LEXINGTON — A new earned income tax benefitting Lexington Local Schools would have little to no impact on retirees in the district, according to school officials.
Amid rising costs and decreased state funding, the district is asking voters to approve a property tax renewal and earned income tax this fall.
The 4.8 mill property tax renewal would not increase taxes or district revenue. If approved, it will continue to generate around $2.68 million of operating funds each year for the next five years.
The new, 0.75 percent earned income tax would take effect on Jan. 1, 2027 and be in place for 10 years.
Unlike the traditional income tax that residents voted down in May, an earned income tax would not impact retirement income or Social Security.
The earned income tax would cost approximately $150 for every $20,000 of adjusted gross income, according to the district.
Treasurer Jason Whitesel said the funds from both levies would be used specifically for operating costs.
“Operational costs to educate our students include transportation, curriculum, educational supplies and equipment, staff salary and benefits, utilities, special education services including speech therapy, occupational therapy, physical therapy, and behavioral services, and other such costs necessary to educate our students,” Whitesel said.
School districts are required to keep operating funds separate from taxpayer-approved funds for construction and permanent improvements, like the bond issue voters approved to build new schools in 2018.
How does an earned income tax work?
An earned income tax means residents would only pay taxes on earned income like wages, salaries and other compensation.
The tax would not apply to income like Social Security, retirement earnings, interest earnings, capital gains, alimony, child support, unemployment and workers’ compensation, trust distributions, dividends, rental profits, welfare benefits and disability benefits.
Voters overwhelmingly rejected a continuous, 1.5-percent traditional income tax levy in May, which would have encompassed earned and unearned income.
“The positive out of May is we got a lot of feedback, and the feedback was our community does not like a traditional income tax, which taxes retirement, taxes capital gains, taxes earnings on investments,” Whitesel said earlier this year.
“At the same time, the State Legislature changed their previous decision to eliminate the ability to renew certain levies. As a result, the Board pivoted to the two issues on the November ballot.”
Whitesel said initial estimates project the new income tax would generate about $3.54 million in additional operating funds during its first year.
If approved, the earned income tax would be administered and collected by the Ohio Department of Taxation, not by the school district or county, Whitesel said.
“For people who receive paychecks, it can generally be withheld from their wages through payroll withholding, similar to other income taxes,” he said. “Others who are self-employed or don’t have withholding may make estimated payments and/or pay when they file their Ohio tax return.”
There is no additional local tax return that must be filed for a school district income tax, the treasurer added.
How the levies would impact the district
Whitesel said in August that if voters approve both the renewal and the new income tax, the district will likely be on solid financial footing for the foreseeable future.
Without additional funding, Lexington Local Schools would carry an operating deficit of around $1.78 million for the current school year. It also means the district would have to make cuts to avoid running out of operating funds during the 2028-2029 school year.
“Our goal is always to mitigate the overall impact on students’ educational experience and continue to provide the excellent quality education that our families expect and have grown accustomed to,” Whitesel said.
“(If the earned income tax levy fails,) the Board will have to consider additional cuts to programs, including art, music, and electives, reductions in District busing, and increases in District fees, including pay to participate fees.”
Public schools are struggling financially
Lexington’s revenues have steadily declined since the 2023-2024 school year, but officials said costs continue to rise.
The result has been years of deficit spending, with the gap growing wider each year.
Even after eliminating 24 jobs last spring, Whitesel projected in August that the district will spend almost $1.78 million more than it takes in this school year.
School officials across Richland County have cited state funding cuts and rising health insurance costs as financial drains. Lexington is no exception.
School officials across the state have said the most recent state budget, approved by lawmakers earlier this year, did not take into account the rising costs of educating students.
Meanwhile, Richland County Commissioners voted last fall to implement a property tax relief measure that reduced Lexington’s annual collections by $279,558.09.
“We’ve been trying to advocate for our community for well over a year now — writing letters, sending emails, talking to those in Columbus about the impact this is going to have directly on the students in the community of Lexington,” Whitesel said.
“We’re not the only ones. This is, throughout the state, what districts are facing because of decisions that have been made.”
Whitesel said more than 93 percent of the funds being used to build a new elementary school are coming directly from the Ohio Facilities Construction Commission, a state government entity. Those funds can only be used for the new building project.
The district used its share of local building levy funds to construct the new junior high and high school building after a delay in accessing those state funds.
