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Intertwined-Ohio State Taxation, School Funding and Economic Development Policies as they Affect Local Governments

Policy Statement #9


In the atmosphere of ever-decreasing intergovernmental aid, municipalities find themselves searching for an answer to the financial woes they face.  Competing with surrounding localities for economic development, municipalities engage in a "race to the bottom" of local tax policy.  Several competing theories of inter-jurisdictional competition show that the effects of this competition can have a negative impact on municipalities.  Often the positive impact of potential business has not been weighed against the negative impact tax incentives can have by greatly decreasing the quantity or quality of services offered in a community.  In searching for a way to attract economic development, studies have found that there are in fact several criteria that can help to determine the location of business ventures.  Operating costs, operating conditions, and quality of life all play a major role in the decision process of business when choosing a site on which to locate.  While tax policies affect operating costs, studies find that it only comprises four or five percent of the overall varying operating costs.  Transportation and labor costs comprise a much larger part of operating costs.  Knowing that adjustments made in tax policy will have only a modest impact on attracting economic development, municipalities continue to search for a way to attract business.

Also, the issue of school funding is very important to local governments in Ohio because that quality of the local public school district has a profound impact on the ability of a municipality to attract new residences as well a business investment.  The Policy Statement #9 details the legal history of Ohio's school funding system as a primer for a thorough and detailed analysis of both the state's school funding formulae and the way property taxes specifically impact school funding.