ST. PARIS – Graham Local Schools is facing a budget shortfall for operating expenses and will ask voters to approve the district’s first-ever income tax on the March 19 ballot.
Estimated to raise $2,738,807 per year, the 1% traditional income tax operating levy would be on the books for the period of 5 years and begin collecting revenue in January of 2025.
Graham voters have not approved new money specifically for operating expenses since 1992 when a 5-mill emergency operating levy (property tax) was passed for this purpose.
As a result of prioritizing the passage of a bond issue used to build Graham Elementary school and modernize the existing Graham High School approximately 20 years ago, the district opted to allow the 1992 operating levy to expire in 2004.
Within the past 10 years, Graham attempted to regain operating revenue from new local taxation through an earned income tax levy, but the proposal failed and the effort was abandoned.
As a result, Graham operating money from local sources is derived from property taxes currently on the books. Other major sources of operating funds are from the state and federal government, formulas for which can vary over time as new policies are put in place at the state level.
Ohio’s school funding system continues to be in violation of the law as it has been for nearly 30 years with no remedy in sight as multiple sessions of Ohio legislatures have failed to solve the problem over the past three decades.
Now, the district is facing a shortfall for the 2024-25 fiscal year and is preparing to make cuts to avoid falling further into fiscal peril.
The district is required by best accounting practices to hold a large reserve of money in the millions of dollars to guarantee payments of salaries and other expenses that cannot be allowed to lapse if a district enters fiscal crisis. Because Graham relies solely on property tax for all local revenue, and the payments only come to the district twice a year due to the collection interval, Graham must ensure the two payments are carefully managed to last throughout the year.
This causes those skeptical of school taxes to see a “surplus” that is not truly excess money in the district’s coffers.
Upon request by the Urbana Daily Citizen, Graham officials released the following explanation about its carryover funds:
— A school district must preserve a “carryover” of general funds at the end of the fiscal year July 1 to June 30.
— The general fund carryover is the estimated balance at the end of a fiscal year and does not always represent a cash-on-hand number.
— The carryover is necessary to have funds available between receiving state funds and tax settlements (income) to cover costs (expenditures).
— Local taxes are collected bi-annually and the district receives those funds bi-annually.
— There can be approximately 3-6 months of costs (expenditures) to operate the district between receiving those local tax settlements (income).
— Good accounting practices recommend a school district maintain a carryover balance of at least 60-90 days of operating costs to effectively operate through the fiscal year … or 16% to 25% of the total yearly budget.
— It costs approximately $57,000 per day to operate Graham Local Schools.
— 60 days of carryover – $3,420,000; 90 days of carryover – $5,130,000
— Monthly financial liabilities to operate Graham, including salary and operating expenses, are roughly $1,700,000.
— Maintaining an appropriate carryover allows Graham to operate and meet financial obligations throughout the year as account balances fluctuate.
Projected shortfall and remedies taken for operating expenses
If the traditional income tax proposed on the March 19 ballot fails, more budget cuts will be necessary, according to school officials.
Past cuts have consolidated bus routes since 2018 from 21 to the current 16 double routes. Double routing of school buses reduces employment costs and maintenance liability.
In addition, Graham has cut administrative positions from 14 to 10.5 since 2018. Graham’s pupil-to-administrator ratio is 149:1, the state average is 118:1 and the similar districts ratio is 98:1.
Double routing at Graham refers to running separate high school/middle school and elementary routes with the same school buses at different times. The Graham Local School District is 186 square miles, making up one-half of Champaign County. Graham buses travel a total of 1,972 regular route miles per day with 16 routes.
Graham Local Schools has reduced custodial positions through attrition to adjust expenditures. This has resulted in five fewer custodians to take care of the 377,396 square feet of indoor facilities.
As staff members retire or resign throughout the year, the district evaluates opportunities to reduce staffing costs by not replacing positions if possible. For the 2023-24 school year, the district did not replace four certified teaching positions. While the reduction in staffing can often mean a reduction in program offerings and student support, the district uses staffing attrition to help balance and reduce expenditures. Positions left unfilled this year were:
— Elementary Guidance
— Elementary Interventionist
— High School Physical Education
— High School Spanish
Certain other programs cannot be cut and can actually increase without Graham’s specific direction or ability to pay.
An example is the Special Education program, which is a vital and required service that all public schools must provide equally for all students who qualify.
Graham’s Special Education population has increased from 16% of total enrolled students qualifying and requiring special education services in 2019 to 19% of total enrolled students in 2023. State and federal funding does not cover the entire cost to meet the education requirements of special education students.
What about pandemic funding?
In 2019, 2020 and 2021, Graham Local Schools received state and federal money connected to the COVID-19 pandemic. These funds were restricted, specific, and intended to be used to provide financial relief with the unknown expenses through the pandemic. The funds were used to purchase curriculum, Chromebooks, repairs to ventilation and HVAC Systems, technology for remote learning, and support online learning, according to a report submitted by Graham officials.
Traditional income tax vs. earned income tax
A traditional income tax income tax is different than the earned income tax proposed on Graham’s more recent attempts. A traditional income tax uses the following parameters:
— The traditional tax base is the taxpayer’s Ohio income tax base (Ohio IT 1040, line 3 minus line 4) plus any business income deduction. Traditional filers must complete lines 19-23 on the form SD100.
— Income taxed includes wages; salaries; tips; interest; dividends; unemployment compensation; self-employment to the extent included in Ohio adjusted gross income; taxable scholarships and fellowships; pensions; annuities; IRA distributions; capital gains; state and local bond interest (except that paid by Ohio governments); federal bond interest exempt from federal tax but subject to state tax; alimony received; and all other sources.
— Income not subject to tax includes: social security benefits; disability and survivor benefits; railroad retirement benefits; welfare benefits; child support; property received as a gift, bequest or inheritance; and workers’ compensation benefits.
In contrast to traditional income tax, an earned income tax shifts the tax burden from the broader tax base to a narrower band of targeted income from wage earners and sole proprietors while sparing income generally drawn by senior citizens, such as pensions.
A traditional income tax, as Graham has now proposed, shields social security from taxation as well as property received as a gift or inheritance, but generally spreads some portion of the taxation among all payers.
The state of Ohio’s role in funding woes
As a result of the shortfall for operating expenses, Graham Local Schools currently meets the state’s criteria to be placed on Fiscal Watch due to revenues being unable to meet expenditures. There are three categories for school districts that do not meet specific criteria. Here is the ascending order of urgency: Fiscal Caution, Fiscal Watch and Fiscal Emergency. Graham is attempting to avoid the worst classification of Fiscal Emergency.
Graham Local Schools receives approximately 60% of its yearly funding from the state of Ohio. This funding is based on a formula approved by the legislature every two years and adjusted based on legislative priorities. A large portion of this funding is received as “restricted” funds, which means that Graham does not have the ability to choose how this funding is spent.
In addition, public schools are often saddled with unfunded or underfunded state and federal mandates. Graham is no exception. School funding from the state of Ohio was deemed unconstitutional on July 1, 1994. Judge Linton Lewis, Jr. issued a ruling stating that education is a fundamental right and that Ohio’s system of school funding is unconstitutional.
How Graham compares to other similar schools in the area
Graham Local Schools is one of the only districts in the region that does not have a local operating levy for the school district beyond the base collection of real estate taxes.
Triad has a 1.5% traditional income tax; Urbana has a property tax for operating; West Liberty-Salem has a 1.75% traditional income tax; Mechanicsburg has a 1.5% traditional income tax and a 1.96-mill emergency property levy; Northwestern has a 1% earned income tax; Miami East has a 1.75% earned income tax; Fairlawn has a 0.75% traditional income tax; Riverside has a 1.5% earned income tax.
Graham has the lowest share of local funding in the area at 27.9%, compared to 53.4% at Miami East, 39.7% at West Liberty-Salem, 36.4% at Urbana, 34.9% at Mechanicsburg and 38.4% at Triad.
Published below are questions posed to Graham officials by the Urbana Daily Citizen based on questions overheard in the community:
How much does the district spend annually to send high school students to college classes to help them get ahead of freshman status?
Answer: College Credit Plus is an unfunded mandate and has cost the district:
Fiscal Year (FY)24 estimated cost of $57,711.31
FY23 = $55,421.18; FY22 = $72,159.50; FY21 = $54,5853.89; FY20 = $61,285.87
Question: Why does Graham keep so much money in reserve?
Answer: The general operating fund is the in and out fund for operating the school district. The general operating fund fluctuates from July 1 through June 30 as revenue is received and expenditures are made. When people view the “unreserved fund balance,” they are looking at a specific snapshot in time. Typically, this number is the estimated balance at the end of the fiscal year or June 30. Throughout the year, between reception of revenue, the general operating fund balance will fluctuate significantly. For example, the “unreserved fund balance” on June 30, 2023, was approximately $7.2 million, and on January 1, 2024, the balance was $5.7 million. This is because the district will not receive additional real estate tax revenue until March. Once the revenue is received, it will increase the fund, but if the district does not maintain a balance in its “general operating fund” that will meet expenditures between receiving revenue, then the district cannot meet financial obligations, such as payroll. The district receives state funding payments monthly, but those payments fluctuate and are not consistent depending on the time of year and what required deductions are removed from payments per month based on the school funding formula. Graham receives revenue from real estate taxes in March and August each year. This is why it is imperative to have a sustainable balance of at least 60 to 90 days of operating expenses to be able to disperse payments and meet obligations between receiving revenue.
Question: Is Graham cutting expenses before the March election?
Answer: Due to the current situation of deficit spending Graham must make some spending reductions for the 2024-2025 school year. Regardless of whether the levy passes in March, Graham will be making $600,000 in cuts to the budget. If the levy passes in March, only the $600,000 in cuts will be made for the 2024-2025 school year; this is because the district will not begin to receive any new revenue from a passed income tax until the end of 2024 and will not receive the full levied amount as revenue until 2025. If the levy does not pass in March, an additional $400,000 in cuts will be made for the 2024-2025 school year.
Question: How would the potential for revenue from the proposed solar farm near Rosewood have affected Graham’s current budget crunch?
In 2020, Graham Local Schools was contacted by Open Road Renewables about a potential commercial solar farm project in Adams Township. The district engaged Open Road about the potential revenue of a solar project in the Graham District. From 2020-2022, Graham Local School administrators, Board Members, and community members met with representatives from Open Road, Champaign County Commissioners, and the Champaign County Auditor about the potential revenue of a PILOT (Payment In Lieu Of Taxes) program for the Solar Farm. Because the PILOT payments would be received outside of taxation, at the time, it was understood that any PILOT money received would not negatively impact the amount of money received through school-state funding. The PILOT would have also provided consistent revenue payments that the district could plan on and budget for. The PILOT also had significant requirements for the solar company regarding road repairs, specific requirements to support a collaboration with Ohio Hi-Point and student engagement, and additional payments to public entities to hold them harmless in revenue received. Without the PILOT, the district will receive property taxes on the project, but due to variables, and timeline, the district cannot predict or plan on what revenue will be generated, nor can the district plan for any revenue received until the project is complete and taxes are collected and distributed. Because the district must submit a 5-year forecast twice per year, we do not have any realized revenue from this project or a PILOT agreement, the district cannot count or plan for any revenue at all in regard to the Adams township solar project.
The PILOT was rejected twice by the County Commissioners in a vote of 2-1, with only Steve Hess voting for the PILOT.
Currently, Graham and the other taxing entities connected to Adams Township are waiting until the project is complete, and taxes are collected to see what, if any, increase in revenue will be received.
