Title: Sanborn v. Hamilton County Budget Comm’n

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Sanborn v. Hamilton Cty. Budget Comm., Slip Opinion No. 2014-Ohio-5218.] 
 
 
 
NOTICE 
This slip opinion is subject to formal revision before it is published in 
an advance sheet of the Ohio Official Reports.  Readers are requested 
to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 
65 South Front Street, Columbus, Ohio 43215, of any typographical or 
other formal errors in the opinion, in order that corrections may be 
made before the opinion is published. 
 
SLIP OPINION NO. 2014-OHIO-5218 
SANBORN ET AL., APPELLANTS, v. HAMILTON COUNTY BUDGET COMMISSION 
ET AL., APPELLEES. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as Sanborn v. Hamilton Cty. Budget Comm.,  
Slip Opinion No. 2014-Ohio-5218.] 
County budget commissions—School board’s proposed conversion of inside-mill 
operating levy to permanent-improvement levy—R.C. 5705.341—
Commission’s authority to disapprove conversion as not clearly required 
by budget. 
(No. 2013-1598—Submitted September 9, 2014—Decided December 2, 2014.) 
APPEAL from the Board of Tax Appeals, No. 2010-938. 
____________________ 
O’NEILL, J. 
{¶ 1} This appeal confronts us with an issue of the statutory powers and 
responsibilities of two important agencies of local government in Ohio:  the 
boards of education, which operate Ohio’s school districts, and the county budget 
commissions, which review the budgets of political subdivisions and which, 
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among other things, approve or disapprove their tax levies.  The Indian Hill 
Exempted Village School District Board of Education (“BOE”) passed a 
resolution to convert 1.25 “inside mills” from operating levies to permanent-
improvement levies.  The BOE claims that its decision to do so lies within its 
discretionary authority to allocate district funds and obtain the revenues necessary 
to accomplish its objectives.  The protesting taxpayers, appellants both before the 
Board of Tax Appeals (“BTA”) and now before this court, disagree. 
{¶ 2} The impetus for the controversy lies in the fact that converting the 
inside millage had the fully foreseen effect of increasing the effective rate of 
taxation under the “outside millage,” so that the district experienced a net increase 
of revenue and thereby imposed an increased burden on the taxpayers of the 
district. 
{¶ 3} The Hamilton County Budget Commission approved the conversion 
of the inside mills, but the commission members expressed their concerns about 
the increased tax burden, and one member of the three-member panel dissented.  
On appeal, the BTA affirmed the budget commission’s action in approving the 
conversion of inside millage. 
{¶ 4} Before this court, the taxpayers argue that the budget commission 
should have disapproved the conversion because the school district ran a healthy 
surplus and, as a result, the funds were not shown to be “clearly required” in the 
budget for the ensuing tax year.  Although we are not persuaded by the more 
extreme suggestion that a school district may not run a surplus, we do hold that 
the “clearly required” standard in the eighth paragraph of R.C. 5705.341, when 
applied in this case, imposed not one but two mandates.  First, the BOE had to 
show that the 1.25 converted mills were matched with permanent-improvement 
expenditures in the budget, and the BOE made that showing.  Second, the BOE 
had to demonstrate that the revenue derived from the increased effective rate of 
taxation under the outside mills was necessary to cover operating expenses during 
January Term, 2014 
 
3
the ensuing fiscal year.  The BOE did not attempt to make this demonstration, and 
the excess of revenue over expenditure in the budget persuades us that this 
showing could not have been made.  Accordingly, we reverse the decision of the 
BTA, and we remand for further proceedings consistent with this opinion. 
DEFINING THE STATUTORY ISSUE BEFORE THE COURT 
1. Outside mills distinguished from inside mills 
{¶ 5} Article XII, Section 2 of the Ohio Constitution provides as follows: 
 
No property, taxed according to value, shall be so taxed in 
excess of one per cent of its true value in money for all state and 
local purposes, but laws may be passed authorizing additional 
taxes to be levied outside of such limitation, either when approved 
by at least a majority of the electors of the taxing district voting on 
such proposition, or when provided for by the charter of a 
municipal corporation. 
 
{¶ 6} This provision underlies the distinction between “inside millage” 
and “outside millage.”  A “mill”—meaning “one one-thousandth”—is a rate of 
tax imposed upon the tax base, which under the property tax is taxable value.1   
Specifically, one mill is one one-thousandth of the taxable value, considered as 
the amount of tax to be paid.  It follows that ten mills equal one percent of taxable 
value. 
{¶ 7} The constitutional provision quoted above allows property to be 
subjected to ten mills without voter approval.  Those first ten mills are “inside 
mills,” or the inside millage.  Beyond the first ten mills, additional taxes may be 
                                                 
1 “Taxable value” in Ohio is 35 percent of the true value (also known as the market value) of the 
property.  Ohio Adm.Code 5703-25-05(B).  The millage is the rate that is multiplied times the 
taxable value to arrive at the amount of tax owed, subject to some further adjustments.  
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imposed with voter approval; those levies involve “outside mills,” or outside 
millage. 
{¶ 8} By statute, a board of education has authority to use inside millage 
for “any specific permanent improvement which the subdivision is authorized by 
law to acquire, construct, or improve, or any class of such improvements which 
could be included in a single bond issue.”  R.C. 5705.06(A).  In 1998, the General 
Assembly enacted legislation that specifically prescribed a procedure for a board 
of education to “change its levy within the ten-mill limitation in a manner that 
will result in an increase in the amount of real property taxes levied by the board 
in the tax year the change takes effect.”  R.C. 5705.314.  All parties agree that the 
BOE in this case abided by those procedural requirements. 
2. Outside mills and the H.B. 920 reduction factors 
{¶ 9} In 1976, the General Assembly passed H.B. 920, which provided 
property-tax relief by reducing the taxes levied by outside millage.  Am.Sub.H.B. 
No. 920, 136 Ohio Laws, Part II, 3182, 3194.  We have had occasion to address 
this subject in the past: 
 
“The purpose of R.C. 319.301 [the H.B. 920 reduction statute], as 
amended, is to limit growth of real property tax revenues that 
would otherwise occur as a consequence of inflation of property 
values.  R.C. 319.301 requires the application of tax reduction 
factors when property values increase due to reappraisal or update.  
The result is that a school district will receive the same number of 
dollars from voted levies after reappraisal as it did before 
reappraisal, even though real property valuation in the district has 
increased through real estate inflation.” 
 
January Term, 2014 
 
5
(Footnote omitted.)  State ex rel. Taxpayers for Westerville Schools v. Franklin 
Cty. Bd. of Elections, 133 Ohio St.3d 153, 2012-Ohio-4267, 976 N.E.2d 890 
(“Westerville Schools”), ¶ 21, quoting DeRolph v. State, 78 Ohio St.3d 193, 200-
201, 677 N.E.2d 733 (1997). 
{¶ 10} What is crucial for the analysis in this case is the distinction 
between the actual millage approved by the voters and the tax reduction resulting 
from applying the H.B. 920 reduction.  As we noted in Westerville Schools, the 
H.B. 920 tax-reduction factors “[do] not reduce the rate of the voter-approved 
levies.”  Id. at ¶ 22.  Indeed, R.C. 319.301(F) specifically states:  “No reduction 
shall be made under this section in the rate at which any tax is levied.”  Instead, 
the reduction factors reduce “the effective or actual taxes charged and collected” 
under the voter-approved rates, and do so in such a way that the levy collects the 
constant amount of revenue in spite of appreciation of property value.  Westerville 
Schools at ¶ 22.  Indeed, they are codified in the Revised Code together with the 
“rollbacks,” which are conceived of as “partial exemptions,” not rate reductions.  
R.C. 319.302. 
{¶ 11} Thus, the increased taxes that resulted from the conversion of 
inside millage in this case did not involve an unvoted increase in outside millage, 
which would be unconstitutional.  Instead, those increased taxes reflected the 
taxpayers’ loss of a portion of the benefit of the statutory reduction factors. 
3. The 20-mill floor and the “unvoted tax increase” 
{¶ 12} A limit to the H.B. 920 reduction factors is the so-called 20-mill 
floor.  Under this provision, a school district that levies at least 20 mills for 
operating expenses will not have its levies subjected to reduction below 20 mills 
as an effective rate.  R.C. 319.301(E); see also Ohio Adm.Code 5703-25-45(E); 
Hastings, Manoloff, Sharb, Sheeran & Jaffe, Baldwin’s Ohio School Law, Section 
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6
40:26, 1043 (2013).2   This floor is an essential part of the BOE’s calculations in 
this case:  by converting the inside mills, the BOE caused the district’s tax 
structure to hit the 20-mill floor, with the result that additional operating revenue 
was generated by the increased effective rate of taxation under the outside mills. 
4. R.C. 5705.341 requires that the rate of taxation be shown to be “clearly 
required” in a budget for the ensuing fiscal year 
{¶ 13} R.C. 5705.341, eighth paragraph, provides as follows: 
 
Nothing in this section or any section of the Revised Code 
shall permit or require the levying of any rate of taxation, whether 
within the ten-mill limitation or whether the levy has been 
approved by the electors * * * in excess of such ten-mill limitation, 
unless such rate of taxation for the ensuing fiscal year is clearly 
required by a budget * * *. 
 
(Emphasis added).  Reinforcing this standard is the requirement in the fourth 
paragraph of the same section that when action by the budget commission has 
been appealed to the BTA, the BTA must “consider” and “modify” that action “to 
the end that no tax rate shall be levied above that necessary to produce revenue 
needed by the taxing district * * * for the ensuing fiscal year.” 
{¶ 14} Throughout this litigation, the BOE has pointed to permanent-
improvement expenditures in the budget for the ensuing tax year, and to nothing 
else, to show that the conversion of the inside mills was “clearly required.” 
 
                                                 
2 The treatise explains:  “However, if reduction would cause the total taxes charged and payable 
for current expenses to be less than twenty mills, the tax commissioner is required to calculate a 
reduction factor which would cause the taxes * * * to equal either the lesser of the sum of the rates 
at which those taxes are authorized to be levied or the same amount as would be collected if those 
taxes were levied at the rate of twenty mills.” 
January Term, 2014 
 
7
 
FACTUAL BACKGROUND 
{¶ 15} On November 10, 2009, the BOE held a previously announced 
public hearing concerning whether to change 1.25 mills of inside levy from 
operating expenses to permanent improvements, pursuant to R.C. 5705.314.  On 
December 15, 2009, the BOE unanimously adopted a resolution converting 1.25 
inside mills levied for current expenses to 1.25 mills levied for permanent 
improvements. 
{¶ 16} The taxpayers who had protested to the BOE then took their 
objections to the budget commission.  There the primary issue, pursuant to the 
eighth paragraph of R.C. 5705.341, was whether the tax budget submitted by the 
BOE showed that the “rate of taxation for the ensuing fiscal year” was “clearly 
required.” 
1. What the BOE’s budget for the ensuing fiscal year showed 
{¶ 17} At issue before the budget commission hearing was the school 
district’s budget for the fiscal year commencing July 1, 2010, and ending June 30, 
2011.  That budget shows under the “permanent improvements” category 
projected revenue from the conversion of the 1.25 mills amounting to 
$785,675.33 for the second half of fiscal 2011, during which the conversion 
would be in place, and revenue of $725,238.76 for the first half of fiscal 2012 
(July 2011 through December 2011). 
{¶ 18} The expenditures in the “permanent improvements” category for 
fiscal 
2011 
were 
“Textbooks—new 
and 
replacement,” 
“Technology 
replacement/Upgrades,” 
“Replacement 
bus 
(2),” 
“Maintenance 
Equipment/Vehicles,” “Building equipment & Furniture,” “Repairs and 
Maintenance for Permanent Items,” and “Building improvements.”  The projected 
“permanent-improvement” expenditures for fiscal 2011 on the spreadsheet in 
these categories were $717,747.23, which is reflected as the sum of the first and 
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8
second halves of fiscal 2011.  Thus, the permanent-improvement fund would 
experience a surplus of $151,643.03 for fiscal 2011 after the levy conversion.  
Also, taking the spreadsheet at face value, the fund would experience a surplus of 
$68,104.96 for the first half of fiscal 2012. 
{¶ 19} Most importantly for the resolution of this appeal, the budget 
demonstrates a strong excess of revenue over expenditures for the ensuing fiscal 
year.  Specifically, from July 1, 2010, through the end of 2010, the budget 
projects a surplus of $724,506, and from January 1, 2011, through the end of the 
fiscal year on June 30, 2011, the budget predicts a surplus of $1,124,805.  This 
means that the projected surplus for the entire fiscal year was $1,849,311.  That 
amount, when added to the preexisting surplus of $24,802,247, was predicted to 
increase the unencumbered balance to $26,651,558 by the end of the fiscal year. 
2. The revenue increase was discussed at the budget commission hearing 
{¶ 20} At the budget commission hearing, David Nurre of the auditor’s 
finance office summarized the situation.  The district had “requested and 
authorized the transfer of 1.25 mills of inside millage to a permanent 
improvement fund, which represents an un-voted increase in the [effective] tax 
rate.”  Nurre noted that the total district revenues for the fiscal year would be 
$33,200,000 and the expenditures $31,800,000.  The district carried a balance of 
$24,802,000—about 78 percent of projected expenditures. 
{¶ 21} Nurre later observed that the levy conversion amounted to a request 
for $1,678,000 for the permanent-improvement fund, that being the tax amount 
generated by the 1.25 inside mills.  Thereafter, Nurre responded to a question 
from the county treasurer by stating that the current effective rate of taxation, 
presumably for operating expenses, was 20.17 mills.  By converting 1.25 inside-
operating-expense mills to permanent-improvement mills, the district would hit 
the 20-mill floor.  “So that would go down to 20 and that .17 mills would be 
offset in a sense, that they would be levying about 1.08 mills of additional 
January Term, 2014 
 
9
millage.”  Using Nurre’s numbers, the fact that the 1.25 inside mills would yield 
$1,678,000 indicates that the 1.08 additional effective-rate mills would equal 
about $1,449,792—that is, the approximate amount of additional revenue  
generated by the increased effective rate of taxation under the outside millage 
would be $1,450,000.3 
3. Evidence in favor of converting the inside mills 
{¶ 22} With its budget, the BOE submitted a written argument that states 
that the “ ‘clearly required’ component [is] established,” but discusses only the 
relationship of redirected inside millage to enumerated permanent-improvement 
expenditures.  No attention is given to justifying the additional operating revenue 
(c. $1,450,000) generated by the fact of hitting the 20-mill floor. 
{¶ 23} At the budget commission hearing, the two main witnesses for the 
BOE’s position were the school district’s treasurer and the school superintendent.  
Their statements (garnering agreement from their opponents on this point) 
asserted that the district was highly rated in terms of educational excellence and 
that it had long adopted prudent fiscal management that earned the best rating for 
its bonds. 
{¶ 24} The school district’s treasurer made the following points: 
                                                 
3 At page 5 of their brief, the taxpayers state that “the revenue raised by the tax increase was and is 
approximately $1,726,038.”  The taxpayers derive that number from a document certified by the 
budget commission entitled “Official Certificate of Estimated Resources.”  That number, however, 
is labeled “Capital Projects Funds” and probably correlates to the proceeds from the 1.25 inside 
mills that were converted rather than the revenue derived from the increased effective tax rate 
under the outside mills.  Interestingly, however, neither the BOE nor the county made any 
objection or correction to the taxpayers’ assertion.  Before the budget commission, the taxpayers 
presented $1,360,000—the yield from about one mill—as the amount of revenue generated by the 
increased effective tax rate under the outside millage.  In any event, whether the number is 
$1,360,000, $1,450,000, or $1,726,038, the point is the same:  the total surplus for the ensuing 
fiscal year exceeds the additional revenue, meaning that there would be a surplus even without the 
additional revenue. 
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10
 The bond issue from 2000 had funded construction of two new school 
buildings, a “$75,000,000 plus investment in [the] community,” and 
“[t]hose buildings need to be maintained over a period of time.” 
 The school district anticipated “several threats to [its] revenue sources 
over the next couple of years,” including reductions in state funding. 
 Responding to Auditor Rhodes’s observation that “what in fact the 
permanent improvement levy does” is “get you back to the 20 mill 
floor” with the result that “if you have a reappraisal with values 
shooting up, you don’t have to be subject to House Bill 920,” the 
treasurer answered affirmatively:  “Mm hm.” 
 In response to the auditor’s follow-up comment that as a result of 
converting the inside millage, “the people get an automatic un-voted 
tax increase based on the market value of their property,” the treasurer 
said that “it does work the other way, when the property values 
decline,” i.e., a steep decline in property values could preclude any 
additional revenue. 
 Addressing the issue whether the district’s reserves were excessive, the 
treasurer stated that the board of education had “not resolved to 
designate its $24,000,000 balance as reserve.” 
{¶ 25} The superintendent also spoke.  She stated that the BOE’s decision 
to move millage “was made after a multiple year, comprehensive review of the 
long range permanent improvement needs of the Indian Hill School District, and 
in the context of the economic and multiple pressure on long-term revenue 
funding that has been described.”  She also noted that “the school district has 
delayed many capital improvement projects over time,” and identified bus 
replacements and an upgrade of the school auditorium as specific examples. 
January Term, 2014 
 
11
{¶ 26} Other supporters of the levy conversion spoke, largely reiterating 
the main points advanced by the treasurer and the superintendent. 
4. Evidence against the levy conversion 
{¶ 27} Ruth Hubbard spoke on behalf of the Committee for Responsible 
School Spending, a citizens’ group opposed to the levy conversion.  Hubbard 
began by quoting R.C. 5705.341’s prohibition of any tax rate above what was 
necessary to “produce the revenue needed * * * for the ensuing fiscal year” and 
emphasized that “to [their] way of thinking, that means next year.”  It followed 
that the surplus in the projected budget for the ensuing fiscal year meant that the 
school district could not justify a levy conversion that actually raised taxes. 
{¶ 28} Hubbard next used an exhibit to make the following points: 
 The school district had an “operating reserve fund” of about 
$25,000,000,4 which amounted to about 79 percent of projected 
operating expenses. 
 The taxpayers’ study indicated that comparably excellent districts in 
the county maintained “reserves” of about 35 percent of their 
expenses. 
 The Indian Hill district’s surplus funds “more than doubled” over the 
preceding five years. 
 The BOE projected an excess of revenues over expenditures of over 
$3 million in 2010, and over $1 million in 2011. 
 The BOE identified $700,000 in permanent-improvement expenses 
that were previously handled as operating expenses.  By converting the 
inside millage, the BOE both more than covered the identified 
expenses while generating additional operating revenue because of the 
20-mill floor.  That money simply increased the surplus. 
                                                 
4 According to the school district’s budget, the unencumbered balance going into the “ensuing 
fiscal year” was $24,802,247. 
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12
{¶ 29} Notably, none of the BOE representatives controverted any portion 
of Hubbard’s presentation, except for pointing out that the permanent-
improvement expenditures would exceed $700,000 over a full fiscal year. 
{¶ 30} Other speakers against the levy amplified Hubbard’s concern about 
the outsized cash surplus in the district. 
ACTION BY THE BUDGET COMMISSION 
{¶ 31} The budget commission hearing was held on April 13, 2010.  The 
commission tabled the issue and took it up again on April 20, 2010.  
Representatives of the BOE and the taxpayers were present.  The lead counsel for 
the BOE stated his opinion that the budget commission did not have authority to 
substitute its judgment for that of the BOE.  The prosecutor’s delegate and County 
Treasurer Goering clearly were convinced of the need to defer to the school 
board’s judgment and discretion under these circumstances.  The auditor was not. 
{¶ 32} The budget commission voted two to one, with the treasurer and 
the prosecutor’s delegate concurring, to accept the 1.25-millage conversion; the 
auditor dissented. 
APPEAL TO THE BTA 
{¶ 33} On May 20, 2010, the Committee for Responsible School Spending 
and individual members Fred Sanborn, Richard and Carole Cocks, and Ruth 
Hubbard appealed to the BTA pursuant to R.C. 5705.341.  The BTA dismissed 
the committee from the appeal for lack of standing. 
{¶ 34} The parties submitted the case to the BTA on the budget 
commission transcript and briefs.  On September 13, 2013, the BTA issued its 
decision.  The BTA found that “Indian Hill submitted a budget which ‘clearly 
required’ specific revenue to pay for the costs of itemized improvements which 
were eligible for payment via such fund.”  BTA No. 2010-938, 2013 WL 
6833234, *3.  The BTA did not address the fact that the permanent-improvement 
fund was newly created, was apparently fundable on a continuing basis by 
January Term, 2014 
 
13
operating-expense funds, and carried its own surplus under the budget submitted 
by the BOE.  The BTA further held that the limitation of reserve accounts set 
forth at R.C. 5705.13 was inapplicable, because the BOE in this case had not 
established a reserve account.  According to the BTA, “appellants’ objections 
relate to the wisdom of converting such funding for permanent improvements, a 
discretionary budget decision for which neither the budget commission nor this 
board may substitute its own judgment.”  Id.  In so holding, the BTA did not 
address the overriding concern expressed by the taxpayers:  that no need was 
shown for the overall increase in revenue that resulted from converting the inside 
millage. 
{¶ 35} The BTA affirmed the budget commission’s approval of the levy 
conversion, and the taxpayers have appealed.  We now reverse. 
STANDARD OF REVIEW 
{¶ 36} The BTA’s review of the approval by the budget commission of the 
conversion of inside mills is, by statute, a plenary proceeding in which the BTA is 
empowered to “modify any action of the commission with reference to the fixing 
of tax rates, to the end that no tax rate shall be levied above that necessary to 
produce the revenue needed by the taxing district or political subdivision for the 
ensuing fiscal year,” and by which “the findings of the Board of Tax Appeals 
shall be substituted for the findings of the budget commission.”  R.C. 5705.341, 
fourth paragraph.  Our review of the BTA’s decision, by contrast, involves 
determining whether the decision was reasonable and lawful.  R.C. 5717.04, 
eighth paragraph. 
{¶ 37} The BOE contends that the BTA made a factual determination that 
the school district “submitted a budget which ‘clearly required’ specific revenue 
to pay for the costs of itemized improvements which were eligible for payment 
via such [permanent-improvement] fund.”  BTA No. 2010-938, 2013 WL 
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6833234, *3.  Because the BTA was the finder of fact, the BOE urges that we 
must defer to the BTA’s decision. 
{¶ 38} Closer inspection reveals, however, that the BTA’s decision relies 
on its constricted reading of the scope of its authority—along with that of the 
budget commission—to review the school district’s budget under the “clearly 
required” standard.  On the factual level, the BTA’s finding explicitly addresses 
the permanent improvements in the budget but ignores the taxpayers’ argument 
that the budget surplus negated the need for additional revenue. 
{¶ 39} Accordingly, because the taxpayers’ argument calls upon us to 
correct the BTA’s construction of the scope of review under the “clearly required” 
standard set forth in R.C. 5705.341, we confront a question of law in this appeal 
that is subject to de novo review.  See Akron Centre Plaza, L.L.C. v. Summit Cty. 
Bd. of Revision, 128 Ohio St.3d 145, 2010-Ohio-5035, 942 N.E.2d 1054, ¶ 10. 
ANALYSIS 
1. Expenditures for permanent improvements could have been made without 
converting the inside mills 
{¶ 40} As already discussed, we have before us the question of how the 
“clearly required” standard of R.C. 5705.341, eighth paragraph, should be applied 
in the present situation.  At the outset, it is important to note that, as all parties 
have acknowledged, converting the inside levies was not a legal condition 
precedent to making the permanent-improvement expenditures.  That is so 
because the law permits the BOE to pay for permanent improvements using funds 
derived from operating levies. 
{¶ 41} As primary authority, R.C. 5705.05 is pertinent.  That section 
provides that a political subdivision “may include in [a current-expense] levy the 
amounts required for carrying into effect any of the general or special powers 
granted by law to such subdivision, including the acquisition or construction of 
January Term, 2014 
 
15
permanent improvements.”  (Emphasis added.)  As one secondary authority 
summarizes it: 
 
A board [of education] may include in the general tax levy 
for current expenses, within the ten-mill limitation, the amounts 
required to carry into effect any of its general powers, including 
construction of permanent improvements and payment of 
judgments, but excluding payment of debt charges. 
 
(Emphasis added.)  Hastings, Manoloff, Sharb, Sheeran & Jaffe, Baldwin’s Ohio 
School Law, Section 43:29, 1151. 
2. The BOE’s conversion of inside mills generated two increments of 
revenue:  the permanent-improvement fund and new operating revenue 
{¶ 42} The second preliminary point is that converting the inside millage 
generated not one but two increments of revenue.  It did so by affecting not one 
but two rates of taxation in the district:  it converted 1.25 inside mills, and it 
caused an increase in the effective rate of taxation under the outside mills. 
{¶ 43} As discussed, the school board started in a position of being just 
above the 20-mill floor, i.e., it had levies in place that, after reduction of outside 
levies, generated a little more than 20 mills of taxation for the district’s operating 
expenses.  By redesignating a portion of inside millage to the permanent-
improvement fund and away from operating expenses, the school district achieved 
two objectives:  (i) it continued to receive the 1.25 inside mills, although they are 
now earmarked for permanent improvements instead of being more generally 
available for operating expenses, and (ii) it continued to receive 20 mills for 
operating expenses—in spite of the loss of the 1.25-mill inside levy for operating 
expenses. 
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{¶ 44} The district continued to receive 20 mills for operating expenses 
because the H.B. 920 reduction of outside levies was decreased by operation of 
law to retain a 20-mill overall effective rate for operating expenses.  Thus, 
converting inside millage brought the school district additional revenue, which 
means the district residents wound up paying more property tax.  And that is the 
precise ground on which the appellants as taxpayers object:  that they must pay 
more taxes because the outside levies are reduced less than they otherwise would 
be reduced.  At the same time, they must pay the inside millage that has been 
redirected to the permanent-improvement fund. 
{¶ 45} As already noted, the rate of taxation stays within the outside mills 
approved by the voters, so there is no constitutional violation.  That said, the 
change in the inside millage must still comply with the statutes—specifically, it 
must satisfy the “clearly required” standard of the eighth paragraph of R.C. 
5705.341.  The specific issue is whether the “clearly required” standard should be 
applied to the increased effective rate of taxation under the outside mills. 
3. The “clearly required” standard should have been applied to both the 
permanent-improvement revenue and the new operating revenue 
{¶ 46} The eighth paragraph of R.C. 5705.341 provides that the “rate of 
taxation for the ensuing fiscal year” must be “clearly required by a budget” in 
order to be approved by the budget commission.  The BOE’s consistent and 
exclusive focus on the permanent improvements in the budget implicitly relies on 
the contention that the sole relevant “rate of taxation” is the 1.25 inside mills that 
were converted to a permanent-improvement levy.  But the taxpayers demand that 
consideration be given to the additional tax that they must pay as a direct, 
foreseeable, and foreseen result of converting the inside mills. 
{¶ 47} We agree with this contention.  We hold that the “rate of taxation” 
referred to by R.C. 5705.341 in the eighth paragraph encompasses, in this 
situation, not only the 1.25 inside mills but also the estimated 1.08-mill increase 
January Term, 2014 
 
17
in the effective rate of taxation under the outside millage, which results from the 
conversion of the inside mills.  Our holding means that the review by the budget 
commission and the BTA should have extended to determining not only whether 
the 1.25 mills that are newly devoted to permanent improvements were matched 
to permanent-improvement expenditures in the budget but also whether the 
increased effective rate of taxation under the outside millage was necessary to 
maintain the balance between revenue and expenditures once the inside mills 
were newly earmarked for permanent improvements. 
{¶ 48} It is evident that neither the budget commission nor the BTA 
addressed this aspect of the analysis.  That constituted a legal error. 
{¶ 49} But if due consideration is given, it is evident that, as a matter of 
law, the increased effective rate for the outside mills was not “necessary to 
produce the revenue needed by the taxing district”—and therefore not “clearly 
required”—under R.C. 5705.341.  That is so because the amount of the projected 
surplus of revenue over expenditure for the ensuing fiscal year was $1,849,311, 
an amount exceeding the $1,450,000 raised by the increased effective rate.  Thus, 
even after devoting the 1.25 inside mills to permanent improvements, the budget 
would have had a small surplus; it follows that the additional revenue from the 
outside mills was not “clearly required.” 
{¶ 50} Indeed, far from defraying current operating expenses, the 
increased revenue from the outside mills padded the district’s surplus.  To permit 
a tax increase that performs no function other than to increase the amount of 
budget surplus would deprive the “clearly required” standard of all meaning. 
4. The case law does not dictate a contrary result 
{¶ 51} The BOE relies heavily on S. Russell v. Geauga Cty. Budget 
Comm., 12 Ohio St.3d 126, 465 N.E.2d 876 (1984), which distinguishes between 
“determin[ing] whether any rate of taxation is clearly required by the budget,” 
which the budget commission must do, from “mak[ing] a judgment call on the 
SUPREME COURT OF OHIO 
 
18
desirability of programs” whose funding is set forth in the budget, which the 
budget commission may not do.  Id. at 132.  The BOE asserts that the conversion 
of the inside mills and the concomitant generation of additional revenue from the 
outside levies lay within its discretionary authority, even if the additional revenue 
did not meet a current need within the ensuing fiscal year. 
{¶ 52} S. Russell does not support the BOE’s position here.  In S. Russell, 
a health district levy had been approved by the voters pursuant to R.C. 3709.29, 
and under R.C. 5705.31(E), the budget commission was required to approve such 
levies without modification if they had been “properly authorized.”  R.C. 
5705.31(A) also insulated the levy at issue in S. Russell because it was outside 
millage.  S. Russell at 129.  By stark contrast, those constraints do not limit the 
budget commission’s authority here, because this case involves an increased 
effective rate of taxation under the outside mills, which is a tax increase that is not 
exempted from modification by the budget commission under R.C. 5705.31. 
{¶ 53} On the other hand, S. Russell did specifically acknowledge that the 
scope of the budget commission’s review under the “clearly required” test 
encompasses “whether there has been excessive taxation, i.e., will the tax 
generate more funds than shown to be needed within the budget of the district or 
subdivision.”  S. Russell at 132.  We conclude that it is this portion of S. Russell 
that applies in the present case.  Here the conversion of inside millage led to an 
increased effective rate of taxation under the outside millage.  The BOE has at no 
time offered a justification of that increase based on current expenses set forth in 
the budget submitted; instead, the BOE has relied completely on long-range 
planning and the advisibility of maintaining, and even increasing, its surplus 
funds on account of funding uncertainties in the future. 
{¶ 54} The BOE also relies on an opinion from the attorney general.  In 
2005 Ohio Atty.Gen.Ops No. 2005-002, that official opined that a school district 
could perform the kind of inside-millage conversion at issue in the present case.  
January Term, 2014 
 
19
Specifically, the attorney general found that the fact that the conversion brought 
the district onto the 20-mill floor, and thereby increased the yield from the outside 
levies, did not per se invalidate the conversion of the inside millage.  Indeed, the 
attorney general noted that the legislature enacted R.C. 5705.314 in 1998 for the 
purpose of permitting the conversion of inside millage and opined that “by the 
enactment of R.C. 5705.314, the General Assembly has recognized the possibility 
that a school district might increase taxes by changing the use of its inside 
millage.”  Id. at 8. 
{¶ 55} With respect to whether any particular conversion must be 
approved by the budget commission, however, the opinion becomes hazier.  The 
opinion specifically declines “to make findings of fact or to determine the rights 
of particular parties” and disavows making any “determinations regarding the 
validity or effectiveness of particular actions taken with regard to the matter” 
under consideration.  Id. at 2.  The attorney general refers to the controlling 
principles from S. Russell but does not actually say how they apply.  Indeed, the 
opinion states as follows:   
 
If * * * the board of education of a school district proposes to levy, 
for purposes of permanent improvements, the amount of property 
tax allocated to the school dist4rict within the 10-mill limitation 
that, in the previous year, was levied for operating expenses, the 
county budget commission is not empowered to disapprove or 
modify the levy, provided that the levy was properly authorized 
and the amounts to be levied are clearly required by the school 
district’s budget. 
 
Id. at 11.  Thus, with respect to the precise issue presented by this case, the 
opinion sheds no additional light. 
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5. The narrow nature of the holding in this case 
{¶ 56} Nothing in this opinion should be construed to disapprove, as a 
general matter, the discretion of a board of education to budget with a surplus.  A 
school district is generally entitled to collect revenue under its inside millage and 
its voter-approved outside mills (the latter being subject to the H.B. 920 reduction 
factors), while maintaining a significant balance of unencumbered funds. 
{¶ 57} The disposition of this case depends upon the issue that specially 
arises here—an unusual circumstance.  Here, the increased effective rate of 
taxation under the outside mills raised revenue and increased taxes overall, and 
our holding is that that increased revenue had to correlate to current expenditures, 
rather than constituting excess revenue for the district.  To the extent that the 
district seeks to retain the millage and the effective tax rates imposed in previous 
years, the issue presented in this case simply does not arise. 
CONCLUSION 
{¶ 58} For the foregoing reasons, we reverse the decision of the BTA.  
Additionally, we remand to the BTA with the instruction that, pursuant to the 
fourth paragraph of R.C. 5705.341, the BTA issue an order modifying the action 
of the budget commission consistent with this opinion. 
Decision reversed, 
and cause remanded. 
O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, KENNEDY, and 
FRENCH, JJ., concur. 
__________________ 
 
1851 Center for Constitutional Law, Kelsey E. Hackem, and Maurice A. 
Thompson, for appellants. 
 
Graydon, Head & Ritchey, L.L.P., Bruce I. Petrie Jr., and Harry J. Finke 
IV, for appellees Indian Hill Board of Education and Indian Hill Exempted 
Village School District. 
January Term, 2014 
 
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Joseph T. Deters, Hamilton County Prosecuting Attorney, and Thomas J. 
Sheve, Assistant Prosecuting Attorney, for appellee Hamilton County Budget 
Commission. 
______________________