Good morning Mr. Chairman, committee members. Thank you for the opportunity to speak to you regarding HB 95, specifically the proposed education budget. My name is Barbara Shaner and I represent the Ohio Association of School Business Officials. Joining me this morning are Donna Boylan from the Buckeye Association of School Administrators and Fred Pausch representing the Ohio School Boards Association.

Our testimony will consist of a brief discussion about the provisions in HB 95 that affect school districts and the education of students, some funding issues that the organizations believe need to be addressed and concerns over the proposal contained in the bill that would accelerate the elimination of the inventory tax.

Our organizations represent school leaders and administrators in the public school districts across Ohio. Members include school board members, superintendents, treasurers/CFOs and other administrators and school business officials. It is significant that we are here today offering joint testimony on their behalf. While the members of each organization have different perspectives, they are united in their desire to make sure Ohio's education system ensures quality educational opportunities for all students.

The three organizations believe there is still work to be done in the development of a stable, reliable funding system of education. We begin our discussion of the upcoming budget with an offer of assistance and cooperation with you to achieve such a system. Our goal can be achieved over time if we work together to put the necessary elements in place. Even in these difficult economic times, it is important that we recognize the value of a quality education system to the future well-being of the state.

The funding provisions in HB 95 for the 2004 fiscal year do not change dramatically from the current methods as determined in HB 94, the FY 02-03 biennial budget. While an overall increase including a 2.8% increase in the basic aid amount is included in the proposal, experience shows that many school districts will not receive this cost of living increase. In fact, a significant number are actually receiving less funding this year than last.

A contributor to this phenomenon in the current funding system is referred to as "phantom revenue". When property values in a school district increase, in many cases they are not permitted to collect more tax dollars than the levy originally generated. While the district does not enjoy growth in local revenue from these levies, the state funding formula assumes they do. This means that because the formula "thinks" they have the new money, their state aid is reduced. Phantom revenue has not been addressed in HB 95.

Other issues such as the need for full implementation of parity aid funding are high priorities for our members. HB 95 takes parity aid funding to the next phase-in level and recommends a funding increase of $117 million in FY04. These additional funds will go to 490 school districts allocated based on a wealth indicator. We are also appreciative of the legislature's recent move in HB 40 to remove restrictions on parity aid. We hope you will support increases in parity aid funding for FY 04.

Our members urge you to fully fund special education. The six special education weights that the House fought to put in place through HB 94 may more appropriately reflect the costs associated with these special needs students. Unfortunately, if the weighted amounts are not fully funded, districts are left to divert money from other sources to cover their costs.

As with many of the programs and services school districts offer students, mandates from the state and federal levels dictate these expenditures. HB 95 increases the funding to approximately 91% of the weighted amounts. Local districts are making up the difference up to $25,000 per pupil out of their general revenue fund budgets. We support 100% funding for special education.

Continuing our discussion about concerns over mandated programs, there are a number of initiatives that have been put into place through Ohio's SB 1 from the 124th General Assembly and the HR-1, ESEA, federal "No Child Left Behind" (NCLB) act. Our members welcome reasonable achievement standards and requirements that work toward improving public education. Intervention and remediation measures that help give every child the opportunity to succeed are services that should be made available. However, there is a cost associated with compliance on these issues.

An example of this is SB1 kindergarten assessment that is currently being field-tested around the state. The need for one-on-one attention by the teacher takes away from normal classroom activities. This and other new testing and evaluation requirements create human resource issues for school districts. These may require, in many instances, additional personnel.

Additionally, some examples from the long list of recent new federal requirements for school districts include the demonstration of annual yearly progress (AYP) in each of the specified subgroups of limited English proficient students, disadvantaged pupils, handicapped children and children of major race or ethnic groups. Districts will be required to hire only "highly qualified" teachers and paraprofessionals and there are numerous new parent notification mandates. Ohio's funding system must be adjusted to provide the resources necessary for districts to meet the new higher standards that have been set for education.

HB 95 contains provisions that have major local tax implications for school districts. One is a function of the current funding system that would be continued in FY 04. A fiscal measure put in place in HB 94 is called the "charge-off" supplement. This provides districts with a supplement to their local operating funding when the district does not have the assumed local revenue of the state formula. The problem occurs when these districts need to pass levies for operating funds. If the district passes a levy, the new local revenue raised would reduce the charge-off supplement payment dollar for dollar. This creates a dis-incentive for districts to build their local share of funding. Districts should not be penalized for increasing local effort. We recommend excluding new operating revenue from this calculation.

One of the tax reform proposals in HB 95 would accelerate the phase-out of the personal tangible "inventory" tax. This locally collected tax represents a significant amount of revenue for some school districts in addition to contributing to the districts' property valuation levels. Already slated for an annual reduction until a complete phase-out in 2031, the new proposal would speed up that process at twice the rate with no replacement mechanism recommended.

Not only would the accelerated elimination of the tax mean a more devastating loss of revenue for school districts compounded annually, the local tax base would be further eroded. We have provided as an attachment to our written testimony a list of the districts most affected by this proposal (see Attachment). The losses represent the current reduction plan with the escalated reductions going into affect in the 2005 tax year.

The end result for school districts with the elimination of the inventory tax will mean more trips to the ballot. For those districts, more of the tax burden will be shifted from business/industrial to residential tax-payers. Our organizations oppose the accelerated elimination of the inventory tax that is not revenue neutral for school districts.

Because it is so important that we all concentrate on finding solutions to these and other problems with the current system, our organizations have accepted the governor's invitation to participate in a task force established for this purpose. We believe it is an opportunity to make a real difference for all students. We look forward to participating with legislators, the governor and other stakeholders as we come together for a common purpose -- to develop the education funding system of the future.

We thank you for your time and consideration. We offer to work with you as you adopt this, the next education budget. We can provide real life examples about the impact on school districts or simply discuss with you the various issues that you contemplate. We have access to the expert consultants for the Education Tax Policy Institute. They may be able to provide data about tax issues and funding proposals and we would be pleased to have you work with us to utilize their expertise.

We will be happy to address your questions

Advocacy OSBA


©Ohio School Boards Association, 2004