Budget & Finance

Tax Appeals Divide Schools, Businesses

By Rhea R. Borja — July 14, 2004 5 min read

Every three years in Ohio, homeowners and businesses can try to lower their property taxes by appealing to their local tax-revision boards. Many businesses use that chance to cut their tax bills. But for public schools, the opportunity can be a financial nightmare.

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Read the accompanying story, “Education Inc.”

More than 100 downtown Cleveland businesses, for instance, are asking the county auditor to lower their property taxes, which could mean a $10 million shortfall for the city’s 74,000-student school district. Those reductions, which are still pending, would be in addition to a $20 million hit in property taxes for the district over the past two years.

Partly in response to those cuts, the state’s largest school system has cut its 2004-05 budget by $100,000, to $600 million, and plans to lay off up to 1,500 employees—the bulk of them teachers.

The 7,300-student Strongsville school district in suburban Cleveland has already paid the price for recent tax reductions given to businesses. It lost $444,202 in property-tax revenue when Dillard’s Inc., Kaufmann’s, J.C. Penney Co. Inc., and Sears, Roebuck Co. successfully appealed for lower taxes this year because of anemic sales. The district’s annual budget is $60 million

And if 47 businesses in North Olmsted, a suburb southwest of Cleveland, have their way, the 4,700-student school system there may lose $1.5 million over the next three years in property-tax revenue. School officials say that’s a sizable chunk of the district’s $54 million annual budget.

Ohio’s process for property-tax appeals runs in three-year cycles, meaning businesses and homeowners are now appealing the appraisals of their property values for fiscal 2003. The last time they had the opportunity was in 2000.

In many ways, Ohio is symbolic of the economic struggles of other states, which must balance the needs of business against those of schools. But the complexity of Ohio’s property-tax law, coupled with the state’s lackluster economy, has made it harder to achieve that balance.

“Our life blood is our personal-property taxes and real estate taxes,” said Robert Matson, the treasurer of the North Olmsted schools.

To complicate matters, school funding has long been a contentious issue in Ohio. Since 1991, the state supreme court ruled three times that the state’s school aid formula was unconstitutional, in large part because of public schools’ heavy dependence on local property taxes. About 60 to 70 percent of local property tax collections in Ohio go to public schools.

Districts Cry Foul

The trouble is the economy in the Buckeye State is in the doldrums, and some businesses are contesting the assessed value of their properties in the hope of recouping some of their losses and cutting down on operating costs. The businesses reason that since their revenues are down, the values of their properties have also gone south.

“Using the ‘economic approach’ of how much that parcel will produce in revenue is a valid technique and appraisal to find the value,” said Robert Chambers, the director of the tax-revision board in Cuyahoga County, which includes Cleveland.

But some school districts are crying foul. Properties are usually assessed on how much they can be sold for, said Dan Kolick, a lawyer representing the Strongsville district in a property-tax lawsuit involving Dillard’s.

Dillard’s earlier this year appealed the Cuyahoga County auditor’s appraisal of its fair-market value of $17 million for its Strongsville location according to court documents. The retailer argued that the property’s value should be $6.8 million.

The Ohio Board of Tax Appeals compromised by lowering the property’s fair-market value to $14.9 million. But that decision didn’t satisfy either Dillard’s or Strongsville. The district’s suit is now pending before the Ohio Supreme Court.

Assessing Blame

The four department stores in Strongsville are blaming lackluster sales on the sluggish economy. But Mr. Kolick said they should be blaming themselves for not marketing their products better to consumers.

“They’re losing their shirts to Target and Kohl’s and Old Navy,” he said.

Plus, he said, the stores’ recent tax appeals are especially insulting to Strongsville residents in light of the zoning changes the community approved to get the stores into town.

Retail-market reports show that revenues for traditional department stores such as J.C. Penney and Sears have dropped in recent years, while sales for discount retailers such as the Minneapolis-based Target Corp. and Bentonville, Ark.-based Wal-Mart Stores Inc. have steadily risen.

Julie Bull, the investor-relations director of Dillard’s, said the company wants only to pay its fair share of taxes.

“We have appealed the appraisal value of only one store out of 22 stores in the state,” she said. “The appraisal value of that store is tremendously inconsistent with other stores in the county. We are good corporate citizens.”

Officials from Sears, Kaufmann’s, and J.C. Penney were unavailable for comment.

Fighting the Appeals

The threat of property-tax appeals looms constantly over Ohio school districts, especially as the appeals process could take years. If a case is resolved in favor of the property owner, the district must repay the taxes in dispute.

“It’s retroactive, and that’s what kills us,” said Mr. Mattingly. "[Property owners] can go back several years and take [their payment] out in one big chunk.”

Not surprisingly, many districts fight every tax appeal.

The Strongsville district, which already lost close to $500,000 in property taxes three years ago because of property owners appeals, has spent $220,200 over the past year to challenge property-tax complaints, according to Mr. Mattingly.

To make matters worse, Mr. Matson of North Olmsted schools said the dollar amount of the funds in dispute appears to have risen during the state’s recent economic slump

If educators don’t counter the appeals, he said, they ultimately could disrupt classroom learning. “We don’t want the tail wagging the dog,” he said. “We can’t afford to have significant fluctuations in an education program.”

“We don’t want to be combative with the business community,” Mr. Matson insisted. “But we’re just saying, ‘Prove it to us.’”

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A version of this article appeared in the July 14, 2004 edition of Education Week as Tax Appeals Divide Schools, Businesses

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