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Testimony: Ohio needs a property tax circuit breaker

January 11, 2024

Testimony: Ohio needs a property tax circuit breaker

January 11, 2024

Testimony to the Senate Select Committee on Housing

Chair Reynolds, Sen. Craig and other members of the Select Committee on Housing: My name is Zach Schiller and I am the research director of Policy Matters Ohio, a nonpartisan, nonprofit research institute with the mission of creating a more vibrant, equitable, inclusive and sustainable Ohio. I am here today to talk about one facet of Ohio’s housing market: Property taxes. Specifically, we recommend that the General Assembly create a circuit breaker to provide property-tax relief to those who need it.

Sharp rises in home assessment values make property-tax relief a relevant topic for this committee. While various bills may provide a partial answer to the property tax squeeze being felt by some Ohioans, there is a better solution. It’s one that has been embraced by states across the country: A property tax circuit breaker. As the name implies, much like an electrical circuit breaker prevents electric current overloads, it would reduce the load if property taxes are too high a share of income.

Property tax reductions must be aimed specifically and only at those who truly need them. That’s exactly what a circuit breaker does, targeting those who are paying an outsized share of their income in property taxes.

The typical circuit breaker mechanism works like this: A qualifying household pays property taxes up to a threshold percentage of income. If the household’s property tax bill exceeds this limit, the state picks up all or a portion of the tax payments made above it (up to a cap in many places). Crucially, as with Ohio’s existing homestead exemption, the state pays the cost, protecting schools, counties and other taxing entities. The best style of circuit breaker would cover any household, regardless of the age of the homeowner or renter, and cover renters, who pay for property tax through their rent.

Policy Matters Ohio has just issued a report that delineates two possible circuit breakers and the Institute on Taxation and Economic Policy (ITEP), a Washington, D.C. nonprofit with a sophisticated model of state and local tax systems, modeled them for us. Both options would be worth up to $1,000 a year for homeowners and renters with income under $60,000. The proposals are based on renters paying an estimated 15% of their rent in property tax.

Option One kicks in when property tax exceeds 5% of income and would benefit about one in six Ohio taxpayers. More than 40% of low-income Ohioans, earning under $22,000, would receive an average tax cut of $698. Almost a quarter of those with earnings between $22,000 and $45,000 would get an average benefit of $620. Overall, ITEP estimates this would cost $768 million a year.

Option Two kicks in when property tax exceeds 3% of income for those with earnings under $20,000. It includes those who pay tax of $600 plus 4% of earnings between

$20,000 and $40,000, and those who pay tax of $1,400 plus 5% of income between $40,000 and $60,000. More than a fifth of Ohio residents would benefit from this proposal, including more than 40% of those with income below $45,000, according to ITEP. The lowest-paid 20% of Ohioans getting a credit would average a benefit of $852. More than one in six middle-income taxpayers, with earnings of between $45,000 and $76,000, would benefit, averaging $789 each. ITEP estimates this would cost about $1.07 billion.

Each of the two proposals includes a cap on the home value or rent of those eligible for the credit. A new circuit breaker program in Ohio could be provided as an income-tax credit and as a standalone rebate to those who don’t pay income tax. The state could pay for such a program by rolling back special-interest tax breaks like the business income deduction, the sales-tax deduction for data centers and the Commercial Activity Tax exemption for suppliers to big pharmaceutical warehouses.

This is the most targeted form of property tax relief: It goes to those who most need it because property tax takes a hefty share of their income. One can set the parameters differently, of course, as well as what limits to place on it. The state would also need to do outreach to make people aware of this; experience in other states has shown that not everyone applies. Homeowners would still pay their full property-tax bills and get income-tax refunds or rebates afterward.

While homestead exemptions for the elderly are helpful and expanding Ohio’s existing such exemption would provide limited aid to some, a circuit breaker of this kind can provide significant tax relief and cover other homeowners who are affected just as elderly homeowners are. This includes those who live in gentrifying neighborhoods and those who may face a loss of income from unemployment or divorce. It should be structured to help renters, who are also affected by rising property values. At the same time, there are long-time elderly homeowners who are able to afford their taxes and don’t need state support. Ohio already provides insulation against tax hikes for many, and it’s important that any additional property-tax relief be carefully tailored.

Seventeen states, including Michigan and West Virginia, offer circuit breakers with one or more income thresholds like the example above. Another dozen states, including Pennsylvania, have similar income-based programs but ones that provide a flat dollar amount or a percentage of property tax. Such programs vary considerably, but they are offered in a wide variety of states, from Oklahoma to Vermont. ITEP found in a report last year that of the states that have these programs, 21 extend their program to at least some renters, while 13 make them available to non-seniors. Michigan, for instance, does both. Ohio can establish its own parameters.

The Ohio General Assembly should create a circuit breaker, the most targeted form of property tax relief. We know that the newly formed Joint Committee on Property Tax Review and Reform began meeting yesterday and expect to provide information on the circuit breaker to that committee as well.

Thank you for the opportunity to testify.


2024Revenue & BudgetTax PolicyZach Schiller

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