside millage portion of the tax bill.

Summary, Observations and Questions

In tax year 2024, about 400 school districts are at or very near the 20-Mill Floor. If district reappraisal growth is modeled above the GDP-PD cap (currently 13%), districts should anticipate lower revenue increases. While the taxpayer credit is calculated for each qualifying parcel, the overall concept of less growth in revenue applies to the districts Class I, residential and agricultural, property revenue.

The proposed methodology does not alter tax rate calculations under current law. Instead, it reduces the taxpayer’s owed amount through a credit system. The credit is ﬁrst calculated in the year of a triennial update or reappraisal and remains in effect for the following two years. It is then recalculated with the next triennial update or reappraisal.

Unlike other credits available to residential taxpayers, such as homestead and rollback credits, the H.B. 186 credit is not reimbursed directly to districts by the State. There is the possibility that a credit could affect the district’s property values used in the State’s per-pupil funding formula (FSFP). However, for many districts on the funding guarantee, there may not be an increase in per-pupil funding to offset the loss in local tax revenue. Further analysis is needed to fully understand this impact.

House Bill 186 limits reappraisal growth when it exceeds inﬂation, as measured by the GDP-PD, which could result in reduced revenue for districts compared to the growth they’ve been experiencing. The current GDP-PD rate of 13% is higher than the historical average. In the future, if inﬂation becomes more stable, districts will still face capped revenue growth, even if property values continue to rise.

0 comments

68 views

Blogs