(upbeat music) - Hello and welcome to "The Journal."

I'm Steve Kendall.

There's been a lot of talk about school funding.

The state, of course, rearranges that formula on a regular basis.

So we thought it'd be a good idea to talk with a couple of people who are on the ground locally in that.

So we have Kevin O'Shea, the superintendent of Otsego Local Schools, and the school treasurer, Steve Carroll.

So thank you both for being here today.

Kevin, talk a little bit about Otsego in general, size of the school, that sort of thing, so people who may not be familiar get an idea of the size of the district, and then maybe they can do some comparisons as we talk with what it might be like for their district.

- Yeah, great.

Otsego is roughly a little less than 1,800 students.

We have about 200 staff members, a little over 200 staff members.

We are a consolidated district in the sense that we're a centralized campus.

We're made up of four towns, Haskins, Grand Rapids, Tontogany and Weston.

We have one elementary building, one junior high and one high school all on a centralized campus.

And yeah, so we are a district, considered a rural district.

We operate kind of incredibly lean, if you will.

Considered a little bit of a smaller school, but a decent size, again, with close to 1,800 students.

- [Steve K] Yeah, and one of the things, too, when you talk about a school that size, you mentioned the central campus, that creates some economies for you as well, because if you, before there were buildings in the various towns and that that was an expense to take on.

Consolidating in a central campus made sense.

- Yeah, and I think a unique thing about our district, too, is we're actually made up of three counties as well.

So we have Lucas, Wood, and Henry County that all, kind of, combine to, when we talk about funding, like tax base from all those three counties work very differently also.

- Yeah, and one of the things too, Steve, when you look at that, does that create an issue when you come to look at how you deal with the various taxing districts because you have three counties, four towns, lots of townships, that kind of thing?

- Yeah, in some ways it does create a little more stability because there'll be reappraisals in one county and then the next year there's a reappraisal in different counties.

So we see some gradual increases as opposed to just one big increase every three to six years or so.

So it does kind of create a little stability that way sometimes.

- [Steve K] So it's a good thing in that regard.

- Sure, yeah.

- Because, yeah, because for instance, Wood County does it one year, then Lucas County, then Henry.

So you're not, yeah, it's not all or nothing.

- Yeah, exactly.

- You know, feast or famine, kind of thing.

When we talk about a school district, and they're all gonna be different to some degree.

Right now, if we looked at how the formula works out or how Otsego was funded percentage wise, I know there's property tax and there's income tax.

Kind of rollout in general what that means for a district like Otsego.

How much comes from income tax, how much from property tax, that sort of thing?

- So kind of at the backbone of the state formula is they're trying to make sure every student has access to the services that they require, and in doing so, they take into account the district's wealth factor.

And that is kind of the, they look at income tax returns and they're gonna look at property values, and they're gonna create with that what they think that the district themselves should be able to bring in revenue-wise, and then they make up the difference.

So at Otsego we've been very fortunate, our incomes are a little bit higher than some of the comparable schools, and our property taxes or, I'm sorry, our property valuations have been moving up.

So according to the state, we, as a district, have more money available.

So they give us less money than schools that don't have quite as much in their district.

So they're trying to create an even playing field for their students throughout the state, which sometimes, as a school, Otsego where, like I said, if our tax returns are a little bit higher, we get less from the state then.

- [Steve K] Yeah, because I think people believe that, yes, you're collecting, say, more income tax- - Right.

- but you're still getting the amounts you were getting previous from the state, and that's not the case.

- [Steve C] That's correct.

And that's not necessarily, that is not what is voted for for levies, that is just what is available there.

So the state's argument would be that money's available there, you need to go ask your taxpayers to pass a levy to bring in new revenue.

That is the idea that schools that maybe may not be so fortunate, the state's gonna give them more money then.

- [Steve K] Okay, yeah and, now, has that changed over your time as a treasurer?

How different is that formula now than it was five years ago?

- No, that's.

- 10 years ago roughly?

- Yeah.

Yeah.

The actual formula itself changed a few years ago, but the backbone of it being that they want to create a level playing field for students has remained the same.

But it's just how they go about calculating that and how they go about dispersing that money's changed a little bit.

But our actual collections from, or our actual revenue from the state has not changed that much.

- Ah, okay.

Yeah, so there's some, yeah, there's some leveling.

It isn't like up and down crazy.

- Correct, yeah.

- Now, when you look at the way the state used to fund years and years ago, which was basically they looked at property taxes.

Income tax is a, in the history of schools, I guess, a relatively new thing, and Otsego has an income tax, correct?

- [Kevin] Yes.

For about 20 years now.

I think what's important to kind of address, too, is, you know, we're operating in a system that back in the, you know, the early eighties was ruled unconstitutional, that we rely too much on property tax to fund schools.

It's still a system now that we continue to operate under somehow.

But yeah, that's where it kind of confuses things as well, is the state share has been less and less and less over time and we've relied heavier on residential and agricultural property taxes more and more.

So we're starting to see, you know, I would be in the camp of we absolutely need property tax reform because property taxes have been going up and up and up because the state is giving less and less and less.

- [Steve K] Ah, yeah.

And so, because I think people assume that the more you collect locally, you get that on top of what you've been collecting from the state.

And as you just said, Steve, they roll that up and down.

It shifts back and forth.

- [Steve C] Yep.

Correct.

If we were to have a new business come in and generate tons of new property tax revenue for us, our state share would go down.

We would then receive less from the state.

- Yeah, yeah, and of course, one of the things that people are talking about locally in various areas are data centers.

And that, of course, could be an altering effect if something like that came into the district.

- It could be down the road.

Yeah.

- Yeah, yeah.

Yeah, now when you look at millages and there's, you know, we'll probably spend more than just a couple of minutes on this.

Talk about a little bit, Kevin or Steve, talk about how a levy works.

Let's say that Otsego puts a one year, 3 mill levy on the ballot.

What does that mean if we, when that plays out, what does that mean for local voters, if they say yes to that?

- [Steve C] You wanna take it?

- [Kevin] I'll take that.

- Okay.

All right, okay, yeah.

- Yeah, I mean, so, first of all, like, we learned even in, when we put our last levy up a couple years ago, you know, communication is really big in trying to get people to understand what all of that means.

- Right.

- When you ask for a millage, you know, people just assume you're asking for a million dollars.

Well, that's not it.

- That's not the case.

- A millage generates for each school district something different.

At Otsego, a millage would generate roughly a little over $300,000.

So each millage that you ask for generates about that amount.

And there are certain rules of how long and how much you can ask for, which, you know, Steve can kind of address some of that stuff.

But yeah, communicating to people what that actually means and where it's coming from, and then trying to get them to understand what the 20-mill floor is- - Right, yeah.

- can be very taxing.

It can be challenging.

- [Steve K] Yeah.

Now, one of the things too with that.

So let's say you get that 3 mill levy for a year.

Does that ever increase in the amount that it brings in year after year, after year?

- [Steve C] Yep, that is based on the values of the property inside the district, so yeah.

- Okay.

- But there are some, for example, we have a bond.

The district built a new high school, would've been about 20 years ago now, and they passed a bond to build this.

- Right.

- That bond is set to collect a certain amount of money.

- Right.

- So, actually, the more people that move into the district, everybody there - Pays less.

- pays a little bit less.

Yeah, but if people were to start leaving the district, everybody would pay a little bit more because it's set to generate a certain amount as opposed to a property tax levy, which will just increase as valuations increase.

- [Steve K] Okay, when we come back, we can talk, we'll delve into the 20-mill floor and the other mysteries of millage and levies, and that kind of thing.

And try to hopefully illuminate for people how it works so when they walk in to vote, as some of them will, as we're recording this, this week will be faced with decisions on how to clarify what that means when they go to vote.

Back in just a moment with Kevin O'Shea, superintendent at Otsego Local Schools and Otsego Local Schools treasurer, Steve Carroll.

Back in just a moment.

- Thanks for staying with us on "The Journal."

Our guests are Kevin O'Shea, superintendent Otsego Local Schools, and Steve Carroll, the treasurer for Otsego Local Schools.

We touched on it briefly, it's in the news on and off because it's come up in Northwest Ohio and in a couple of places.

Talk a little bit, as much as you can and clarify as best you can, what the 20-mill floor is, because that's been in the news in several school districts locally.

- [Steve C] Yep, so basically the 20-mill floor is a calculation that brings all millage up to 20, okay?

So for example, Otsego has 16 1/2 mills that have been passed, but the state says you need 20 mills to operate.

So they bring up the extra 3 1/2 mills then that we're able to collect on.

So we actually collect on those because we're on the 20-mill floor because we're collecting so much because there's so few mills that have been passed to be collected on, it's automatically brought up to 20.

- Yeah, now, one of the things I know when there was discussion, because levies and things are on for certain periods of time.

Some are continuing, some are permanent, that kind of thing.

But you have to go back and ask people over and over again and I know there's usually a double-edged sword there.

People that will tell you, "Gee, you're on the ballot all the time with this levy."

And then if you try to put a permanent levy on, "Well, I wanna vote every so often on the levies."

- True.

So Kevin, from that perspective, how do you explain to people when they ask you, why are you on the ballot all the time?

Not that we've been on the ballot, Otsego hasn't been that much, but how do you explain to them why you need to keep coming back periodically?

- Yeah, I mean, like anything, when you calculate inflation and those kind of things that start to happen.

I mean, if people saw what things cost over time and how those increases happen over time, eventually you have to go back and ask for that, for more money to operate.

Like you said, Otsego is in a unique position.

I mean, we were on two years ago and it was the first time we had asked for new money in over 22 years.

Now we did lose that levy by 25 votes and we did make some substantial cuts just as, you know, being responsive to the voters, you know?

- Sure.

- I think that's important when your voters say something and you should respond to that and take that into account.

And that's the system that gets created, though, over time as things get more expensive and things change in education.

And when you need those new resources or those costs go up, you have to go back to your community and ask them for their support in doing those things.

- Yeah, and of course, the state, in its effort to improve, in their mind, they sometimes place on school districts and other entities, other jurisdictions, mandates without any supporting funding.

So they'll turn to you and go, "By the way, Mr.

O'Shea, here's a position you have to create, now you're going to pay for it."

- Yeah.

I mean, we see lots of unfunded mandates that, you know, again, I think in a lot of ways are our responsibility and things we should be doing, and that's fine, but they do come with costs, right?

- Sure.

- So they, that certainly is a factor.

I will tell you in public education too, we've seen a huge increase in the social emotional needs of kids.

We've seen a lot of increases, the effects of, you know, and I can't believe we're still talking about it, but the effects of COVID in those years where students were kind of isolated a little bit more.

We're seeing a lot of mental health things that are popping up.

Special ed costs have skyrocketed over the last few years.

So we see these bubbles of costs that do happen and that's where, again, as that money starts to get spent, you have to eventually look at your tax base and say, "Hey, listen, we need more."

- Yeah, and Steve, I know, too, people sometimes you'll read, and again, social media being what it is and commentary.

People will say, "Well, I wanna see your financials.

I wanna see an audit."

- Oh yeah.

- You guys get, there's a financial report without fail.

I mean, more often than not and you're audited on, right?

So this idea like, "Well, I wanna see an audit of the school system."

That's being done by the state.

- Oh yeah.

- They're not just letting you spend whatever and say, "Oh, see you later guys."

- Yep.

Every public school's audited every year.

- Yep.

Okay.

- And actually, we're in the middle of it right now, and we actually provide every, once a month I provide a full financial packet to our board so they can look over all the checks we wrote, how everything looks compared to last year, an update to the forecast, kind of what we're projecting for the year.

So we try to keep our board completely in the know of everything that's going on.

And then all that information's obviously available to the public too.

But then, yeah, every school is audited every year to make sure that everything is done correctly but, yeah.

- And, of course, too, I know that people say, "Well, you've got money here, why can't you spend it over here instead?"

Well, a lot of that money is, I guess, would you say is encumbered?

You're allowed, you have to spend it on certain things.

You're not allowed to move it from this fund to that fund.

So that's when sometimes you have to come back then and ask for money, but that's, yeah, yeah.

- Schools use fund accounting.

So we have, it's not like your checking account and your savings account where you can just move money back and forth anytime you need to.

Our funds are set up for, the only time, some of the funds we actually can't transfer between, but some of 'em would require board approval to do so.

But for example, we have a permanent improvement levy that was passed a long time ago that wee do collect a little bit of money off of.

We can only use that to improve our campus, to improve the buildings.

- Right.

- We can't use that to pay salaries and wages.

- You can't use it for operating expenses.

- Right.

- So if there's money in there, which unfortunately there's, we're kind of draining it down as we're continuing to repair buildings and fix things.

That money can't be used for paying salaries.

- [Steve K] Yeah, day-to-day operational.

Yeah, yeah.

Now one of the things too, you look at, I know that this is an issue too, and Kevin, maybe you can talk a little bit about this.

The cost of busing and that sort of thing, and find, well, just simply finding bus drivers, that's a new challenge now for schools.

- Yeah, I mean, bus driver recruitment right now is, you know.

- Tough.

- It's at an all-time high and it's tough.

We are, you know, it's very hard to find bus drivers right now.

Busing's a tricky, kind of, it's a tricky part of our business.

Right?

- Right.

- It's one of the most essential services we provide.

It's, you know, could argue the most important to get them there safely so that we can't educate them.

- Sure.

- But you have fuel costs going up, you have the cost of bus and maintenance going up.

All of those things.

To attract drivers to even want to come to your district.

I mean, if you think about how we compete- - With, yeah.

- with districts everywhere else.

If district A over here is offering $25 an hour and we're offering $19 an hour, well, how do we attract drivers to even come to us if we don't look at how to be competitive on a salary perspective which, again, would increase cost then and creates issues then.

- Yeah.

And those are costs you can't.

You can anticipate up to a point, but not.

Now, and typically, you know, ballpark, and this is, what is a typical school bus cost these days.

because they wear out, they log a lot of miles.

- [Steve C] They jumped up a lot Probably 125,000 now.

- Wow, yeah, because see people would, they think, "Oh, well it's a $50,000 bus" and it's not.

When you look at those kind of things, are there expenses that you look at and say, how do you go about planning and saying, we need to look five year.

I know you have to do a five year forecast.

That's like, that might as well be a century away the way things move these days.

So how do you deal with that to say, here's where I think we'll be in five years?

- Yeah, that is the tricky part of it.

Now, we did just finish, five years ago we bought four buses and we financed them, and we just finished paying that off.

And now we're in a position where we're hoping to, at the end of the year, create a new fund that we can transfer over, start putting money aside for a new bus.

What do we say our average bus life is right now?

Or age?

Nine years old.

- [Kevin] Nine years old.

- So we know that there's a couple coming down the road, we're trying to tuck some money away for those.

But, you know, we also have repairs we need to make around the campus.

- Sure.

- We have plenty of things to keep up with.

So we're hoping to start putting money aside for the next purchases.

But, you know, as rates are going down again, it might be we might have to finance a couple of them instead, but.

- [Steve K] Yeah, well, and you make a good point there.

Just maintaining the facilities, those costs are probably radically different- - Everything's.

- than they were five years ago.

- Everything is.

- So when you did the 2025 year look ahead, things look a little different in 2025 than they did in 2020.

- Sure.

- [Steve C] Yep, everything's become more expensive and you hope that, you know, in theory your income tax should keep up with inflation.

So you're hoping that that will, but it just hasn't kept up with the cost of materials to purchase at this point.

Just things have become so expensive to buy that we need to maintain with.

- Yeah, and again, you have two ways to go about it.

You can either go property tax or income tax.

That's what the state allows you to do.

And as we look at that, and we'll probably have to come back to this in just a moment when we come back.

Let's talk about what property tax reform and that discussion might mean for a school district like Otsego which relies on a pretty good chunk of money from property tax, and some of the things that may be talked about now in Columbus about ways to reform, reduce, whatever, property taxes.

So we'll talk about that when we come back.

Back in just a moment with Kevin O'Shea, superintendent Otsego Local Schools, and Steve Carroll, the treasurer from Otsego Local Schools here on "The Journal."

- You're with us on "The Journal."

We're talking school funding and property tax reform with the superintendent of Otsego Local Schools, Kevin O'Shea, and the school treasurer, Steve Carroll.

Lot of talk in Columbus because, obviously, over the past several years property taxes, or evaluations, let's not say property tax.

Evaluations of property have gone up in Wood County, in Lucas County, and Henry County, all over Ohio, basically.

So there is suddenly an effort to say, gee, property taxes are getting out of control for entities, which most entities rely on some form of property tax for their funding, not just school districts.

What does that kind of talk, how do you manage that from a superintendent's point of view, watching all of the ideas that are being proposed and trying to say, what will that mean to us if they do that one versus this one, or a combination of these three?

How do you manage that right now?

- Yeah, it's tricky because again, I think that the system that we operate under was set up by the legislature.

Right?

- Sure.

Yeah.

- So they have a system that was already ruled unconstitutional, right?

- Unconstitutional.

Yep.

- And now are painting it as though schools are taking too much property tax and are pro-tax and keep coming to you for more and more money.

But that is the system they've set up for us to operate under.

- Right.

- So it's frustrating, especially when you take into account that there's also been $2 billion set aside for private schools and those kind of things in the voucher program, right?

- Right.

- And, not to get, like, overly political about it, but there are funds there.

The state, the reality is the state has lessened their responsibility and their share and put more and more on local residents, farmers and homeowners.

But now wanna look at the schools and say, well, now we gotta take away from you schools because you're asking too much of your residents.

- Of your local people.

The residents.

- Of your local people when that is the very system that they created, yeah.

- [Steve K] They put up.

Yes.

because I know when, if you drive through the Perrysburg District, you'll see signs that say, I support students not a broken system.

And I wanna say to those people, well, you sent the people to Columbus who created that broken system but now, somehow, as you just said, you're blaming the local school for a system that you've had to manage and navigate that wasn't of your doing, basically.

So, yeah.

Yeah.

- Right.

Yeah, and I think we're all property tax payers.

- Sure.

Payers.

- I mean, we do, of course, the idea of, like, lessening that sounds wonderful.

- Sure.

- But I think when people educate themselves on what services those property taxes provide to just come in and say, well, we're just gonna get rid of those.

- Right.

- I think people really need to look underneath the surface on that and fully understand what that means and also address the system that it very much is broken.

- Sure, yeah, and if you take it to another jurisdiction, townships, I'm a township representative, we are only allowed to levy a property tax.

We can't do sales tax, we can't do income tax.

Those are off the table, so our only means of funding is property tax.

So obviously if you're sitting in that situation, you're looking at going, yeah, well what are you gonna offer me in return if you take away my ability to levy a property tax?

That's our only tool.

When you try to, now, I mean, how can you even do your forecast not knowing what you may or may not have?

- [Steve C] We have done this in the past, and I'll give the board a couple different forecasts based on different outcomes of different situations.

So sometimes we do it like that.

- Okay.

- But you know, you're trying to, with the nexus situation that happened a couple years ago where we were told we're gonna get, you know, over a million dollars and then, and we actually pulled a levy off the ballot at that time, and then when nexus was reappraised and we got, you know, about 37% of that, since then, you know, we operate very conservatively.

Our board wants us to be very, kind of, consider worst-case scenario when making our forecast.

So until the money shows up, we don't really recognize it, yeah.

- You don't count it.

Yeah.

It's like.

- When the check gets here, we count it.

- [Steve K] Yeah, you don't count your chickens until they're actually hatching.

Yeah.

- That's right, so.

- Which is a tough thing to do because you have to look downstream.

- You do.

- You have to be prepared for what it may or may not look like next year, year after that, and so on.

And then if you're not doing that, now you're in trouble for that.

- Okay, right, and just like our bus, the bus thing we were talking about, should we finance the buses?

Should we purchase them with cash?

You know, you need to have all your information available to make that decision.

And if we don't have all the ideas of how much money you're gonna have for revenue, then you can't make a good decision on that.

- And not to dwell on the buses a whole lot, but a lot of the buses are running on nat propane.

Right?

- That's right.

- So they're not using gasoline, they're not using diesel.

More efficient, cleaner fuel, that kind of thing, so that's been.

And the school, obviously, too, has a solar field behind it as part of that construction project back in the, well now, 15 years ago I guess.

Huh?

- [Steve C] The solar field is actually pretty new.

That was about five years ago, the solar field, yeah.

- Five years.

The solar field, okay, yeah.

- Yeah, and we collect about, just about, depending on the weather, depending on what time of year it is, about 50% of our electricity comes from that solar field.

- Oh wow, so that's.

- Yeah.

So we buy the, yeah.

It has, we locked in a rate that we're paying for the kilowatts at 9 1/2 cents a kilowatt, and we did that about five years ago.

So as the rate of electricity goes up, our savings become more.

- Ah, wow.

So that's it.

- Yeah.

- [Steve K] That's one of those things, yeah, your contingency, your plans of doing that.

As you guys sit here today and you look at how this is gonna play out, what would happen, depending on what the state does, if, what would be your alternative if property tax wasn't on the table because you'd have to obviously go to income tax potentially?

- Income tax.

Yeah.

- There's been some talk about raising the sale tax because I know I talked with a county auditor several, a couple of months ago, and he said, "Well, if we had to."

He wasn't talking about the schools, but he said, "If we would have to replace all the millage to county needs to operate, the sales tax in the county would have to be 18% on top of what is already in place.

- Sure.

- That's not anything that's real palatable to people either, I would assume.

- [Steve C] Sure, yeah.

Oh yeah, that would obviously slow the economy down even more.

You know, people would not purchase as much now if they had to pay that much in sales tax.

You know, I think we like the idea of an income tax.

That's something that we took to our voters.

So if we were in that situation, we would go that route, I'm sure.

- Yeah, and as you said earlier, too, that allows you to, if the economy does better, you do better there, theoretically, if that's the case.

So that's something that sort of moves with the economy a little bit.

- Right.

- And therefore when things are good, they're good, and then you have to account for the fact that maybe things will slow down a little bit.

As you guys are sitting here today, what's the outlook for the district right now?

And again, this is specific to you guys, not general because all the districts are gonna have different pieces coming at them in this.

Do you look at saying, okay, here's our, what would happen if we had to levy, try to put a sale, an income tax on?

Is that, that's obviously in the discussion, right?

- I think when it comes to school finance, this is, it's a every day for us.

I mean, we are always, how do we operate leaner, wiser?

Where can we find areas to save, whether it's through attrition and retirements and not replacing positions.

It's a game we always are playing.

- [Steve K] They've been doing all, yeah, forever.

- How do we operate and be the best fiscal stewards of our taxpayers money?

And you know, again, when they turn down a levy, what adjustments, we made some adjustments to say, okay, we're gonna respond to that.

Knowing that when the day comes that we have to go back, we will be able to show that, listen, we listened to you, we heard you, we did the things we need to do, but based off of just the trajectory of everything, right?

Inflation, all those things.

- Sure.

- When that day comes, when we have to go back, I think people will trust that we've done the things we needed to do to prove to them that we're responsible with their money.

- Yeah, and again, all of that is out there for people to see how the spending has been done.

Every piece of information financially is available to the public because you hear people say, "Well, I wanna see," as I said earlier, "I wanna see your financials."

Well, they're there every day.

- Sure.

- If you wanna take the time.

And I'm sure if someone called you and said, "Hey, I'd like to come in and talk to you."

- Oh, absolutely.

- You would make time to sit down and explain it to them so they could see that.

- Anytime.

- Because that's always a, kind of, a straw man that comes up, "They're misspending the money."

Well, it's all available for you to see.

And the reality is, you're not, and you're faced with kind of dealing with all these pieces.

If you were gonna make a recommendation to the state, what would you say about property taxes of the items they're kicking around?

Anything that sticks out as it might be feasible or?

- Well, there was a Fair School Funding formula that at one point they.

- A couple of years ago.

- They were gonna phase in and fully fund.

They need to go back and read- - To that.

- and fully fund the Fair School Funding formula.

And I think that that was a system that would've fixed the ruling that came down on the DeRolph case, and it would've actually seen it to, kind of, the finish line, actual school funding the way it was intended.

- Yeah, because Lima representative there, Robert Cupp, there was him, and I believe the gentleman's name was Patterson, reached a bipartisan thing, the legislature passed it.

Of course the General Assembly changes every couple of years, and so here we are again, still looking at a formula that isn't working really for Ohio the way it should.

So, good.

Well, thank you so much for trying to help us understand how school funding works and what the potential downstream is for some of these changes.

And hopefully people learned a little bit today.

Appreciate you guys taking the time to do it.

- Thanks for having us.

- Yeah, thank you.

- Thank you.

You can check us out at wbgu.org.

You can watch us every Thursday night at 8:00 PM on WBGU-PBS.

We'll see you again next time.

Good night and good luck.

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