Ohio lawmakers move to restrict how schools can challenge property taxes
When Michelle Michalak’s son got a job at the Davis-Besse Nuclear Power plant, the Toledo-based realtor couldn’t wait to help him and his wife buy their first house.
The young couple picked out a three-bedroom, two-bath home for $245,000 and moved in just before Christmas 2020.
“They were so excited …,” Michalak said. “Then, they got a letter in the mail that basically said that they were summoned to go to court.”
The Benton Carrol Salem School District had filed a complaint with the county auditor, alleging that the couple owed additional property taxes for all of 2020 – before they even owned it.
The couple, who did not want to be identified, lost their case at the Lake County Board of Revision and were ordered to pay about $1,200 in arrearages and then $100 more per month going forward.
“They didn’t have $1,200,” Michalak said. “It was absolutely horrible. I said I would pay it because they just didn’t have it.”
Michalak felt guilty too. As their realtor (and their mom) she believed herself responsible for making sure they understood all the home’s costs before making an offer.
“I think it’s very deceitful that the schools are allowed to get away with this,” Michalak said. “Now you have to pay taxes for the time you didn’t even own the home.”
A legal challenge
Ohio is one of a handful of states that let public school districts and other political subdivisions, such as counties or townships, legally challenge the value of any home or parcel in their area.
And school districts across the state have been doing it for years.
Some, like Columbus City Schools, say they only go after commercial or income-generating properties, but others, like, Benton Carroll Salem, file against homeowners when a sale price is $50,000 above the appraised value on the auditor’s books.
“I didn’t know this was a thing either until recently …,” Senate President Matt Huffman, R-Lima, said. “I’m like, ‘Are you kidding me? This is happening?'”
He talked it over with the other 24 Republicans in the Senate and came up with a plan to amend House Bill 126, which would have required notifications before school boards brought challenges.
The new HB 126, which passed out of committee Tuesday, would prohibit anyone from initiating a claim at the board of revision unless they were the property owner. School districts would still be allowed to appeal claims filed by people looking to lower their taxes.
“I think this strikes the right balance,” Committee Chairman Bill Blessing, R-Colerain Township, said.
He expects the Senate to pass it next week and hopes the House will approve the changes early next year. The bill’s sponsor, Rep. Derek Merrin, R-Monclova, said that plan works for him.
“I really appreciate the Senate being proactive,” Merrin said. “They identified the chronic problems we have in the state.”
School districts and public education groups strongly disagreed.
Paying your fair share
Columbus City Schools brought 693 cases before the Franklin County Board of Revision in 2020, according to data obtained by the USA TODAY Ohio Network. That works out to 63% of the total cases the board handled that year.
“You want me to do this because all property owners in the state of Ohio should pay their fair share of property taxes,” said Stan Bahorek, the treasurer for Columbus schools.
He pointed to a loophole in Ohio law that lets businesses avoid paying certain real estate taxes by selling their property along with the company name.
A 2019 investigation by Eye on Ohio found that hundreds of businesses avoided paying real estate transfer taxes and higher property taxes this way.
That’s a problem because school levies are paid by splitting the total annual cost among all property owners in the district based on their property values. If one person pays too little, everyone else will pay more.
Challenging the property values on just four of these sales brought in about $1.9 million in tax revenue, Bahorek said. In total, the district made about $16 million from property tax adjustments in 2020. It cost the school district more than $500,000 in legal fees.
That’s not a ton of money for Columbus, which had an annual budget of almost $1 billion, but “it is not what we call budget dust.”
Let’s settle this
The latest version of HB 126 also stops districts from settling complaints outside the boards of revision.
These deals happen when a school accepts a payment instead of the taxes it would get from an increase in the property’s value. Basically, the property owner pays to make the case go away.
That’s a problem for both Blessing and Huffman because it makes districts look less wealthy on paper. They get the settlement money and more state dollars through the school funding formula while other taxing entities in the district don’t see a dime.
Mike Gabrail, a multi-family property investor from Akron whose company owns more than 500 units in the region, said he’s agreed to a number of these settlements over the years, but the interactions left a bad taste in his mouth.
His business loans require him to maintain certain debt to income ratios and “when the school board goes and tries to triple one of my largest expenses, it could throw me into default potentially.”
Gabrail said that’s made him feel forced into these settlements and it’s changed how he does business.
“We have foregone significant investments,” he said. “Given the history of the school boards we would be working within, any increase in value that we would see from our investment would be wiped out by overzealous attorneys trying to make an extra buck.”
Akron Public Schools filed 358 claims against property owners in 2020, according to the Summit County Auditor’s Office. More than 93% of those claims were against commercial owners like Gabrail.
Ryan Pendleton, Akron’s treasurer, told lawmakers that these claims are necessary because they offset the losses from “commercial decrease complaints.”
Eliminating a school’s ability to bring these challenges would create a “skewed” and “one-sided system” that could “jeopardize funding necessary for education and public services and increase the burden on homeowners,” he said.
What it’s worth
Pendleton and other school officials from across Ohio also asked lawmakers to answer one, simple question: Why is it wrong to ask owners to pay taxes on the value of their home?
“If I buy a car, whatever I paid for it is the tax I should owe. Not the Kelly Blue Book value or some other number,” said Cajon Keeton, the treasurer for Benton Carroll Salem schools.
Keeton’s district filed 38 cases against residential and commercial owners in 2020. The lowest was a small, single family home that sold for $103,000 but the highest was a lakefront property that went for $1.4 million. The appraised value on the books for that mansion was $500,000.
“We’re one of the few districts probably who file residential, but we believe it’s the right thing to do by our taxpayers all around,” Keeton said.
But he understands why folks in his area think it’s unfair to pay property taxes on a home they didn’t own. The BCS board recently voted to review properties using the fiscal year instead of the calendar year – cutting off about six months worth of back taxes.
Homeowners like Michalak’s son and daughter-in-law will be getting a partial refund.
Michalak said that’s too little, too late. She told her daughter-in-law to keep any money they get back from the schools because she never wants to see it again.
“You can hear it my voice. I am so disgusted by the way they are treating people,” she said. “I don’t understand on what planet people can justify it.”
Anna Staver is a reporter with the USA TODAY Network Ohio Bureau. It serves the Columbus Dispatch, Cincinnati Enquirer, Akron Beacon Journal and 18 other affiliated news organizations across Ohio.
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