CHICAGO — Ohio Gov. John Kasich's signing of legislation that partially restores an expiring school funding revenue source is a credit positive for 75 school districts, Moody's Investors Service said.
Kasich signed legislation Nov. 15 that authorizes the partial funding of the tangible personal-property supplement, which had been set to expire in fiscal 2017.
Moody's in its outlook Nov. 19 called the action a "credit positive for 75 school districts that faced 2017 budget reductions of more than 4% compared with fiscal 2015 budgets."
For the 14 districts most impacted, the TPP supplement accounts for 3.5% to 5.2% of their 2015 operating revenue and up to 40% of their total state aid and reimbursements for fiscal 2016. The most affected districts could have had to apply between 4.8% and 25% of their 2015 reserves to fill that funding gap, absent other budget offsets from the lost revenue.
Under the legislation signed by Kasich, the funding gap has narrowed. It equals just 4.6% of reserves for Strongsville City Schools, which stood to lose the greatest amount of aid relative to its reserves.
The state passed legislation in 2005 to fully phase out by 2009 the TPP local tax assessed on machinery, inventory, furniture, fixtures and other equipment used in the course of conducting business. The state was to provide aid reimbursements to hold school districts harmless for the tax revenue loss. Counties and cities also lost TPP revenues, but with limited effect because TPP was generally not a significant revenue source.
The state began a phase-out of the reimbursements in fiscal 2012, and scheduled the TPP replacement payment program to phase out completely by 2019. The TPP supplement included in the original state budget bill was to replenish TPP to 100%, countering the scheduled phase-out by fiscal 2017 to ensure that no district received less than 96% of the total state aid from fiscal 2015. Kasich vetoed the TPP supplement provision in the prior budget bill leaving 11 districts exposed to cuts in total state aid for fiscal 2017 equal to roughly $90 million. Under the new legislation Kasich signed, $44 million is being restored to the districts whose total state aid would have fallen below the 96% threshold. Seventy-five districts will receive the restored TPP supplement funding in fiscal 2017. Combined, they were at risk of losing 1.8% of operating revenue. That's now been cut in half.