Lower property valuations mean losses for schools
A six-year revaluation process by the Union County Auditor's office shows values of properties in the Marysville school district have dropped by $24.7 million, from an overall valuation of $693.7 million to $668.9 million.
The valuation of Class 1 properties in the district -- agriculture and residential -- increased overall from $467.5 million to $473.9 million.
The valuation of Class 2 properties in the district -- commercial and industrial -- dropped from $187.1 million to $150.5 million.
Public utility property valuations, which are set by the state, increased from $38.9 million to $44.4 million.
The bottom line for the schools, according to Treasurer Cindy Ritter, is the anticipated loss of roughly $112,000 from inside millage and a much larger hit to the district's permanent improvement fund because it would have to be tapped to pay back bond investors.
And that could affect more than $2 million worth of special projects, including a new phone system, replacing the track at Marysville High School, replacing transformers at four buildings, sanitary sewer work at Raymond Elementary School, air conditioning at Edgewood Elementary School, windows at the district office, fire panels at all elementary schools and a football stadium and track at Bunsold Middle School.
Typically, if property values go up, then the rate at which school levies are collected goes down. This reduction factor became law in 1976 when House Bill 920 went into effect.
H.B. 920 reduces the effective tax rate so tax revenue on properties remains the same when property values rise.
Union County Auditor Andrea Weaver said H.B. 920 was put into place in an effort to not allow unvoted gains in revenue as a result of higher property values -- but no one anticipated what would happen when property values fell.
Ritter said when property values go down, effective millage rates go up, but only to the approved voted rate. She said things get complicated when the district has to look at different tax rates for levies in the Class 1 and Class 2 categories.
"From what we have been looking at in preparing the five-year forecast, the Class 1 rates will not change much, but the Class 2 rates will definitely be increasing," Ritter said. "But we will not know this for sure until the (Ohio) Department of Taxation sets the rates sometime in December."
She said the inside millage for the district also will be affected by the valuations. The inside millage collection is based on the total amount of property values.
"A rough estimate of the decrease is $112,000 that the district will not receive, which means it will have to make adjustments," she said. "This was not in our forecast in May, as we had no idea that the values would be decreasing so much. In fact, we felt that with this being a reappraisal year, we would see increases in our values."
Bonds are in a different realm, according to Ritter.
A bond issue raises money that, by law, can be used only for capital costs such as building construction or renovations, and buying vehicles and equipment. The district sells bonds to investors, uses that money and then pays it back to investors over a specific period of time, such as 30 years.
"There is not any effective rate for the payment within the bond accounts," Ritter said. "So with the loss of the values, the district will need to make that up in order to pay the bonds. The district cannot default on those.
"When the bonds were sold in Marysville, the economy was really going strong. I doubt that anyone ever thought there would the economic downturn that we saw in 2009-2011," she said.
At this point, Ritter said the district will have to use money from its permanent improvement fund to supplement the bond retirement fund for the payment of the bonds.
Her estimates show the district's permanent improvement fund will be in the red by $1.3 million in fiscal year 2018.
"With all of the annual costs and then the extra dollars that are needed to pay the bonds, there just is not enough carryover balance plus annual revenue to keep the PI account in the black," she said.
Moving forward, the school board and administration have to review the new valuations and adjust the district's five-year forecast.
"The spending will need to be reviewed and the programs that have been discussed for future years will need to be discussed as to if they can happen or not," said Ritter.
"There are no easy answers for any of this. The district is very fortunate that there was an increase in state foundation aid for the next two years that can help with the loss of local taxes."