Any study of school finance can be confusing because of the enormous number of technical terms used in describing the process. The following is a glossary of those terms most often used.

Assessed Valuation
The percentage of valuation that is subject to taxation. For example, Class I and Class II property are assessed at 35%, personal tangible at 24% and public utility property at either 25% or 88%, depending on the type of utility.

Average Daily Attendance (ADA)
Student membership calculation based on a district’s average attendance, as opposed to the number of students enrolled in the ADM.

Average Daily Membership (ADM)
Number of students enrolled in a school district who are either in attendance or have an excused absence the first full week in October.

Base Formula Amount
Dollar figure assigned by the General Assembly that represents what the state believes its costs to adequately educate one child with no special needs for one year. (Also known as the “per-pupil allotment,” “foundation figure” or “state aid figure.”) For FY 03 the base formula amount is $ 4,949. The base-formula amount for future years is unclear, pending the resolution of the DeRolph lawsuit.

Biennium
Any two-year period, used mostly in school funding to refer to the two fiscal years that make up each state budget.

Bond Levy
Property tax levies used to provide the local revenue for construction purposes. Proceeds from the levy are used to pay the principal and interest on construction bonds. Offered for a specified dollar amount and a specified period of time.

Categorical Expenditures
Categorical expenditures refer to expenditures required by school districts beyond the base formula amount. Examples of categorical expenditures include special education, vocational education, gifted education, DPIA and transportation.

Chargeoff
Millage rate established by the General Assembly that, when multiplied times a district’s recognized valuation, provides the local contribution to the foundation formula. It is currently set at 23 mills. The term is sometimes used interchangeably to describe both the millage set by the legislature and the entire local contribution.

Chargeoff Phantom Revenue
Term used to describe failure of the state foundation formula to recognize that some districts have effective millage rates below the 23-mill chargeoff, leading to less local funding than is assumed in the formula.

Chargeoff Supplement
A reimbursement formerly used to alleviate the chargeoff phantom revenue phenomena that occurs when a district has less effective millage than the state uses as its chargeoff millage. It applied to districts with less than 23 effective mills. HB 94 replaced the chargeoff supplement with a slightly expanded form of chargeoff assistance called “gap aid”.

Class I Property
Residential and agricultural property.

Class II Property
Commercial, industrial and all other property.

Continuing Levy
Levy proposing millage rate or school district income tax that is assessed indefinitely.

Cost of Doing Business Factor (CDBF)
Multiplier determined by the state that increases the formula for districts that are in an area with a high cost of living. HB 94 reduces the maximum CDBF in FY 02 to 7.5% from the FY 01 maximum of 13.8%. Prior to HB 94, the CDBF had been slated to increase to a maximum of 18% in FY 04.

County Financing District Levy
Limited or continuing levy proposed by county ESC for support of a specific program (such as special education) or purpose. If approved, the tax is levied on all participating districts in the county. May be packaged with a millage reduction for residents of the participating districts.

DeRolph I
March 27, 1997, Ohio Supreme Court decision where the court ruled, by a 4-3 vote, that Ohio’s school funding system was unconstitutional. The court allowed the state one year to craft a new funding system.

DeRolph II
May 11, 2000, Ohio Supreme Court decision where the court ruled, again by a 4-3 voted, that the new funding system created by the General Assembly in response to the DeRolph I ruling was still unconstitutional. The state was given until June 15, 2001, to again overhaul the funding system.

DeRolph III
September 6, 2001, Ohio Supreme Court decision where the court ruled, again by a 4-3 margin, though with a different group of justices comprising the majority, that the funding system incorporated in HB 94 would be constitutional pending a series of changes specified by the court. The state requested reconsideration of the decision.

DeRolph IV
November 16, 2001, ruling in which the court granted reconsideration of DeRolph III and ordered the parties to participate in mediated settlement negotiations. As a result, the case remains unresolved.

Disadvantaged Pupil Impact Aid (DPIA)
Calculation to provide additional funds for districts that have a high percentage of economically disadvantaged students. The calculation is based on a formula that compares the percentage of economically disadvantaged students in each district with a percentage of economically disadvantaged students in the state as a whole.

Dual Purpose Levy
Single ballot issue for both a permanent improvement levy or a bond issue combined with an operating levy. It may be continuing or limited. The ballot issue must state how much of the tax levy will be used for each purpose. A permanent improvement/operating levy may either be a property tax or a school district income tax, but a bond/operating levy must be a property tax.

Effective Mills
The actual rate of taxation realized when the tax reduction factor reduces the taxes charged by a voted levy. It equals the taxes charged divided by the taxable value of the class of property against which they apply.

Emergency Levy
Limited levy proposed up to five years for a specific dollar amount. The millage rate required to produce the dollar amount changes on all types of property if property values change. Emergency levies may be renewed for the dollar amount originally requested.

Equity Funds
Supplemental state payments to low-wealth districts that attempt to equalize disparities in per-pupil spending between districts. Equity funds are to be phased out by FY 05.

Excess Cost Aid
Aid that school districts receive when the local share of the model formula of special education, vocational education and transportation exceeds the allowable total of 3 mills multiplied by the district’s valuation. The form of aid is slated to take effect in FY 03.

Exempt Property
Real property not subject to taxation. Typically, exempt property is owned by federal, state or local branches of government, and religious or educational institutions.

Fiscal Year (FY)
Annual period used for government accounting purposes. Begins July 1 and ends June 30 of the next year. Named for the calendar year in which it ends (i.e., FY 03 begins July 1, 2002 and ends June 30, 2003).

Forecast
According to Merriam-Webster Dictionary, forecast means to calculate or predict (some future event or condition) usually as a result of study and analysis of available pertinent data.

Floor
Rate below which voted mills will not be reduced under the property tax reduction factor. Established by the General Assembly. Currently set at 20 mills.

Formula ADM (Average Daily Membership)
Adjustment to ADM used in school foundation formula representing students in first to 12th grades, one-half of the students in kindergarten and one-fourth of the students in the district attending a JVS. Basic ADM is calculated on a three-year average, so districts with declining ADM get the average rather than the current ADM.

Foundation Formula
Method of funding schools through a combination of state and local aid. Based on the ability of school districts to raise tax revenues as well as the state-determined minimum amount necessary per student to provide an adequate education.

Gap Aid
HB 94 replaced the chargeoff supplement with gap aid. Like the chargeoff supplement, the purpose of gap aid is to alleviate the chargeoff phantom revenue phenomenon that occurs when a district has less effective millage than the state uses as its chargeoff millage. Because HB 94 presumes that a school district can contribute up to, but no more than, 3 mills toward categorical funds, gap aid expands the coverage of the former chargeoff supplement from a maximum of 3 mills to a maximum of 6 mills.

Guarantee
Alternative calculation of state funding that insulates school districts from the effects of dramatic changes in school funding factors, such as property valuation or ADM. Guarantees are also often politically necessary when changes in state policy have disproportionate effects on different types of school districts.

Homestead Property
Property where the owner occupies the property as a residence. Such property qualifies for the additional 2.5% rollback. This term should not be confused with the homestead exemption that provides specific property tax relief to low-income elderly or disabled homeowners.

Incremental Property Tax Levy
Limited levy, with a maximum time of 10 years, that imposes additional millage, or a dollar amount or percentage increase, on a regular schedule throughout the life of the levy. Increments are imposed as the full voted millage, not as effective millage, giving a limited amount of growth in the levy. Up to five changes may be proposed during the life of the levy.

Inputs Approach to Adequacy
An approach to determining the base formula amount based on a method which computes the base cost of an adequate education by virtue of identifying and pricing the inputs necessary to deliver an adequate education.

Inside Mills
Millage imposed by local governments without voter approval. Defined in the Ohio Constitution. Inside mills are not subject to the property tax reduction factor. Sometimes referred to as “unvoted mills”.

Limited Levy
Levy proposing a millage rate or school district income tax that is assessed for a specified period of time. A limited levy is eligible for renewal or replacement.

Millage
Factor applied to the assessed, a.k.a, taxable, valuation of real or personal tangible property to produce tax revenue. A mill is defined as one-tenth of a percent or one-tenth of a cent (0.1¢) in cash terms.

Operating Levy
Levy used primarily for district operating purposes. Can be either continuing or limited.

Outcomes Approach to Adequacy
An approach to determining the base formula amount based on a method which first defines a group of “successful” school districts according to a series of outcome measures. The base cost of an adequate education is then computed by averaging the base expenditures of the successful districts.

Outside Mills
Millage approved by voters. Outside mills are subject to the property tax reduction factor. Sometimes referred to as “voted mills”.

Parity Aid
A new form of state aid created in HB 94, parity aid replaces power equalization aid (and arguably equity aid). Districts qualify for parity aid if they fall below the 80th percentile of all districts according to wealth. Unlike power equalization, parity aid does not require a matching contribution from the school district.

Permanent Improvement Levy
Limited or continuing levy used for maintenance and repair of school property, and, in some limited circumstances, for renovation and building projects. Can be a property tax or an income tax.

Power Equalization (Repealed in HB 94 and replaced with parity aid)
An additional subsidy given to districts whose valuation per pupil is less than the state average. For two effective mills levied, the state reimburses the district for the difference between what the two mills raise and what two mills would raise if the district’s per-pupil valuation equaled the state average.

Property Tax Reduction Factor
Sometimes referred to as the “HB 920” effect. An adjustment by which the taxes charged by voted mills in Class I and Class II real property are reduced to yield the same amount as those same mills yielded in the preceding year, exclusive of new construction. The reduction factor does not apply to inside mills or to voted mills charged against general and public utility personal property.

Property Tax Rollback
A percentage reduction in the taxes charged against all real property. The percentage equals 10% for all property and an additional 2.5% for owner-occupied residential property. The state reimburses schools and other local governments for the full amount of the rollback. The rollback applies after the reduction in taxes charged against real property as determined by the tax reduction factor.

Public Utility Property
Tangible personal property used in the operations of a public utility company.

Qualifier
Minimum amount of millage required by state law for participation in the state foundation program. Currently set at 20 mills.

Real Property
Land and improvements to land such as structures or buildings. In Ohio, real property is divided into two classes: Class I (residential and agricultural property) and Class II (commercial, industrial and all other real property).

Reappraisal
Appraisal by the county auditor of the value of real property for tax purposes. It occurs every sixth year. Three years after each reappraisal, the county auditor adjusts appraised values based on recent sales of property in that county. This adjustment is referred to as the triennial “update”.

Reappraisal Phantom Revenue
Term used to describe the interaction between the state foundation formula and the tax reduction factor. The state formula works as though each increase in a school district’s real property value results in more local revenue and reduces the district’s state aid accordingly. The property tax reduction factor prevents most growth in valuation from yielding additional revenue. Thus, the “phantom” revenue refers to the money that the state formula credits as local revenue, but that the tax reduction factor ensures the district will never collect the taxes.

Recognized Valuation
Computation used to alleviate the reappraisal phantom revenue effects in the state foundation formula of an increase in a district’s valuation due to an update or reappraisal. The recognized valuation adjustment adds, for foundation formula purposes only, one-third of a reappraisal increase to the district’s valuation in the first year, two-thirds in the second year and the full increase in the third year.

Renewal Levy
Voter approval to extend the term of a limited levy when it expires. The renewal levy must state the same purpose as the original levy. The effective rate of the renewal begins from the point where the original levy ends. A renewal levy proposal can combine with a proposal to raise additional millage.

Replacement Levy
Like a renewal levy in that it seeks voter approval to extend the term of a limited levy when it expires. Replacement levies differ from renewal levies because the replacement begins with an effective rate equal to the original effective rate of the levy which it replaces. In this way, a replacement levy allows a district to obtain the benefit of growth in the real property tax since the approval of the replaced levy. Replacement levies cannot be used for an emergency levy and cannot be combined with other changes in millage in a single proposed levy.

Residual Budgeting
Term used to describe the practice implicitly used by the General Assembly in the determination of the per-pupil base formula amount prior to the DeRolph I ruling. This method involved the legislature first choosing a total dollar amount which would be allocated toward foundation aid, and then working backward through the formula to arrive at the per-pupil formula amount. This approach is in contrast to other methods which base the formula amount on measures of the cost per pupil of an adequate education.

School District Income Tax (SDIT)
Limited or continuing levy proposed as a percentage rate on the income of district residents as reported for state income tax purposes. SDIT can be proposed in combination with a reduction in property tax. Because the SDIT taxes income, not property, there is no reduction factor involved, allowing unlimited growth in the proceeds. School district income taxes apply only to personal income and do not apply to the net profits of corporations.

School District Purpose
Legally defined reason for seeking a levy. Currently includes: operating expenses; specific permanent improvements and/or class of improvements; general, ongoing improvements; recreational purposes; community centers; support for public libraries or community centers; and the purchase of educational technology.

Tangible Personal Property
Machinery, equipment and inventory used by business in the manufacture and/or sale of their products that is subject to taxation under a property tax. This class of property is also referred to as business tangible property. The inventory portion of this tax will be eliminated by a 25 year phase-out that started in 2002.

Unit Funding
Method of funding programs for gifted and talented students, and preschool special education. Units must be in accordance with established guidelines and approved by the state. Funding is based on the state minimum salary schedule enacted by the legislature, a fringe benefit reimbursement of 1.15% times the state salary schedule and a supplemental unit allowance of a fixed amount per pupil.

Valuation of a School District
Taxable value of all Class I and Class II real property, general tangible personal property and public utility personal property in a district.

Valuation Per Pupil
Computation derived by dividing a district’s ADM into the district’s assessed valuation.

Weighted Funding
Method of funding certain categorical programs. Under this approach, pupils with special needs count as some additional multiple of one in the computation of the cost of an adequate education. The weight assigned to each pupil with a special need corresponds to an estimate of the additional cost associated with providing pupils with that special need an adequate education. Starting in FY 99, Ohio eliminated unit funding in favor of weighted funding for special education and vocational students.


Source: Making $ense out of School Finance, Warren Russell, William Driscoll and Howard Fleeter. Published by the Ohio School Boards Association, 2002.

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