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School income tax up slightly

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The recession kicked Yellow Springs hard in 2008, according to state income tax figures, and the school district is still reeling from a significant drop in income tax revenue from that year, which schools received in 2009. But there’s light on the road ahead, according to an Ohio Department of Taxation analyst, who said that Yellow Springs appears to be ahead of most Ohio municipalities in making its way back to fiscal health.  

Consequently, the financial crunch in the Yellow Springs school district, while serious, may not be quite as severe as previously thought, and signs of recovery have begun.

Overall, in 2009, Yellow Springs saw about a 20 percent drop in its income tax revenues, which fund about 15 percent of the district budget. The largest tax drop, about 34 percent, came a year ago in July, in the year’s second quarterly payment, which is also the largest, because it follows the April income tax deadline. However, lower drops in subsequent quarters brought the overall decline to 20 percent.

This year is shaping up to be slightly better for Yellow Springs, according to Mike Sobol, a forecaster for the Tax Analysis division of the Ohio Department of Taxation in an interview last week. Most state school districts will see an 8 percent drop in individual income tax revenues in their July quarterly reimbursements, on top of the already significant 2009 decline, according to Sobol. However, in Yellow Springs, the July 2010 payment for individual tax filings shows a 2 percent increase over last year’s payment. Treasurer Dawn Weller said she had not yet received those figures, since they cover a period that ended June 30 and had not been released to the districts.

In recent school board meetings Weller has stated that state officials were forecasting that income tax revenues could remain at 30 percent below usual levels for several years to come before recovery takes hold. However, according to Sobol, the recovery seems to be coming sooner, albeit slowly. Still, he said, in the past few months state tax officials have seen an uptick in taxes paid on wages earned.

“It’s been modest growth, but it’s been growth,” he said. “We’re expecting modest growth going forward.”

According to Sobol, the local income tax decline mainly came from capital gains tax paid, as individuals sold stocks or other holdings at a loss, following the severe drop in the stock market. Yellow Springs data shows about a 40 percent drop in the individual income taxes paid versus about a 5 percent drop in withholding taxes from businesses. The withholding tax decline indicates that while there was some job loss reflected in the tax decline, the loss of local jobs was not nearly as substantial a factor as stock market volatility, Sobol said.

The large percentage of income tax revenue lost to declining investments can be linked to the demographics of the village, which has a relatively large percentage of older people who invest in the stock market. And the recent drop emphasizes the instability of the school’s income tax base, since it’s tied to market fluctuations, according to school board president Sean Creighton.

“In great times we’re flush and in bad times we’re hurting,” he said, adding that he believes a more stable form of funding is needed. The income tax volatility emphasizes the need for more “working professionals” and young families to broaden the tax base, and make it less tied to the market.

However, the schools should also begin looking at other sources of funding than taxes, Creighton said, stating that “it’s time to look at a comprehensive fundraising program to support the schools.”

Overall, the school district continues to face a growing budget deficit, due to mainly static income streams and increased expenses projected for years ahead, according to Weller. The district had about a $550,000 budget deficit in the 2009–2010 fiscal year that just ended, and anticipated a deficit of about $900,000 for the coming fiscal year if no cuts were made. However, in May school administrators and teacher union leaders agreed to $150,000 of cuts, resulting in a deficit of about $750,000 for the 2010–2011 budget recently approved by the school board.

A larger factor than income tax revenues in the school budget is local property taxes, which provide about 45 percent of district funding.

In an interview last week, Greene County Auditor Luwanna Delaney stated that her office is currently in the process of determining property values in the county. Yellow Springs homes continue to sell for about 15 percent more than their appraised value, she said, so that the appraised values will likely be raised when new valuations are determined at the beginning of 2011. However, state law requires that the portion of property tax revenues raised from some school district levies, such as the recent emergency levy, can not increase even if appraised home values rise, because voters approved the levy based on the home value at the time of the vote. However, according to Weller, more than half of the district’s current property tax income comes from inside levies that do increase when property values increase. Consequently, according to Delaney, there could be a slight increase in property tax income to the school district next year. New construction could also provide new property tax income, but there is little new construction in Yellow Springs, she said.

Open enrollment income, which provides 12 percent of school district revenues, remains stable, as do state allocations to cover personal property tax, although that allocation is decreasing slowly until it ends in 2018. That state allocation provides about 12 percent of district funding.

The increase in district expenses, forecast at 4 percent per year, is mainly linked to employee salaries and benefits, including rising health care costs and cost of living and step increases. Currently, personnel costs are rising above 85 percent of school revenues, and they are projected to account for more than 90 percent of revenues within a few years. According to Weller, it’s considered unsustainable for a district to be spending more than 80 to 85 percent of its income on personnel costs.

The district does currently have a budget surplus due to a one-time business restructuring payment in 2003. However, the deficit is beginning to eat into the surplus, which is projected to be $2.8 million at the end of the 2009–2010 fiscal year, and $1.9 million at the end of the 2010–2011 fiscal year. If the deficit continues to escalate, the surplus is projected to vanish by 2012.

Regarding the higher than anticipated 2010 income tax revenues, Weller said this week, “That’s great news. I had no idea what to expect.”

However, a modicom of good news is not a reason to take the current budget crisis less seriously, according to board member Richard Lapedes.

“When we’re insuring the viability of public institutions which we depend upon in our community, it’s best to be cautious,” Lapedes said in an interview last week.

Specifically, he said, it’s critical to protect the district budget surplus so that those funds can be available to help the schools move ahead in a progressive way.

“If we use our reserves with the good sense that this community is known for, we’ll arrive at the end of this tunnel at a better place than where we began,” he said.

School district income tax is a 1 percent tax on all earned income by villagers who work, whether within or outside of the village, and is also paid on unearned income, such as investments and pensions. The school income tax revenue dropped from $368,817 in the July quarterly payment in 2008 to $220,064 in the same July payment a year later, according to Ohio Department of Taxation data. The previous three years before 2008, the yearly income tax payments to the schools had increased each year, although the increase had slowed: In 2006, the increase was 12 percent over 2005; in 2007 the increase was 18 percent over 2006 and in 2008 the increase was .03 percent over 2007.

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