In our previous article, we discussed the overall financial management of the Lakewood Local School District and the qualifications of the district’s chief financial officer as well as her accomplishments since becoming the district’s financial executive. In this article, we will begin a core explanation of the major circumstances that drive the tax cost of the schools for the districts’ residents.
Like your budget at home, Ohio’s school districts have an annual budget. Like your own budget, there are expenses that must be paid, and expenses that are optional. The district’s finance officer must guide the Superintendent and the Board along the road of making decisions about how much can be spent for those optional expenses each year to maintain a financially stable school district.
A primary step in providing this guidance is for the Treasurer to make an educated prediction about how much income the district will receive each year. It’s her estimate of income that allows the district to develop a budget that’s financially responsible. There are two primary sources of income the school district receives every year to allow it to operate.
The major income source for the district comes from local property taxes. Roughly 52% of the district’s operating funds come from businesses and residents of the school district in the form of property taxes. Some districts have tax levies that are permanent and do not need to be renewed. Other districts have both. In Lakewood’s case, the District has five permanent tax levies and two temporary levies; one expiring in 2018 and the other expiring in 2022. Both levies provide a significant amount of operating income to the district.
The other source is state funding. This money is determined by the State every two years (the State has a two-year budget cycle), based on a formula that the State uses to attempt to fairly allocate money to each of the 613 school districts in Ohio. Two key factors in the formula that drive the amount of funding a district receives are the number of students the district educates, and the ability of local taxpayers in the district to support the operating expenses of the district.
The ability of taxpayers to fund the district is measured by taking the value of all property in the district divided by the number of students the school educates. Lakewood has $220,000 of property valuation per pupil as compared to a State average of $141,000. The State’s interpretation of this comparison is that Lakewood’s taxpayers have a greater ability to support the district’s operations than other less “wealthy” districts; and therefore, should not receive as much state funding as a district that has a lower property value per pupil. Consequently, the State of Ohio only provides Lakewood with about 36% of the income it needs to operate the school district. The average school district in Ohio receives about 45% of its funding from the State.
Between local property taxes and state funding, the district receives nearly 90% of the funds needed to operate the district. Even so, predicting the district’s revenues must be done carefully, and with and with eye on potential changes in state funding, and for the potential loss of a temporary levy.