Falling Property Values Bad Budget News for Ohio Schools

In my recent article about property tax assessments in West Virginia I pointed out that property taxes are unethical because…

…they can drive people from their homes. Law abiding citizens can be forced to sell or give up their homes for no other reason than that they could not give government what government demanded.

My article about the latest GDP data adds another angle to this problem: nationwide, investments in residential buildings – apartment buildings, single-family homes and everything in between – has been falling for six years in a row. This means that the downward pressure on residential properties is continuing across the country. Rising property values and homes moving fast on the market are exceptions, not the norm.

This depressed housing market has a direct effect on property tax revenues for local governments. As the aforementioned story from West Virginia indicates, the reaction from government is to try to jack up assessments – or millings to be precise – and squeeze cash-strapped taxpayers for even more money. But just because the government determines that my house is worth more one way or the other, does not mean that I have more money to spend on taxes. In fact, all it means is that I will spend less money in local stores and thereby contribute to lower sales tax revenues for the very same government that just raised my property taxes.

Now the property tax issue is heating up in Ohio. The Dayton Daily News reports of dramatic revenue losses for school districts in Montgomery County:

Four Dayton-area school districts and two townships will lose significantly more property tax revenue in 2012, due to falling values, than was originally reported this month. Centerville schools’ loss is projected at $922,586 for 2012, more than $650,000 higher than was listed in a Jan. 15 chart in the Dayton Daily News. The data for that chart was provided by the Montgomery County Auditor’s Office, which now confirms that it sent the newspaper out-of-date information. … As reported earlier, local jurisdictions will lose millions from falling property values this year.

There is a not-so-subtle hint in this story that part of the problem is a piece of legislation that protects property owners from the unethical side of property taxes that I referred to above:

And a little-known piece of Ohio law permanently caps many of those jurisdictions’ levies at new, lower levels.

Then the story goes on to list the losses from lower property values that are spreading through the Dayton area:

Of 57 Montgomery County taxing agencies, 56 will lose revenue in 2012 (Perry Twp. will see a $1,857 increase). The total loss is $29.3 million. … Kettering schools’ loss is $593,727 worse than was listed — meaning 2012 tax revenue will actually be down $1.72 million from 2011. Trotwood schools’ loss is $385,265 worse, meaning 2012 revenue will drop $866,000 from 2011. Washington and Miami townships also fare significantly worse than was listed, as do Oakwood schools.

There is little doubt that this will cause protests against coming cuts in school spending. But when that happens, it might be worth remembering that local governments are not exactly innocent in this drama. If the county and the cities and townships involved showed better stewardship of their own spending they could actually help fill the gaps in the budgets of their school districts. A good example is the city of Dayton, which has a tragic spending record that I pointed to in July last year:

The city of Dayton could easily reduce its spending … All it needs to do is reduce or eliminate: $4.1 million for “Downtown”; $22.3 million for “Community development and neighborhoods”; $15 million for “Economic development”; $41 million for “Leadership and quality life”; and $17.1 million for “Corporate responsibility”. These fluffy and non-essential spending items cost the city $99.5 million in 2009. They exceeded by far the $29.8 million budget deficit the city ran that year, and they are a perfect starting point for slimming down city government.

At the heart of the problem is of course the prevailing myth that government is the only venue for educating our children. But even if we maintain a public school system largely as it is today, the example from Dayton shows that there is a lot of unnecessary, sometimes outright wasteful things that local governments can eliminate from their budgets. Thereby they can free up money for essential and semi-essential government functions (assuming public education belongs in the latter category).

It remains to be seen what will come out of this emerging fiscal panic in Montgomery County, Ohio. A safe prediction is that the school districts will try to get state or even federal funds to compensate for the revenue losses. Let us hope that both jurisdictions are prudent enough to say no. School funding should always be a local matter, and eventually strictly a matter for the parents. Instead of desperately seeking more revenues, the politicians who are elected to run the school districts in question should take this as a learning experience. It is, in fact, a good opportunity to rethink the size, scope and purpose of government, in this case public education.