I’ve objected to advertisement concerning Kettering 6.9 mill renewal levy that promised that this levy would result in a “ZERO increase in tax.” Someone who signed themselves as Bubba objects to my objection and in response to my previous post accuses me of “intentionally” wanting to confuse people. Please. Bubba gives no basis or explanation that could justify his making such an accusation. But, anyway, here is another try.
Bubba, you write, “Reappraisal changes the effective millage.” This statement is not true, when applied to a specific property. Regardless that the value of a particular property increases or decreases, the effective millage stays the same. The amount of tax owed on the property goes up or down, but the effective millage stays the same. It just like sales tax. Sales tax has a rate of 6% and regardless if you buy something costing a lot of money or if you buy something costing very little money, the rate stays the same. The amount of tax, however, changes.
In 2004 when the 6.9 mill five year levy was originally approved, 6.9 mills was the effective millage. According to the law, the effective millage rate of this type of levy can never be greater than the millage originally approved, so this 6.9 mill levy could never morph into a millage greater than 6.9 mills. But the effective millage rate of this levy, each year for several years decreased, becoming ever less than its starting point of 6.9 mills.
Each year the effective millage rate is changed by the county auditor. Here’s why: In 2004 an effective rate of 6.9 mills, when applied to all property in the Kettering School District, the total tax base, generated $8.2 million in revenue for Kettering Schools. According to law, this levy could never generate more than $8.2 million. After 2004, property values in Kettering were increasing and the total tax base for a few years increased each year. So each year the county auditor made sure that the effective tax rate was adjusted so that it would collect $8.2 million, but not any more. Each year, for a few years, in order to avoid collecting more than $8.2 million the effective tax rate for this levy was decreased. This meant that regardless that a property’s value stayed constant, the tax on that property every year became less — until this year.
One year ago, the effective tax rate was 6.13 mills, meaning that when 6.13 mills was applied to the total tax base, $8.2 million was generated. The collapse of the housing bubble, the shutting of GM, the general recession, means that the value of the total tax base in Kettering is less this year than it was last year. This year, when the county auditor calculated the amount of effective millage needed to raise $8.2 million, she found that 6.13 mills was not enough. She calculated that the effective tax rate should be 6.162 mills in order to raise the $8.2 million. This means that a property’s tax increased 3.2 cents for every $1000 of taxable value. So, Kettering property owners saw their tax for just this levy go up, on average, about $2 or so more this year than last year. Not a lot of money, but definitely a tax increase.
It would be like if you had always bought an item for $1 and had always paid a sales tax of 6 cents and one day you bought the same $1 item and were changed a sales tax of 7 cents. You would say that taxes had increased.
So if the value of the total tax base decreases the effective tax rate must increase in order to each year generate the same revenue, in this case, $8.2 million. Last year the average increase to each Kettering property owner was $2 or so to pay for this levy, and, because the value of the total tax base in Kettering is continuing to decrease, next year the average increase to each Kettering property owner will probably be even greater. The ceiling on this levy is 6.9 mills, so the tax rate needed to raise this $8.2 million could raise as much as 12% from this year’s tax rate amount.
Bubba, your statement — “Reappraisal changes the effective millage” — is not true when applied to a specific property, it is true when applied to the total tax base. The statement is correct and more clear in its meaning, when said this way, “Reappraisal as applied to the value of the total tax base changes the effective millage.”
Bubba, you also write, “Renewing a levy does not raise one more dollar than the day it was passed. And that is a fact.”
This is a true statement, again, as applied to the total school district. This renewal levy will continue to raise $8.2 million and by law it is not allowed to raise more than $8.2 million. But, as explained above, because the value of Kettering’s total tax base is decreasing, in order to raise this $8.2 million, the effective tax rate must increase. An increase in an effective tax rate is what is called an increase in taxes. As explained above, the average Kettering property owner had to chip in a couple extra dollars this year in order to raise the $8.2 million amount.
Again, if the sales tax rate went from 6% to 7%, everyone would say there was a tax increase. Last year the effective tax rate for this levy was 6.13 mills, this year it is 6.162 mills. Any reasonable person would call this an increase in the effective tax rate an increase in taxes. And by approving the renewal levy, voters approved increasing this rate to as much as 6.9 mills. If Kettering’s total tax base shrinks to where it was in 2004, this full 6.9 mills will be required to raise the $8.2 million amount.
If the school board had wanted to offer the voters a levy that guaranteed a “ZERO increase in Taxes,” they would have needed to offer a levy with the ceiling of the effective rate as it is now — 6.162 mills. The consequence of passing a 6.162 mill levy, rather than a renewal levy, is that, as Kettering’s tax base continues to shrink, the school system would each year receive less money. Over a five year period, a levy capped at the current effective rate, 6.162 mills, easily could have resulted in a decrease in total revenue to the school of $1 million or more.
It’s an interesting question: If the supposition is that the tax base, within five years, will shrink to the point that it returns to the 2004 level, and if the levy was capped at its current effective rate, it would be interesting to attempt to calculate what the total loss to the school district would be. Regardless, if the board had determined to guarantee a Zero increase in taxes, as the total tax base decreased, the income to the school would also have decreased. As it is, because the 6.9 mill levy was renewed, revenue to the school will stay constant and taxes to property owners will increase.
The renewal option is obviously the more attractive option from a school management point of view. It assures a constant revenue of $8.2 million each year. But, if constant revenue was seen as vital to maintaining a quality school program, then, if the board takes the notion of “local control” seriously, the board should have been forthright in making its case to the public and should have educated the public as to what they were being asked to support. Kettering voters historically have supported schools and I believe an educated public, democratically engaged, would have supported a renewal levy.
I seem stuck on this one topic. I am not objecting to paying a few more dollars in taxes to support my local schools. I do object to our school board using antidemocratic practices as a strategy for funding the school system.
6.13 mills was not enough … the effective tax rate should be 6.162 mills in order to raise the $8.2 million. This means that a property’s tax increased 3.2 cents for every $1000 of taxable value.
To pay a greater share of the $8.2 million, the relative value of a property must increase relative to the total value of property taxed. Here the formula:
$8.2M = effectiveTaxRate * (p1 + p2 + … pn)
where each p is an assessed property value.
If property values uniformly change by factor x, the effective rate must change by 1/x to keep the $8.2 million constant.
The new formula is then:
$8.2M = 1/x * effectiveTaxRate * (x*p1 + x*p2 + … x*pn)
If you formerly paid effectiveTaxRate * p1, you now pay 1/x * effectiveTaxRate * x*p1 = effectiveTaxRate * p1
If the dollar amount of taxes you pay as your share of the $8.2M goes up, it is because the total value of your property has increased relative to total value of all property taxed for Kettering schools.
Eric, you write, “If the dollar amount of taxes you pay as your share of the $8.2M goes up, it is because the total value of your property has increased relative to total value of all property taxed for Kettering schools.”
Yes, that’s true. But this means that, because the value of the total tax base is decreasing, even if the value of your individual property stays constant, your property has increased relative to the total value of all property. The bottom line: the dollar amount of taxes you will be required to pay will go up. This is called an increase in taxes — when the same value item is taxed more. If a $1 item has a sales tax of 6 cents one day and the next day the same item has a sales tax of 7 cents, then I think everyone would say that there had been an increase in tax. If the effective tax rate increases, that is called a tax increase. Last year this levy had an effective rate of 6.13 mills, this year it is 6.162 mills. That is called a tax increase. Next year this effective rate will be even more. That will also be called a tax increase. It will not be called a “ZERO increase in taxes.” Why in the world would a school board risk trifling with the trust of its base supporters?
If a $1 item has a sales tax of 6 cents one day and the next day the same item has a sales tax of 7 cents …
For the sales tax rate to increase 16%, the cost of goods would have reduced by 14%. My $1 item now costs $0.86. At 7% sales tax, I pay $0.06, the same tax I paid before the rate increased because prices deflated. My net savings is 14 cents.
Why in the world would a school board risk trifling with the trust of its base supporters?
Not the school board, but the levy committee. The renewal levy doesn’t change the amount collected. It doesn’t increase anyone’s tax liability. Reappraisal and increase relative to total property value increased tax liability–just the same as before the renewal passed.
If the effective tax rate increases, that is called a tax increase. …
I’d expect the elections board to uphold “ZERO increase in taxes.” In any case, the levy committee was fair and customary in representing “ZERO increase.” If you think your case has merit, it’s the elections board opinion that matters, not mine.
Eric you write, I’d expect the elections board to uphold “ZERO increase in taxes.” In any case, the levy committee was fair and customary in representing “ZERO increase.”
The track record for using the phrase, “ZERO Increase In Taxes,” was set during times of economic expansion, when year after year the reduction factors increased and the effective rates of taxation decreased. In times of economic expansion this promise of “ZERO Increase In Taxes” is absolutely correct.
The problem is that an advertising campaign that was “fair and customary” during times of economic expansion amount to false advertisement in times of economic contraction. The fact that we are in a time of economic contraction is well established and a trend for the effective tax rate for this levy has been established. As I explained above, to pay for this levy, property owners this year are required to pay 3.2 cents more per $1000 of taxable value than what they were required to pay last year.
And remember, there were many other phrases used to promote this levy, statements like, “absolutely no increase in taxes as a result of this Renewal Issue.” Do we need to argue over the meaning of the word “absolutely”? And then there is this statement, “no increase for property owners” — doesn’t that clearly imply “individual property owners”? And then there is the phrase, “Approval of Issue 12 will not raise your taxes one penny.” To me, coming from experts who know better, these statements show a reckless disregard for the truth.
Eric, I can’t comprehend how you defend your statement — “It (The passage of the Renewal Levy) doesn’t increase anyone’s tax liability.” My thinking is that, tax liability is determined, defined, by effective tax rate. A tax rate of $6.16 per $1000 of taxable property applied this year, compared to a tax rate of $6.13 per $1000 of taxable property applied the previous year, represents an increase in tax liability for everyone required to pay property tax.
doesn’t increase anyone’s tax liability.” My thinking is that, tax liability is determined, defined, by effective tax rate.
It’s a renewal. It’s already on the books. Ability to tax does not change.
The only change that increases what gets paid is increases in relative value. Just like before the renewal levy was renewed.
If you think you have a case, take it to the Ohio Elections Commission.
Eric, you make a good point. I concede that if the levy had been advertised as, “ZERO Increase In Tax Liability,” the general meaning of “liability,” that you point out, would make it possible to defend such advertisement as being literally true. By passing the renewal of this levy, a taxpayer’s “liability,” the contract or agreement to pay tax up to an effective rate of 6.9 mills, I agree, does not increase.
But, it is not possible to equate the phrase, “ZERO Increase In Tax Liability,” and the phrase actually used in the levy advertisement, “ZERO Increase In Taxes.” There is a huge difference in meaning between those two phrases. Taxes is what must be paid in order to satisfy tax liability.
When the tax rate increased, from last year to this year, from an effective rate of 6.13 mills to 6.16 mills, you are right that the “liability,” the agreement to pay tax up to a rate of 6.9 mills, did not change. But an increase in millage, by common definition, is called an increase in taxes. In order to meet the obligation, the liability, of the levy, from last year to this year, it was necessary to raise taxes from 6.13 mills to 6.16 mills, an increase of .03 mills, which means a raise of 3 cents per $1000 of taxable property. If taxes had not been raised, then the $8.2 million total liability would not have been met. Taxes had to be raised, just from last year to this year, in order to satisfy the contract, the liability, of this 6.9 mill levy.
In order to meet the liability of this 6.9 mill levy, because of the contracting economy, the trend has been established that the tax rate must be increased. You need to concede the point that an increase in tax rate is called an “Increase In Taxes.” Simply put, to make the statement that passage of this renewal levy will result in “ZERO Increase in Taxes,” is to make a false statement, because an increase in effective tax rate is always termed an “increase in taxes.” An increase in effective tax rate is never called a “ZERO Increase In Taxes.” At least not on this planet.
Between last year and this year, true, the total liability to the taxpayer has not changed, but in order to meet this liability, the taxpayer was required to pay tax at an increased effective rate. It is clear that in this time of economic contraction, in order to meet the obligation of this renewal levy, the effective tax rate each year will continue to increase. As I wrote above, the levy advertisements, coming from experts who know better, to me, show a reckless disregard for the truth.