The Indian Hill school district near Cincinnati was ranked by the U.S. Census Bureau this year as the wealthiest public school district in Ohio. Like all public school districts, it’s funded by inside millage -- which all property tax payers pay -- and outside millage, which is what’s approved by voters in individual districts on top of the inside millage.
In 2009, the Indian Hill school board moved $1.5 million a year in inside millage from its general revenue fund to a fund earmarked for new technology and facility upgrades and maintenance. But when the district moved that inside millage money, it threw the tax collections out of balance.
So the district adjusted by implementing a higher property tax – and argued that since voters had already approved an outside millage levy, there was no need for another vote. A trio of angry taxpayers turned to the conservative 1851 Center for Constitutional Law to fight that. The Center’s Maurice Thompson told the Ohio Supreme Court that state law doesn’t permit this kind of “rainy day” fund when the district already had $25 million in the bank.
"It does not allow for districts to run and collect these huge surpluses – and that may seem counterintuitive to all of us, because we want our governments to be fiscally responsible," Thompson said. "But what the legislature has done instead here is say, look, you should collect no more tax revenue – you shouldn’t tax the people at a higher rate than you need to. So you actually should run as close to even budgets over time as you can."
But arguing for the Indian Hill schools, Bruce Petrie said the surplus was less than the district’s annual operating budget. And Petrie said school officials had made the case that the separate fund for improvements was clearly required through public hearings.
"It’s correct that they could have gone to the voters, but I would say they did go to the voters in two important respects," Petrie said. "Number one, they are the elected officials of the school board. Number two, they did get a great deal of community input."
The justices asked several times what Thompson’s clients were hoping for if the court ruled in their favor. Thompson finally told Justice Terrence O’Donnell that he has a goal in mind.
"Invalidate the tax increase, first and foremost, Your Honor, and order the recovery of funds," Thompson said. "However, if you don’t, the taxpayers will require--"
"What do you mean by 'order the recovery of funds?' How much money are you talking about?" O'Donnell said.
"The money will have to be determined in subsequent litigation, Your Honor," Thompson replied.
Thompson said $6 million has been collected in the disputed tax increase. But Petrie said taking that money away from the district would be disastrous and inappropriate.
"This would be an extremely disruptive result if the Supreme Court were to say, 'We’re going to go back and rewrite a school district budget.'" Petrie said.
No other Ohio school district has done what Indian Hill did in this case in moving tax revenue to an improvement fund, which Petrie said was a fiscally conservative move. But Thompson says if Indian Hill prevails, then other districts will try to do the same thing.
