/ 2s ie? ~ , : j ‘ ATR Rah: nis i . : te i / t anes . rr ’ ‘ f “ H x : } fe | : > ae 4 : ? whey, \ : z | ee 4 * ‘ | 5 ; : ( N J ‘ | ; ; ~ &. : ; ‘ - - f ; f ; | “ . 2 ¢ . ‘ a “hye 7 / ‘ ¢ hee ts a eye? H % ¢ ¢ ; | b : ; ; 9 4- : > = . 3 * tas tb r | > . it ; j “ . i x ¥ ae . = Pe ‘ hid i# » } t \ : a! PY ~ 7 4 3 ( - ; i i : i y 1 \ \ : . n A I w ‘ is : bs : ~S ie : ey i a) WERARY ag _ OHIO STATE UNIVERSITY... ‘ : . i i y i ¥ ’ 7 xy Me. y . i. \ 7 7 b' i x ~~ i .) ~ m4 3 ; ; ‘ : . \ ; } at ¥. 4 ‘ 6 i, , ¢ ‘ ‘ + pe 2 ‘ / if « “ ‘ va », ; / - Xf ; STATE OF OHIO REPORT JOINT LEGISLATIVE COMMITTEE ON ECONOMY AND TAXATION OF THE Eighty-Sixth General Assembly DECEMBER, 1926 fer i COLUMBUS, OHIO: THE F. J. HEER PRINTING CO. 1926 Bound at the State Bindery 2 aS e985 ee ee) THE JOINT LEGISLATIVE COMMITTEE ON ECONOMY AND TAXATION Of the Senate CHESTER C. Botton, of Cleveland, Chairman, ALLAN G, AIcLER, of Bellevue, W. W. FarnsworTH, of Waterville, Jos—EPH R. GARDNER, of Cincinnati, Of the House of Representatives Rospert A. Tart, of Cincinnati, Vice-Chairman and Secretary. Joun B. Dempsey, of Cleveland, Martin S. Dopp, of Toledo, D. Price Evans, of Jackson, Harry D. Sitver, of Eaton. STAFF Leyton E. Carter, Executive Secretary. R. C. ATKINSON, Ohio Institute. Lioyp D. Bower, Staff Member and Statistician. Proressor C. C. McCracken, Ohio State University. _ R.E. Mites, Director, Ohio Institute. PRoFEssor J. Cayce Morrison, Ohio State University. C. S. Nicwotson, Staff Member. PRoFEssorR Warp G. REEDER, Ohio State University. J. O. Rees, Staff Member. Katuryn Dunn, Stenographer. Jack Horrman, Typist-Clerk. (9) 839578 4 REPORT OF JOINT LEGISLATIVE COMMITTEE ADVISORY COMMITTEE Mr. W. N. Kino, General Attorney, The New York Central Railroad Company. Mr. Maco JENNINGS,* Executive Secretary, Ohio Manu- facturers’ Association. Mr. J. W. Jacosy, Ohio Association of Real Estate Boards. Mr. Murray D. Lincotn, Executive Secretary, Ohio Farm Bureau Federation. Mr. Joun E. McCrenen, Director, Ohio Chamber of Com- merce. Mr. AntHony Koars, Executive Secretary, Mortgage Asso- ciation of Ohio. Mr. Joun A. ZANGERLE, Auditor Cuyahoga County, County Auditors’ Association of Ohio. Mr. James A. Devine, Executive Secretary, Ohio Building Association League. Mr. C. A. Dyer, Legislative Agent, Ohio State Grange. Mr. Rosert O’Brien, Executive Secretary, Ohio Hotels As- sociation. Mr. C. S. Mattsy, President, Ohio Tax Association. Mr. THomas J. DonNnELLY, Secretary, Ohio Federation of Labor. Mr. J. F. Atwoop, Legal Counsel, Ohio State Automobile Association. Mr. GeorcE V. SHERIDAN, Director, Ohio State Council Re- tail Merchants. Mr. R. R. BeetHaM, Ohio Bankers’ Association. Mr. Warren F. Perry, Executive Secretary, Mahoning Val- ley Industrial Council. * Deceased. A STATEMENT OF TRANSMITTAL Taxes, and other ways and means of raising revenue aré among the most prominent and most serious subjects that come before any legislative body. The duty of making laws for the raising of revenues to carry on the various units of government is imposed upon the Federal Congress and the state and local legislative bodies by the constitutions prescribing the duties and functions of these various governments. With legislative bodies it is often common practice in formu- lating legislation having to do with the raising of revenues to follow lines of least resistance and to continue practices once inaugurated until serious objection is met or the defects of such policies are apparent. It is only when opposition makes itself felt that legislative bodies are inclined to change their methods and then more often from considerations of expediency than from sound and scientific knowledge of the case. Changing conditions throughout the country have from time to time made necessary changes in the revenue raising measures of our Federal government and of the various states. The great industrial and commercial developments of the past century are clearly reflected in the changes of the tax laws of most of the states of the Union. ¢ In Ohio the constitution of 1851 vested the power of rais- ing revenues and making laws pertaining to taxation in the General Assembly and further limited the method of taxing property by what is known as the “uniform rule’. At that time Ohio was principally an agriculture community. With its subse- quent development and growth have come increased demands for improvements and all the facilities of modern communities and increased demands for additional revenue. With the tremendous . development in industrial and commercial activities has come also more than one attempt to correct constitutional limitations and permit new methods of taxation of new forms of wealth. Amend- ments calling for changes in the uniform rule have been submitted on more than one occasion in the last decade and rejected. Com- missions have been appointed to study the situation but their. recommendations and studies have not succeeded in altering Ohio’s basic method of taxing property. (5) 6 REPORT OF JOINT LEGISLATIVE COMMITTEE As might be expected in a growing community, Ohio’s cost of government, both state and local, has increased year by year, and taxes have grown to such an extent that the rising trend is looked upon with much concern from many sources. The legis- _ lature, during the past decade, has made earnest efforts to correct this rapidly mounting cost of government and increase in taxes. But it has been constantly hampered in its efforts to deal with tax problems by the limitations of the uniform rule. The General Assembly, in the session in the spring of 1925, passed a joint resolution submitting to the voters at the general election in November of that year another amendment to the constitution modifying the uniform rule. In view of the interest manifested in tax matters, in view of the serious financial situ- ation facing many local taxing districts, and in view of the need for added revenue for both state and local purposes, and partic- ularly because of the need of a carefully studied program for revenue raising in case the amendment to the constitution carried, the legislature, by joint resolution, appointed a committee to study the subject and report to it not later than March of the following year. The joint resolution read as follows: (Amended Senate Joint Resolution No. 29) JOINT RESOLUTION Authorizing the appointment of a joint committee to investigate and study the laws of this state and other states, with a view of determining the best and most equitable methods of the taxation of property; and to recommend needed legislation to carry such methods into effect in this state. Be it resolved, That a joint legislative committee is hereby constituted, consisting of four members of the Senate, to be appointed by the president of the Senate, and five members of the House, to be appointed by the speaker of the House, to investigate the revenues and expenditures of the state and its various local subdivisions and the laws of this state and other states relating to taxation and public expenditure, and to investigate gen- erally in respect to systems and methods of taxation, to the end that economy may he secured in such expenditure, that the divisions of gov- ernment may be operated within their income, and that taxation be assessed in the most equitable manner effectually reaching all property which should be subject to taxation and avoiding conflicts and duplication of taxation on the same property; and to recommend the legislation neces- sary to secure such economy and taxation, including, if necessary, such change in the form of local government in this state as may be required. ON ECONOMY AND TAXATION OF The committee is hereby authorized to sit at Columbus or elsewhere within the state, to choose a chairman from among its members, to employ a secretary and counsel and such other assistants as may be needed, to take testimony, subpoena witnesses and compel the production of books, docu- ments and papers, antl otherwise have all the powers of a legislative committee. The committee shall report the results of its investigation to the legis- lature, together with such recommended legislative measures as it deems advisable to carry its recommendations into effect, not later than March thirty-first, nineteen hundred and twenty-six. The expenses of the committee, not exceeding fifteen thousand dollars, shall be payable from the contingent fund of the legislature upon the cer- tificate of the chairman of such committee. CuaAr LES H. LewIs, President of the Senate. Harry D. SILver, Speaker of the House of Representatives. Adopted March 27, 1925, The duties imposed upon the committee and the results desired are apparent from the resolution, but as the work devel- oped and the enormity of the task was recognized, it was soon felt that the legislature could best be served, by the committee working along certain basic lines, in the hopes that the results obtained would warrant the time and efforts given, and be con- ducive to a continuation or expansion of studies into fields which the committee has not been able to reach in the time allotted to it. It was felt that the legislature was desirous of having recom- -mendations pertaining to systems and methods of taxation which might be applicable in case of an amendment to the uniform rule; but it was also believed that the legislature was concerned with the question as to whether revenues were expended in a manner to the taxpayer’s interest, in other words as economically as con- ditions would permit. With these two points in mind, namely a desire to determine a just and equitable means of raising revenue from a study of existing conditions both in Ohio and elsewhere, and a study of the main functions of government with a view of determining whether economies in state and local government might be effected, the joint legislative committee proceeded. ; At the outset it was recognized that, aside from the basic activities of government, either state or local, of health and the 8 REPORT OF JOINT LEGISLATIVE COMMITTEE protection of life and property, the large part of the cost of government in Ohio today is in highways, education, and welfare activities. The 86th General Assembly had created a commission to study the highway problem in Ohio, consequently the Joint Legislative Committee on Economy and Taxation felt that this part of governmental responsibility might well be left to the study of the Highway Committee. Similarly, a study of the penal institutions of the state had been assigned to another special com- mittee of the General Assembly, and this Committee believed it need not duplicate the study of that body. It believes the reports of both committees referred to might well be studied in connection with the findings of this Committee, and that the work of all three committees is very much related. It feels the reports of these other committees will undoubtedly suggest or require revised or new methods of revenue for carrying on each activity, and it believes such requirements should be so considered in connection with the finding of this Committee to the end that a correlated, balanced program may be had. The task of investigating revenues of the state and its various subdivisions, and the laws of this state and others relating to taxation presented one problem, while that of investigating ex- penditures of those subdivisions and laws relating to public ex- penditure was quite another. The former was carried on with a view to finding a system of laws whereby taxation might be assessed in an equitable manner provided constitutional limita- tions were removed, or what might be suggested for better results under our present system ; the subject of investigating expenditures was undertaken with a view of ascertaining if economies in system or principle could be effected, but not as an audit to ascertain if expenditures were properly made. Such was not believed the function of the Committee, as indicated by terms of the resolution or by the appropriation contained therein. Accordingly the Committee has conducted its study along the basic lines of (1) the cost of government, measured by taxes levied; and the public debt which largely affects the cost of government; (2) the state revenue system and the financial prob- lem of the state; (3) a study of public education and school administration in Ohio, involving the school debt, the matter of state aid, the county school districting, of school housing and ON ECONOMY AND TAXATION 9 finally the matter of higher education as carried on by the state and particularly as it relates to cost and enrollment; (4) a study of county and township government; (5) a study of the tax burden in Ohio on industry and agriculture; and (6) a study of the general property tax in Ohio and the tax limit laws. The time available to the committee made a complete analysis of all the phases involved impossible but it is believed substantial pro- gress with the above mentioned subjects has been made and that the work done will serve as a basis for further studies which could well be projected. The Joint Committee began its work in May 1925. Mr. Chester C. Bolton was elected chairman; Robert A. Taft was elected vice chairman and secretary. Sub-committees were ap- pointed and a division of work made among them. These were Sub-Committee A., Messrs. Dempsey, Chairman; Bolton and Gardner on state revenues, inheritance tax, tax burden study, state universities and colleges. Sub-Committee B., Messrs. Farns- worth, Chairman; Evans and Silver on county and township government, public school administration and organization, mu- nicipal government. Sub-Committee C., Messrs. Taft, Chair- man; Aigler and Dodd on the general property tax, the rate limitation system, budget systems for the state and local govern- ment, bond laws and public borrowing. Mr. Leyton E. Carter, director of the Municipal Research Bureau of Cleveland was chosen as executive secretary, to whose untiring and unsparing work a large part of the credit of their report is due. This ar- rangement was made possible by the action of Mr. D. S. Hum- phrey, president, and the board of directors of that organization. The Committee has had the benefit of able and well trained staff assistance. The Committee would be ungracious indeed if it did not specifically voice appreciation of the very great amount of careful and constructive work done by Mr. R. E. Mites, director of the Ohio Institute, and Dr. R. C. Atkinson, staff member of that organization, in the fields of the state aid system and county and township government. All this work was done without expense to the Committee and was invalu- able in character. Likewise equal appreciation is due to Dr. C. C. McCracken, professor of school administration at the Ohio State University, for the research work and development of a°plan to REPORT OF JOINT LEGISLATIVE COMMITTEE for 'a. unified county school district, to Dr. Ward G. Reeder, professor likewise in the same department for a study of the trend of school costs and school indebtedness, and to the Ohio State Teachers’ Association for research data. The same appre- ciation is due Dr. J. Cayce Morrison of the Ohio State Univer- sity for study of the state’s interest in school housing. All of the work done by these members of the University faculty in- volved no expense to the Committee except incidental expenditures for stenographic and clerical services. Especial appreciation is due also to Mr. John O. Rees, staff member of the Municipal Re- search Bureau for work in the field of state finances, to Mr. C. S. Nicholson for much statistical and research work in many fields, to Mr. Lloyd D. Bower for a great deal of work of similar character and to the other employes of the Committee. The Committee has had the benefit of thoughtful and dis- interested counsel of an advisory committee on public school problems composed of John R. Williams, Chairman; R. E. Miles, L. B. Palmer, Walter F. Kirk, Dr. J. Cayce Morrison, Ray Fife, W. R. Hiestand, H. R. Dick and L. L. Rummel. Also there was appointed a general advisory committee, the personnel of which has been given. This Committee has ren- dered invaluable service in the carrying on of an extensive study of the tax burden upon Ohio industry and business and in various other ways. Especial mention should be made also of the helpfulness and cooperation of members of the tax commission, the state auditor’s office, the state department of education, the legislative reference bureau, and many officials throughout other administrative de- partments of the state. The Committee further wishes to ac- knowledge the assistance it has received from the press of the state. Attention should be called to the fact that during the past year and a half the Committee has issued twenty bulletins de- scriptive of Ohio’s tax system and those of other states. The Committee has held many meetings at Columbus, various meet- ings of the sub-committees have been held in different localities of the state and individual members have devoted much time all in all to. the task. A progress report was filed with the clerks of the ‘ ON ECONOMY AND TAXATION II two branches of the 86th General Assembly on March 31, 1926, and the work continued until the close of the year. The Committee feels as it views the enormity of the task set before it, the many phases and problems of governmental activ- ities and administration and the need for continuous study of governmental problems that only a substantial beginning has been made. It believes that if legislative bodies are to meet their in- creasing responsibilities effectively, the service which’ interim committees, properly financed and staffed can render will be eminently helpful and worthwhile. The problems of legislation require careful, disinterested and constant study. With these brief comments your Committee respectfully sub- mits the following report. [[n addition to this report there is on file with the Committee a great amount of valuable data, statistics and information upon many governmental subjects. This ma- terial can be made available to the General Assembly or various committees thereof if such seems desirable. Signed CHESTER C. BoLtton, Chairman Ropert A. Tart, Secretary ALLAN G. AIGLER Joun B. DEMPSEY Martin S. Dopp D. PricE EvANS W. W. FarnswortH JosErpH R. GARDNER Harry D. SILVER II III VIII IX XII XVI \ ON ECONOMY AND TAXATION GRAPHS TITLE Index of Direct Tax Levy Adjusted to Changes in Pur- chasing Power of the Dollar with its Value in 1913 as a Base (Purchasing Power of Dollar Based on Wholesale Commodity Prices and Cost of Living TT GES selec tere re RR ake aR ESS le oie mater ape oie tol s Index of Increase in Cost of Government (Based on Direct Tax Levies) Compared with Wholesale Commodity Prices, Wages and Cost of Living Indices.......... Index of Cost of Government (Direct Tax Levy) Com- pared with that of the Tax Base (Assessed Valuation Ole Propesty ands EOpUlattoni maces cic vit eee cease visrctonte Index of Cost of Government (Direct Tax Levy) Com- pared with Tax Base (Assessed Valuation of Prop- erty) Population and Direct Taxes Levied Adjusted to the Purchasing Power of the Dollar............ Relation of Direct Tax Levy and Assessed Valuation to the Estimated Wealth of .the.State of Ohio........ Index for Delinquent Taxes and Forfeitures and Index for Taxes Levied for Years 1910 to 1925 Compared...... Index of Direct Tax Levy (Cost of Government) Com- pared with that of Total Current Income, Net Income of Individuals and Gross Income of Corporations — STAtCHOL POM IOnmmaies ie wet Ateey Are cenia oe ema dora a an ere Index of Direct Tax Levy Compared with the Index of Estimated Value of Farm Crops Years 1910 to 1925 RISER SA ts he tec enc eae ee hey ata wi TRON Indices. for Total Gross Indebtedness of Local Govern ments, Assessed Valuation and Taxes Levied Com- PATE Cag La NAStecearaene tess, Mecoateut cote actteteos ous isiaislacre coveed esate Indices for Debt of School Districts, Cities and Villages, Counties and” Downships ‘Compared: .2.0 2.056 seus we A Comparison of the Indebtedness of all Ohio Counties, Townships, Cities, Incorporated Villages and School Districts Combined as of July 1, 1924, Classified Ac- COLMA LOM ATOM ULDOSES) tosis as setts orci ee eters State School Aid and Tax Valuation Per peat Enrolled ORTH at erate re orate ape ec ensmst c pecin oa fel vhe teats Giotera caring aiehetis The Amount of State Aid Paid to Districts in Six Im- portant State Aid Counties 1922 to 1926............. Capital Outlay for School Buildings and Sites 1900-1915. Capital Outlay for School Buildings, Sites and Equipment Pome Daa (OMe etd tino stort ak Gece ORC ae ie able Mas Trends of Total Population, High School Enrollment and Capital Outlay for Public Schools 1900-1925........ 13 PAGE 46 49 =~] Or 58 69 14 XII XIII XIV XV XVI XVII XVIII XIX XX XXI XXII XXIII XXIV XXV XXVI XXVII REPORT OF JOINT LEGISLATIVE COMMITTEE TABLES TITLE General Property Taxes Levied 1910-1925 for State and Local: Governments oyu) erry tate oeoginte este tc ciers Index Numbers — Purchasing Power of Dollar.......... Direct Taxes Levied in the State of Ohio— Years 1910- 1925, Adjusted to Purchasing Power of the Dollar Wsine 31013 as saw aSe watt ee ack Geta ter es Cottsalidated: ‘Totel of ~All Local Debts isotonic testy Consolidated Local Debt Statement 1910 to 1925 Inclusive Summary of Outstanding Debt, 93 Cities of Ohio, Year Ending June 380, 1924. Classified by Purposes...... Village Debt as of June 30, 1924. Classified by Major IE DOSES _rsie ctokeud tsa Metateha «eee ais sleet e eee eee Perens School Debt as of June 30, 1924. Classified by Major PUurposesainie eile ns ears ata bors re iaels aean Ses NS ONS eeNS County Debt as of June 30, 1924. Classified as to Major Purposes ".2... AE: oes Gianh Seep redone Behe Felohaiedate toa tahen eaetens Township Debt as of June 30, 1924. Classified as to Major UE POSES 85s fees herelscael ch hsuetR caer en ee ceeyake tl auaneianeaare tener _Summary of the Aggregate Amount of Indebtedness of All Ohio Counties, Townships, Cities, Incorporated Villages and School Districts as of June 30, 1924. Classified According to Major Purposes........... General Revenue Fund Receipts Classified 1922-1926.... State: Revenues by Years: 1922-1926 ...4 05. fic. w. tees Table Showing Receipts of General Revenue Fund for Two Year Period from Major Sources.............. General Fund Cash Collected by Months, Year Ending ‘Fiaries BOW OO ie SGN a ce ain peacoat ped oar Statement of Monthly Cash Balances General Revenue Brat! Fee a eee ee eee ee nee RE eretene Combined Monthly Cash Balances. General Revenue Sete Educational Equalization Fund and Highway TAT a 5 atte nee oases ctted ce een aes ee Ree Ne ce Recapitulation — Gross Earnigs and Gross Receipts, Years TOZD eto ALOAe lnclustvemss sake nutes pee eee te eeee Delinquent Taxes and Taxes Levied — State of Ohio, Real and Personal, Propertys li QlS-1OR5e es, occ olen ok Educational Equalization Fund Disbursements 1908 to 1926 The Capital Outlay for Schools in Ohio for the Year LOD OS FS scant ne vars Ran cotai aig eltaes siete ee eRe ML nn Annual Capital Outlay in Ohio for School Buildings and Groutids: 1 900- Tay ar iestans tran selreee Gaaker ter ees hese oe eens Annual Capital Outlay for Land, Buildings and Equipment ORCI SMa arta techs whe tacae Were e eee piece arc eect teen Increase of Population, Total, High and Elementary School Enrollment in Ohio 1900-24.............2... hie Age of senool: Buildingsies. sts cadane sc oe on es A Statistical Summary of the Service Rendered by the Division of Factory and Building Inspection to the Scnoolsy of: they States «con. ceeds talents ons eee Defects Found in School Building Plans by the Division of Workshops, Factories and Public Buildings ee renee PAGE 108 113 113 114 128 154 169 192 193 194 197 200 212 213 ON ECONOMY AND TAXATION 5 CONTENTS SECTION I CHAPTER I— Page The Present Tax System for State and Local Government... cece eee 23 Howaltocal Goverdiments “Aresoup ported was thor ety hone ra ee tei oes 23 General Property Tax Reserved for Local Government s..........ctectecceeqeeseseeeceeeteees 24 ‘bees Mi Pee SUDAN Gos WPM LON mio RSW VCHITS 10 SoD eas eceerec coer paca eee st Steems pare reee Pape a cern eee ean 25 “intoreemen ts Ofte Wl ascn RetMmItatlOn. oo VGC CTI, sates. cxtele ree ccctetacearavavestscysestecneceeeseecnecseeecee 25 LES RSS SAE aaa) bhp CLAS ator th lO Nine GoTo GU Rhee oy Gg 0 hak 6 seep eeeip guetine Beer aeons piece lela See ee a 26 HOMASSESSIMEN EOL EEOPCEby TOT La P CLOT ceecceccssctetecs coca coroners asi ce ote reseaeersezeseeeeccscerisieens 27 EXeni pte rOpertyck cute. easier ene ere ays 27 AM aVey [Ghai tar gravel Sec hal @Cat al Os =H 01 5 (eye ee tee AU ee ca ILE ape eh bh ON Disease Le 28 i Whmeseirevitavercole | Roky bd Le See te ekce soos Poe eh ree se ore, Oe Se es cee ce 28 PASE GTLETIG Es ONE CCT nee Sate et rey el 2 ENN af Be ccacuancs Sc cuucuedn ate ope uuaspase niece yah eb taaetesateyassueteckencaeevs 29 How theestate Us (Govertiment Sipported csc. seccern te ficcscecnsecsccsseucertynsncibinn oiganstbabesnnseedee 29 CHAPTER II — The History of Recent Legislation Limiting the Taxes and Debts of Local Governments................. Saree aspas 8 Seauadas Se os cones Poe ppc oe TUS ca ge lg. ay ed oases Ata 31 BARES «Shaan ta boCS sph eel BAe tl Cee sf ode Oy Care? oe De SMe MERE ie eens Greeley 31 Thessimttn Orem Per Gent eivaw EOC roc cacennceca tee ceoa cut pore act veninctsteraaecsssnerekevaeesas sees 32 PMiiecstanute of thensinita One Per Certs Law. cccctscicescsp sce eee ca oan: con ee raaasen ease 32 ABAVS: (CESS AS ie I TANCK Wigs Sa Ce (IR gt tar RUS erg ed a eNO A RE UR OE HIN K emeas 33 LOG Pes 24 RWS IS SINGS Pegs ee = ah Soe nee Oy RCL RRS TIE Nae aR tees ene omni RIE Te 34 SEVEN SSyUGEY, ALOpa Sd stp! pts ae eal EL Ie NG Came sap ee bie. Sete ray Peon aeNien Fi oeee Ze eae 34 pier da ken po nalsa lan Cte cae reste meta tagcat ea cece baneee aed apatites nt toethanctoracs 28 34 The Tallentire Act........... eee coy Oe The Dodd Law......... » 35 UTI, URS SG Refenea © TNC A SR Oe eis RE Ss ea et Rare ee nee erie ee ae eed eS eee ee 35 The Vorys’ Budget Law.......c.cccsccc wed 36 ep NESW Sr OLANECOMt ICONS ATION arse uh rcs one cine gces pec siento eos ene 36 CHAPTER III — The General Property Tax Burden and the Cost of Local Government............ 38 whe General Property taxcand the Cost.ef Government nis acec.ncs ocr 39 Dollars Not van Accurate! Index of -Cost..sc i... sect peepee te 41 Direct Taxes Levied Adjusted to Purchasing Power of the Dollar... 43 Comparison of Direct Tax Levy with Wage Rates, Commodity Pric Cost of Living Indices.............. Sa eae to Ny Tae rr eee oN E ae een ne eee Be Wee A 47 Comparison of Taxes Levied with Assessed Valuation and Population.......... 47 A Comparison of Total Wealth with Taxes Levied and with the Assessed \E SERGI Toray” ase er eg DS ce BO Ee Re rare seer Sa Cons eee ene 52 Comparison of Tax Delinquencies with Taxes Levied — Rate of Increase 52 The Cost of Govermment and Social Income... cnc. ccccceccscecceessesalecesecseencsseceestecceeveceenee 54 Comparison of Taxes Levied with Money Income in Ohio ar 56 Waluation of barm Crops atid: Taxes Compared ccc lncsscecctcceecco:scnsteasmacctsbeenctieennoee 56 Satine stor MrCreased Gowveniinienttal OSES cco. chon.e-cecskscosrecstecasace clenioue-n\vatenstestcsepdlncpatteace 56 cate ens roreamns ee ee een INR Y edt et ee AS 0 ac ISD. Sia me iageatiette 60 CHAPTER IV — PhesPablic: Debt rot Vocal Gov ernie dt sc. .ccksclacecocsnedecalsesect Mavcssetevctcnnessrentectietbetiaere 62 emer aot iiteu Oral Delt cescii asco. rcesu cach pte tics teed nsaae ta tacced ashton cata els Res peroeteos 62 Comparison of the Debt with Taxes Levied and the Tax Duplicate 63 Distribution of the Debt Among the Several Classes of Taxing Districts... 65 A Graphic Presentation of the Increase of Local Indebtedness........cccsccseccsseseenees 68 Purposes for Which Indebtedness Has Been Incurred by Local Gov- Sanat gt oR NG MIE rons 9 ei aR ots, pe a Dea le Barca ete ea cet oy ee eas 70 Summarization of Purposes for Which Debt Has Been Incurred by Local CLOSES ET GIR RWS) 8 AO pate Hae nee eae TS SE em WES 2 74 The Financing of Capital Improvements by Borrowing 77 The Pay-As-You-Go Plan for Financing Public Improvements 78 The Causes of the Prevalence of Borrowing for Financing Capital Im- EU ECHVICLIVCCU UES cmon ities ye cespbuc Oi. aeincentnns ume ase ca ekg age vaageals sam asxasonsasuanbseoscerd ceeseracerabccsdoveet esr omanbanczevare 80 Conclusions and Recommended Legislation... 81 School Districts........... Neo Sie epee Sail 82 Counties o....... 83 Townships. .............. 83 Penn RRR See ee oh ore eee as cay 2 85 16 Domestic Corporations — Franchise Tax............... : REPORT OF JOINT LEGISLATURE COMMITTEE SECTION II CHAPTER V — The.-State ‘Revenue ‘Sy steriic5 xckccs see ree reer sia eae eee General Statement.................. i SUED Gobel oisbbele hme mI eam ny fk SLE General Revenue Fund..i.....eeccccececcsseceeeens Highway Maintenance and Repair Fund.. World War Compensation Fund.........00...... Institutional Building Fund.......... Educational Building Fund... c.o.ctj cece: Sources of Revenue of Various State Funds.. The General Revenue. Fund. 2... me tu Crabber caw Pines seceh nee ate Foreign Corporations — Franchise Tax... Steam Ratiroads2ay wgen-cgees OF Ae Sleeping Car and Freight Line Equipment. Bipe* Line Conmanies... a ee ee ee Express and Telegraph Companies Miscellaneous Utilities... NS SAR Ste he eetad DEE The ee: ¥.§ InisvirancecConipantes i cay cate es eee een Say cee nee eee a Assessments — Banks, Building and Loans, Securities, Public Utilities, Bune Marshalls Otc hehe tse cchiciecccan ccs ene ae eee a ee penn eee area aa Inheritance Taxes....... o Cigarette Tax......... Depository Interest. New Incorporations... Universities and Colleges. Wetleral WA tdci y pe See cee oe = Support “of Inmates ins State: Institutiomscc.ccacecccsccccsecesteecesciecnesecennndeestecerccecouenamernen Hunters’) Licensegns ck ot net ee en eters Miscellanenias Licenses ts cc tect tae eed yn ere ees State ‘Rair: Receipts. tana ee eee es ee oo aoe eee Canal Rented ois. ind thas tg Re ieee ea SAN eee ee eee Miscellaneous Sources......eccceccececcsesseecseeeene Manufacturing and Sale Rotaries. Reventies? of FAlly Stateahundsc inte Se ee en te ae en ee ee CHAPTER VI— The Financial Outlook for the State Government. Budret and: Aippropriation- sPractices....s selon ee cope ofthe Stiad yur he ie 9 A te Wipe cece ne see ‘The Method..of “Making Appropriations. \-sus..o= a ee ‘ThesGovernor seBudwetita te Bee ok ene ee oe ee pene Auditor’s Letter to the Finance Committee of the Senate... Appropriations Made by the General Assembly Payable From the Re- sources of the Bienmittinisc.cscccuse ares een ee Probable Resources...........c0:-0-- Cae se Nae AS 2 LEE fe Cash Balance... isacaa eecca cel gscaceh cae pees UA lane tere mite sock meas ae cma ceee fee ee ONE nD 9 Re Relations of Probable Resources to Nonicecistens. Financial Outlook for Year Ending June 30th, 1927. The? Suppliva. of (Cashes 2 scc.c set wcmek eee tee een Sa’. ae en ae sd Recommendations as to Budget Procedure for the State of Ohio. ekieg megane pealeable: to the Preparation of the Next Appropriation Recommendations to “Apply. in 1 Connection ‘With ‘the “Budget. ‘for ‘the Fiscal Megs g (ote Cae ECF et bre Mik ke 6 LIV eec eee rere natre tre e a tenes Leen on ve ee ae Te CHAPTER VII — A Binancial Program: fonithey wtatens sence een ee No General Tax Revision Feasible at Present... The Present Tax Burden on Business and Industry. Phe, Tmmiediate Prob lenin. ccc eowheacakseag este Ree ee ke ge ee the Corporation Kranchipe: lax. 2..cc.cte eet ee eee mre Av Mortgaces Recording) Taxcccn.me ee ee A. Stamp.» Tax Upon Conveyances, Deeds, Bteiitn.. ic cece sees cee ESCISG) AKO ier pene cere aah ag te ee Ske cccaveraep see , PAS BDO ard ct Lae Ke rerscsncbledyiccorecioss oman poe ee ee ee ON ECONOMY AND TAXATION " 17 SECTION III CHAPTER VIII— The General Property Tax and a Model Tax Program. FARE AE Lon sdab condone Dol b fave et Los aqe) kei cpmemcser a teat nye. oe Sve np ihr haar Sere a any ac rane Abolition of the “Uniform Rule’’.... After the Uniform Rule — What?.... A Personal Income Tax A Property Tax Upon Real Estate and Tangible Personal Property......... 144 A Business Tax 145 JaNTieA] Bo Gs a aes oe ceed NES. cre eet ng a ee CaM saa Receipes Ean aRS SORENESS na eee 145 An Illustrative application of the Model Tax Pim = LAG Repeal of $500 Personal Property Exemption Desirable............... eo The General Property Tax and the Growth of Delinquencies... ory Loe Delinquent Personal, Property Taxes. ccc. cinigcceseeeectereescnciivonne ad Oo Existing Law Providing for Collection of. Delinquent Taxes. Be Dey TRUSPSTVCD ESD WS oe gS Ca aPC) i oS ws cea Date RP I en RN a cee EN enteeeRER a eTe 157 Legislation Should Be Secured Giving Authority to Write Off Uncol- Fv eta Loe 8] Gey a out ead oe ee AR Rete a en NAc a RS Pee RES ee Cpe. en ete 159 Delinquent Real Property Taxes.. 160 OES EIES ES oth ahd acl Be Wek cp: Globee et aeaea he oe en pee A ery er eam Ih oem eer 160 Methods Provided for Collection of Unpaid Real Property Taxes 161 SECTION IV CHAPTER IX — lieMetatem Ase oy Stenietor SCHOO! DYSERLCCS So cciekedisccacseemspassd cdendhstevtetneystaacpotoasovbes 165 BAe eeepc eh Ree coe ea SPE hance Bese PL LA Semen: chemmeach epuiniesigssasavaud coueelntocen iio bs 166 Cpenatroie Or oOo TM MMeeY Yi 32. Te FACEIC Cics. dcr. cists eae a inereceromere es eae eee 166 The 2.65 Mill Levy and the Support of a State Stamdardeen.cceeesccsessecseneenes 168 Med OIperaton. On tHe bate Ald Woy SUOMI. cleo scspctck a dccatlenep lates Chatanwtey pete beasteonnes 169 Defects of Present State Aid System...... 2170 DICE GES SoU AT1Z OG ao ence ctsacen enn pcoseoast aes ead 75 Wigcreri wir eeetMCEDIGS: Of State! ALG 9 csc ke Spa cep eee ee acai tenis bosses: totecuae 175 Proposed Plan for Support of a State-wide Minimum Standard... 176 item iageanae the oystenmrots Dax. Uatnitation Sac.cccsccshecsccntecteeconmenerbeiser eee wei 179 CHAPTER X — Reorganization. of the! School District System cio. diccsccosncessnsccedecssssedcesuenesscerecsen 180 SSESC Ee SBR ad ey eee A II LI SI ec Ene ser ree eee POM RNR LO? aie ek eae 180 LEN ey 2c A Sra Var Selle Be A hE ae SOG oR UL ee Ne a 181 TEC OLAM OURS IcTS Pine MUSE CIOL Ge foes eee Goh me, rca Gare cae Re 183 IcatioumormmscHool mnlantsiee te oe a ue he ee 184 DULY MGteOOUUEyE HhOandm Wem berSicices 54.2 vets acetone ee ee ek ene 184 My pess On MeOtinty SCHOO! Of Pani zation sce sich c) -accoetd hoses seit otesensesecdocas exducdebedecdenenbs 185 Conclusions and Recommendations....................- S786 Opianal- Pravision. for County School! Wits. cipeckgcsctesecsiem eevee eetecate 186 Compulsory ‘Elimination of Simallest Districts: cc. .cccsccctaccscsscccszccetecactewsescnbeleccee 187 Better Trained Administrative and Supervisory Officers. .....ec.ssecweeeeecee 188 CHAPTER XI — UID SUIT Gees tae fling SLOG) ALTON SUN Oe face ccccr recap occniadin dasha goponasconsshansnboeoponeeetnccernectince 190 The State’s Interest in Its School Plant... : 190 Annual Capital Outlay for Public Schools in Ohio ‘During: ‘Year. ‘Ending {Pees SARA IGP ANS. FAS ie ae RS RR EA Oe i aE Ry ae OE ATR eS 192 Outlook Encouraging sist ne one, tea 194 Causes of Increased Enrollment.. 197 Research in Construction Methods....... so 4 198 Adequacy of Present School Plant..... 198 (Gioyave) Fi PEs veya' / RRO ee eI 3 AOE cam oN 9 ee 200 State Systems for Securing Adequate School Si SARS i ae eT ge A aca AE, Ca en Og eye nn sioe damien bonne 201 Approval of Plans for New Buildings... ree UP IPaower cOnmCoridetan ation, Of ES UtlCiUn eS ices. tao soe sere! case scanictasctonsccoeedetcascttks eee 203 A Preliminary Analysis of Special Functions Performed by State Edu- cation Departments With Reference to School Housing... 204 The Influence of the State Department of Education Upon School Sites, LBYSCMGhSey=2 hotel. AO Lap Cha oha ates a] Me etme Me Mac ite OAR RP Soir ee 2 RIE CG ame ene ea UN 206 SCE NBL Aes Le oe eae See YAU Repairs. ............ eeeO/ Equipment .... 207 154615 (a ialy-" ela ae oR nee 208 High School Charters Granted ...cccccecccscssee-- 209 High School Privileges Denied or Granted... 209 SIEM IC ROE Sia of OS oe ee a ee eee oe SE dT te eteresO 18 REPORT OF JOINT LEGISLATURE COMMITTEE The Work of the Department of Industrlai Relations with Reference to School... “Bipil trig Sioa sce ea eae sek csp ca me The Functions of this: Division General’ Sum th ary ee ss ek nee cee de Or rae CHAPTER XII — Entrance Requirements to State Universities and Colle ges.iccccccccccccceeesceeeeeceee CLIP OULITLO TAG ¢ oc: ccoeecscease pare eee eee ee creme en Bea Be ee Ay States Collepesn stats = steno Serer ee The Obligation of the State in Furnishing Higher Educa es Elimination- of the Unqualified Desirable. sci descenc nto Student Schoralship — College of Arts, Philosophy and Science. COS sb enc Bates NIRS aM erate phe eh oie NR ay ec ne is ite RSID 2600: ck Agee eae ioe ne de, Aa Beene ano ORE RRA hate howe Re tes SEDC, nde Site el SECTION V CHAPTER XIII — County and Township Government. .....0...:cccccccsegeeesseseeeeene Part 1 — County. Government Vices cca nie Growing Importance of County Government... Expansion .of County Activities icc ccctevncaseeenctus cakes Probability of Further Growth of County Services. Present Functions of the County...... - Present Administrative. Organizatiotic. cicero County Organization sDefectivie cA snc sts oA eee aha eee ee ee Alternative Plans of Governmental Orgamizatiom...a.cccc.cccscscssecssesecssecesseeeseeesseeeeee Necessity ‘of .a° Constitutional Amendment.ccscta oe ee A Proposed Amendment as to County Government... i Part it — TownshipGovetnm crit at it dee eee ee ae ee a Bunctions: ofthe “Townships: o:4:c:acckcmeran ee ee Oe Township, Organization s2ncciscchcs eee ae ee ee ad Decline of Townships. cs.hpeneee oe eae eer een ae Seen an Reasons for Dechin€s:..G:5 3.1 son akcete ad ee ea ear ees Sen Conclusronsyin. ine ee ohne Bedieds itu cceucatehs Sep esc te aaa ee CHAPTER XIV — New_ Legislation Supplementing Existing Provisions for Uniform ._ Financial Procedure in Political Subdivsions Ohio's Inheritance Law A Tax Burden Study Proposed Legislative Program REPORT of the JOINT LEGISLATIVE COMMITTEE on ECONOMY AND TAXATION to the EIGHTY-SIXTH GENERAL ASSEMBLY (19) SECTION | CHAPTER’ I THE PRESENT TAX SYSTEM FOR STATE AND LOCAL GOVERNMENT CHAPTER II THE HISTORY OF RECENT LEGISLATION LIMITING THE TAXES AND DEBTS OF LOCAL GOVERNMENTS / CHAPTER Hit THE GENERAL PROPERTY TAX BURDEN AND THE COST OF LOCAL GOVERNMENT CHAPTER IV THE PUBLIC DEBT OF LOCAL GOVERNMENTS (21) ies oA; ek ey ke a Meta att A ca CHAPTER I The Present Tax System for State and Local Government It is believed that the reader of this report can be served by a brief and simple description of the tax system under which the state and local governments operate. No attempt is made in this chapter to treat this subject exhaustively. Only the major fea- tures are discussed. The statement will afford a general picture and pave the way for a better understanding of the subject matter of the report. How Local Governments are Supported.— The general property tax is by far the most important source of income of local governments. School districts have practically no other source of income in this state except those which receive grants in aid from the state treasury. This is true to much the same ex- tent with township governments. County governments have cer- tain other income such as fees of various sorts, a part of the gas tax receipts, fines and court costs. All of these together produce considerable revenue and they should not be disregarded when considering the county financial system. In the case of cities a more complex condition is found. Cities have various sources of income. Most important of these, other than the general property tax, is the income from various municipally owned and operated public utility enterprises such as water, electric light and power, gas, heating and refrigerating services. In the aggregate this income is very substantial in amount. It is not available for general operating purposes of these governments, but is devoted to the operation, maintenance and the extension of the enterprises from which it is derived. In- come from certain other sources does however contribute to the general operating revenues of cities. Prominent among these are fees of various sorts, cigarette, inheritance and occupation taxes, institutional earnings, rentals, sales and fines. The gasoline tax and auto license tax are substantial sources of income which are dedicated to a specific purpose i. e., the repair and maintenance (23) 24 REPORT OF JOINT LEGISLATIVE COMMITTEE of streets. Despite the fact that cities have a considerable num- ber of different sources of so-called “miscellaneous revenue” the proceeds of the general property tax probably amount to 75% of their total income. Villages have a somewhat fewer number of sources of reve- nue. Public utility enterprises are not so extensively operated by them, nor are institutions such as hospitals, infirmaries, et cetera. Revenues from such sources are relatively not so important as with cities. There exist various fees and fines however similar to those of cities. The general property tax is the “back bone” of village revenue probably to a somewhat more pronounced ex- tent than with cities. Without the revenue from the general property tax local governments would have to suspend operations until other sources were found, so vital is this income to them. General Property Tax Reserved for Local Governments. — It has been the policy of the legislature to reserve the general property tax for local governments as their chief source of reve- nue. This tax has not been used to any large extent by the state government. At the present time there is only one small state levy which is for the soldiers’ adjusted compensation bonds. The ’ state government is supported by so-called “indirect taxes.” These are principally business taxes of various sorts. Your Committee believes that reserving the general property tax for the use of local governments and supporting the state government by other taxes is sound policy. The income from certain taxes is divided between the state and local governments. The inheritance tax, the gasoline tax and auto tag license fees and cigarette tax are important examples. The constitution of the state directs that not less than 50% of inheritance taxes shall be returned to the subdivision where it originates. The consti- tution does not direct how the others mentioned are to be di- vided. This is a matter for the legislature to decide. Thus it is seen that the general property tax is now reserved for local governments except for a very minor use by the state, while the state shares certain other revenues with these governments. The revenues which are thus divided are by no means insignificant al- though relatively of greater importance to the state. It is the strong conviction of your Committee that the state should not participate further in the use of the general property ON ECONOMY AND TAXATION 25 tax as a source of state income. Whether there should be a com- plete separation of the sources of state and local income is an- other question and no attempt is here made to enter into any dis- cussion of it. As the constitution now stands the general policy of supporting the state government by indirect taxes is endorsed. The Tax Limitation System.— Ohio has a complicated set of tax limit laws. They are the product of compromise, patch- work and expediency. Running through them however is the idea of tax rate limitation rather than direct restrictions upon the amount of taxes that may be levied. The aggregate rate limit for local governmental purposes is 15 mills upon each dollar’s worth of property as assessed for taxation. So far as this limita- tion is concerned it means that in any taxing district the total tax rate for all local governmental purposes is not to exceed 15 mills. Of this 15 mills, 10 mills may be levied by local taxing officials of the various local governments without any vote of the people being required. The additional 5 mills can be utilized upon favorable vote of the electorates of local governments. Under most circumstances the laws permit the levying of all, or at least practically all, of the 15 mills without a vote of the electorates concerned. Levies can be made for county, municipal and school purposes outside the 10 mills limitation but within the 15 mills limitation without popular vote which can accomplish this result. At one time the distinction between the so-called 10 mills limit and the 15 mills aggregate limit was of some importance but now the 10 mills limit has little significance. This is true because it can be exceeded for nearly every purpose without a vote of the people. The 15 mills limit is still of practical importance however because with certain exceptions it cannot be exceeded without consent of the electorates concerned. The notable exceptions are levies not to exceed 1.5 mills for school district public library purposes and 1 mill for county aid to state roads. These do not require the sanction of the voters but may be made by local taxing officials. Enforcement of the Tax Limitation System. — For the purpose of enforcing the tax limitation system there is in each county a body called the County Budget Commission. It is made up of the County Auditor, County Treasurer and County Prose- cutor. 26 REPORT OF JOINT LEGISLATIVE COMMITTEE Each county, municipality, school district, county and town- ship constitutes a separate taxing district. Each has its own sep- arate tax levy or levies for its own purposes. It is apparent how- ever that a local government may be in several taxing districts. A city, for example, is usually in three taxing districts — that of the city, the city school district and the county. Therefore all property within the city is subject to the tax levies of these three districts, the total of these levies being the general tax rate within the city. ) Each taxing district submits its budget annually to the County Budget Commission requesting revenues for the next fiscal year. The Commission must determine if the requested combined levies in each taxing district will be within tax limita- tions excepting levies which may legally be made outside the ag- gregate tax limit. In cases where the total of the requested levies exceeds the tax limits the Budget Commission must make such reductions in the requests for revenue from taxes as will bring the combined tax rate within the tax limitations except for such outside levies as may be legally made. Levies in Excess of the 15 Mills Limitation.— It is a well known fact that the average total tax rate in the taxing dis- tricts of the state exceeds 15 mills. The average tax rate is nearer 20 mills than 15 mills. This is due to the fact that various laws have been passed from time to time permitting the making of levies for specific purposes in excess of the 15 mills limit upon favorable vote of the electorates concerned as well as provision for certain levies in excess of this limit without vote of the peo- ple. Since a great many taxing districts have availed themselves of these statutes the total tax rate in so many instances exceeds 15 mills. The 15 mills limitation has therefore not been an ab- solutely rigid limitation particularly since 19109. The legislature at its last regular session passed a law of general application (the “Dodd Act”) to all taxing districts pro- viding that levies for any legal purpose could be levied outside the 15 mills limitation upon favorable vote of the electors concerned. Such levies can run for five years except those for interest on and retirement of indebtedness. This law makes the levying of taxes in addition to the 15 mills limitation a matter for the public officials and electorates of each taxing district to decide. In pro- ON ECONOMY AND TAXATION 27 posing the law it was realized that under a rate limitation of 15 mills, local governments could not be conducted on a scale which now appears to be normal and usual throughout the country. But authority to exceed the 15 mills limit for general govern- "mental purposes was not vested alone in local officials but in them and electorates combined. This most certainly provides for democratic control in determining local tax rates. It is assumed that through the referendum method local communities can de- cide in a large measure what is best for them in tax burdens, gov- ernmental activities and public improvements. It is important to bear in mind that the state is not now placing any iron clad re- strictions upon citizens of local taxing districts in the levying of taxes. Their destiny in this field is principally in their own hands. The Assessment of Property for Taxation. — The Ohio constitution provides that all property shall be assessed for taxa- tion according to a uniform rule at its true value in money. This is known popularly as the “Uniform Rule”. This principle is by no means unique to Ohio, but is in operation in various other states. Broadly speaking the principle has been losing in favor during at least the last twenty-five years. Several attempts have been made to abandon or alter the uniform rule in Ohio. They have all failed of fruition. Exempt Property. — Ohio, as do all states, exempts cer- tain property from taxation. Ohio does not however exempt many classes of property. The constitution says that “all bonds outstanding on the first day of January, 1913, of the state of Ohio or of any city, village, hamlet, county, or township in this state or which have been issued in behalf of the public schools in Ohio and by the means of instruction in connection therewith, which bonds outstanding on the first day of January, 1913, shall be exempt from taxation but burying grounds, public school houses, houses used exclusively for public worship; institutions used exclusively for charitable purposes, public property used exclusively for any public purpose, and personal property, to an amount not exceeding in value five hundred dollars, for each individual, may, by general laws, be exempted from tax- ation”. ‘The legislature has provided for such exemptions by general law except that the personal property exemption is limited 28 REPORT OF JOINT LEGISLATIVE COM MITTEE to $100 for each individual. A considerable number of states is much more liberal in the exemption of various classes of personal property. The Uniform Rule in Practice. — Ohio has had the uni- form rule for a great many years. Meanwhile the state has changed from a relatively undeveloped and almost frontier state of pre-civil war days to a highly developed, industrial and agri- cultural region and ranks fourth in wealth among the 48 com- monwealths. During all this time and through all these changes the uniform rule has applied. ; The uniform rule presents great difficulties in assessment of property for taxation. Property now is of a great many diverse kinds. These vary vastly in amount and importance as well as in the attributes which they possess. Some property is immovable and unalterable in amount such as land. Some is movable and variable in amount such as farm crops and manufactured goods. Some is intangible, easy to hide and often difficult to evaluate if found. Important examples of intangibles are stocks, bonds, bank deposits, credits, etc. Some property is consistently productive and some is not; some property while productive of earnings will not endure a substantial direct tax burden. All these factors con- tribute to making assessment under the uniform rule difficult. Un-uniform Results.—While the constitution dictates uni- formity of treatment for all property there is no uniformity in the various classes of property and like treatment in a legal sense produces most un-uniform results. And the more rigorously the uniform rule is enforced the more unjust and unsatisfactory the results. It is probably true that assessment practice in Ohio compares very favorably with that in other uniform rule states. The assessment of personal property, both tangibles and intangi- ble is particularly notable. The percentage of the total tax base, popularly known as the “grand duplicate”, which represents per- sonal property of various kinds is unusually high. However, a great deal of personal property, particularly intangible does not find its way onto the tax duplicate because no system of assess- ment practice short of frankly inquisitorial methods will enable local governments to reach it for direct taxation at high rates. Moreover much personal property is‘comparatively of little value and common sense dictates that elaborate or “high powered” pro- ON ECONOMY AND TAXATION 29 cedure for reaching it is rather questionable. The results are apt to be inconsequential at best. On the other hand, land and buildings have a great aggregate value and can scarcely escape the assessor’s eye in any event. If assessment practice is rigorous much property of incon- sequential value will be listed and much intangible property with a fixed rate of income will be hidden or driven out of the state or be taxed at confiscatory rates. On the other hand if assessment practice is loose and weak, principally real estate and other incon- cealable property will be listed and other forms will largely escape. Such an enforcement of the uniform rule would clearly be far- cical and unjust. Modern conditions render the uniform rule increasingly more untenable whatever actual assessment practice may be. Assessment Officers.— The county auditor is the chief assessing officer in each county. He has the direct legal respon- sibility of applying the uniform rule. He has power to employ deputies and other assistants to aid him in this work. Under present laws he is not required to make a revaluation of real property more often than every six years. The state tax commission has supervisory power over local assessment officials. It also is an appeal board for contested valuations. It fixes valuations of public utility properties. How the State Government is Supported.— The state government is supported chiefly by so-called “indirect taxes”, i. e., taxes which are not direct levies against property as such. These taxes are also known as “business taxes” because they fall upon various classes of business, industry and commerce. Important among these taxes are: (a) The domeStic and foreign corporation franchise tax. For domestic corporations (Ohio companies) this tax is upon the privilege of doing business under corporate form and for foreign corporations upon the privilege of doing business within the state. (b) Excise tax upon public utility companies. This applies to steam railroads, electric railroads, sleeping car and freight equipment companies, pipe line companies, natural gas companies, telephone companies, electric light and power 30 REPORT OF JOINT LEGISLATIVE COMMITTEE companies and certain kinds of utility companies of less im- portance. Insurance companies also pay an excise tax. These are privilege taxes and are based upon the gross re- ceipts or earnings arising from business done within the state. Interstate business cannot be taxed by a state. (c) Inheritance tax. This is a tax upon the privilege of transferring property or interests in property by will, gift or by intestate law. The state receives 50% of the proceeds of this tax. Other sources of revenue of considerable importance are fees for the privilege of forming new corporations, for selling cig- arettes and for hunting and fishing. Also the federal govern- ment makes contributions of several millions annually for road building and for carrying on certain prescribed educational and health work. A more complete descripton of the state’s revenue and finan- cial system is found in Chapter V of this report. CHAPTER II The History of Recent Legislation Limiting the Taxes and Debts of Local Governments The Smith One Per Cent Law.— In the year 1910 the State of Ohio entered upon a policy of drastic limitation of tax rates by general legislation. A thoroughgoing reappraisal of property was undertaken in that year, including an attempt to place on the tax duplicate intangible property as well as real estate at its true value. It was believed that if this could be done the tax rate would be sufficiently low so that there would be no considerable inducement to conceal intangibles. The Re- appraisal Act was therefore accompanied by the Smith One Per Cent Law which provided a combined maximum limitation on the taxes which could be levied by schools, counties, townships and municipalities of 1% or ten mills on each dollar’s worth of property assessed for taxation. An additional five mills was per- mitted to be levied by vote of the people, or to pay the debt charges on bonds issued by vote of the people. The passage of the Smith Law and the Reappraisal Act was looked upon generally as a tremendous achievement. It was be- lieved by many people that an effective cure had been found for distressing taxation ills of long standing and that a better day had come for local governments, their citizens and taxpayers. As a matter of fact the reappraisal resulted in a tremendous in- crease in the grand duplicate of the state. But except to a very limited extent it wholly failed to put on the duplicate the intangible property owned in the state. The rate of taxation provided by the Smith Law was still confiscatory as applied to intangible property, and yet even as applied to the new grand duplicate was insufficient to meet the expenses of government. While a limitation was imposed upon taxes there was practically no limitation of expenditures, and the result was that the local communities ran rapidly into debt. Whenever possible, expenses were taken care of by the issue of bonds and a long series of special acts permitted the issue of bonds even for the most ordi- (31) 32 “REPORT OF JOINT LEGISLATIVE COMMITTEE nary current expenses. The increasing charges for the interest and sinking fund requirements on debt within the fifteen mills limitation resulted in a constant decrease in the levies which re- mained for current expenses, and growing deficits in the operating accounts of cities, schools and counties. The Smith One Per Cent Law Modified. — Pressure was ‘brought to bear upon the legislature to modify the strict provisions of the Smith Law. Early in 1915 an act was passed permitting numerous levies for highway purposes without vote of the people between the ten and fifteen mills limitation and permitting one mill to be levied without vote outside of the fifteen mills limitation. The demand for good roads exceeded the demand for lower taxes. The war rapidly increased the cost of government and made the limitations of the Smith Law still more inadequate, for the periodical Reappraisal Act had been repealed and the duplicate did not keep pace with the increasing cost of government. The Smith Law provided the same limitations within and without the limits of municipalities, although within those limits the municipal levy had to be added to the county and school levies existing throughout the entire county. The strain, therefore, became particularly acute within municipalities and was there augmented by the loss of the liquor license fees. After 1915 numerous other exceptions were made to the Smith Law but no substantial modification occurred until 1920. In that year two measures were passed which resulted in a rapid increase in the tax rate. The schools were granted a minimum of five mills within the ten mills limitation making the position of cities still more difficult. Schools were also permitted to levy one mill for current expenses without a vote between the ten and fifteen mills limitation, and to levy three mills outside of all limitations upon a favorable vote of the electors. At the same time the Gardner Act permitted cities, schools and counties to vote their sinking fund and interest levies outside of the fifteen mills limitation, which was done in most of the more populous communities. The Failure of the Smith One Per Cent Law. — In 1921 this legislation was supplemented by an emergency act permitting municipalities for three years to levy taxes without vote between the ten and fifteen mills limitations. ON ECONOMY AND TAXATION 33 The effect of these laws was in fact to increase the ten mills limitation to fifteen mills, and to permit the people to vote additional levies outside of the fifteen mills. The average rate in the state rapidly mounted to somewhat more than 2%. The Smith Law had failed in its principal purposes, and had produced certain additional problems of a serious nature. It failed to place intangible property on the tax duplicate. It failed to limit the expenses of local government or the incurring of debt, and in the end therefore it failed to hold down the taxes. It become neces- sary either to abandon completely the principle of a joint tax limitation or to approach the problem in a new manner and with a more carefully thought out plan. Since 1921 the legislature has been steadily working out this problem. There is little doubt that the people of Ohio are in favor of the principle of tax limita- tions and in the opinion of this Committee, that principle, if prop- erly worked out, can hold down to some extent the expenses of government. The Griswold Act.— The first constructive step taken by the legislature was the Griswold Act of 1921. The tax limita- tion of the Smith Law failed to work because the local officials found other sources from which money could be obtained. The chief of these was the issue of bonds and the total outstanding bonds of local districts increased from $187,574,000.00 in Ig10 to $607,899,000.00 in 1921. Local officials also found that they could simply run in debt and use the one year’s income to pay the debts of the preceding year. Ultimately the legislature had to permit them to issue bonds for their unfunded debt. The Griswold Act reinforced the old provisions of the Longworth Act limiting the total of outstanding bonds. It forbade the issue of bonds for current expenses. It limited the term of bonds to the probable life of the improvements. It required the issue of serial bonds so that there could be no further abuse of sinking funds, which had developed in many communities. The act also provided n”ximum maturities for bonds issued for different classes of im- provements very much shorter than the previous practice. The purpose of the Griswold Act was to confine the issue of bonds strictly to permanent improvements having a life of five years or more and compel the people to pay their debts promptly and not pass on the entire burden to future generations. lates 34 REPORT OF JOINT LEGISLATIVE COM MITTEE The Taft Act. —In 1923 the legislature passed the Taft Act which attempted a complete revision and simplification of the tax limitation system including a new plan of budget procedure to hold the expenses of local governments within their income. The act was defeated at a referendum because it attempted to increase the fifteen mills limitation to seventeen mills within muni- cipalities and to place the sinking fund and interest on future bonds outside of the fifteen mills limitation. The failure of this act and the expiration of the Emergency Act of 1921 placed cities in 1924 and 1925 in an even more serious position than had previously existed. The Situation in 1925.— In 1925, therefore, the legisla- ture had to meet numerous problems. Many counties had not re- appraised since 1910 and the tax system being a rate limitation provided much greater restriction in under-appraised communities than in those which had kept up with property values. The cities particularly were squeezed out of revenue by the school minimum levies and the growing county levies sustained by the County Budget Commission. The Griswold Act, while limiting the issue of bonds did not prevent the incurring of debt by spending more money than the taxes provided and thus creating deficits at the end of each fiscal year. The tax limitation laws were in a com- plete state of arbitrary confusion. The McDonald Reappraisal Act. — The legislature dealt with these problems separately. The McDonald Reappraisal Act provided for a sexennial reappraisal throughout the state, begin- ning in 1925. Without a uniform base a rate limitation is mean- ingless and produces proportionately more revenue in a county which appraises properly than in one which does not reappraise at all or reappraises at too low a valuation. The Tallentire Act.— The Tallentire Act provided the first real home rule for municipalities by providing that if any municipality fixes a rate limitation in its charter, the limits of the Smith Law shall not apply. Through this law cities were enabled to adopt a definite financial policy instead, of being dependent upon the voting of extra levies which is always uncertain and is more affected by political considerations: than by the actual needs of the community. At the recent Novemier election the City of Cin- ON ECONOMY AND TAXATION 35 cincinnati availed itself of this Act by fixing a six mills limitation on the current expenses of the city by charter amendment. The Dodd Law. — The-Dodd Law authorized the voting of extra levies by any subdivision outside of the fifteen mills limi- tation, thus providing a species of home rule for county, schools, cities and townships alike. It also restored the provision of the Emergency Act of 1921 authorizing cities to levy without vote be- tween the ten and fifteen mills limitation, thus placing them on an equal basis with schools and counties. The Act while preserving the basic idea of the Smith Law provides much greater flexibility in the tax limitation system and permits the arbitrary rates laid down at Columbus to be modified by vote of the people to meet the special conditions of each locality. The Dodd Law also pro- vides for the making of levies within tax limitations for specific public improvements, tending to encourage the adoption of pay- as-you-go policies for capital improvements. The Law also pro- vides a minimum irreducible levy for the operating expenses of municipalities of four mills exclusive of the University levy, but this provision has not worked satisfactorily and it will probably have to be modified. The Krueger Act.— The Krueger Act strengthens the provisions of the Griswold Act and attacks one of. the basic faults in the Smith Law, namely the inclusion within the same tax limitation of current expense levies and levies for debt charges. As has already been pointed out, under the provisions of the Smith Law as amended, the increase in debt charges re- sulted in a decreased levy for operating expenses, although in most cases the construction of capital improvements tends rather to increase the current expenses than to reduce them. Under certain conditions the issue of bonds by a school district would even cut down the operating expenses of a municipality, or vice versa, without the slightest justification in reason. The Krueger Act provides that no bonds can be submitted to vote of the people unless there is submitted at the same time the question of an extra levy outside of tax limitations to take care of the debt charges on the bonds. In other words, the people are unable to vote im- provements unless they are willing to vote the taxes to pay for them. This extends the principle given limited application in the Gardner Act. It does not apply, however, to bonds issued without \ . 36 REPORT OF JOINT LEGISLATIVE COM MITTEE vote of the people, the charges on which still remain within tax limitations. But in order that these charges shall not be of suffi- cient size to interfere seriously with operating levies, the Act reduces the amount of bonds which can be issued without vote of the people. Thus in municipal corporations the maximum indebt- edness for bonds issued without a vote of the electors is reduced from 21%4% to 1%. School districts are already practically unable to issue bonds without a vote and it is probable that the power of counties to issue bonds without vote will be curtailed at the next session of the legislature. The net effect of the Krueger Act, therefore, is to restrict further the issue of bonds and to separate the debt charges from the current expense levies. The Act also standardizes the method of issuing bonds by vote of the people and requires a vote of 55% of those voting on the question to carry any bond issue for cities, schools, counties or townships. The Vorys’ Budget Law. — The Vorys’ Budget Law was aimed to fill the last hole in the tax limitation system by preventing the expenditure of money by any district in excess of that avail- able from reasonably anticipated revenues. Bonds could no longer be issued for operating expense but all over the state bills were in- curred in excess of available revenues to such an extent that in some districts it took the entire revenues of the succeeding year to pay the debts of the previous year. Local districts indulged in the practice of appropriating more money than was in sight, and of expending money in excess of their appropriations. The Vorys’ Act establishes the calendar year as a uniform fiscal year. It re- quires the County Budget Commission to certify to each district the amount of its reasonably anticipated revenues. It forbids the appropriation of money in excess of such certificate and it penal- izes the expenditure of money and voids the making of contracts in excess of the appropriations. The purpose of the act is to require each district to hold its expenditures within its revenues and to put an end to unsound financial practices for which, in view of the greater elasticity of the tax limits, justification no longer exists. The Results of Recent Legislation. —The legislation adopted in 1925 has resulted in a much smoother operation of the taxing machinery than existed heretofore. It, however, made im- mediately apparent a condition which no one realized to be so Pee ON ECONOMY AND TAXATION 37 serious for it appeared that nearly half of the counties of the state had a large current indebtedness which they were unable to pay, although the counties were supposed to be the districts in the best condition. It became necessary therefore to adopt a law per- mitting the counties to start the year 1926 by funding the accumu-. lated current indebtedness so that they could operate thereafter within the budget requirements. This was done in the Baxter Act passed at a special session in 1926. That act also met a condition which developed in Allen County because of the exces- sive accumulation of debt charges within the limitations, and permitting the excluding of a certain amount of these debt charges from the limitations by petition of the electors. A perusal of these financial laws affecting local governments must attest to the fact that in recent years substantial progress has been made in remedying the taxation ills and financial prac- tices which threatened the continued operation of a great many of our local governments. Deficiency borrowing, it may be hoped, is at an end. The use of public credit is upon a sounder basis. The inflexibility of the rate limitation system has been relaxed with substantial safeguards retained. The development of sound budgetary practice has been fostered. The chief criticism of the legislation is that it is piecemeal and leaves still in force a jum- bled confusion of tax and bond limitations and exceptions. It is desirable therefore that both the tax laws and bond laws be recodi- fied in such a manner that they will present a simple system based on understandable principles. It will also be necessary to make adjustments in the Budget Law to meet difficulties which have de- veloped in this most difficult and most important field of govern- ment finance. . Ohio is committed to-a tax limitation system. Such a system cannot possibly succeed unless it is supplemented by a direct con- trol on the issue of bonds and on the expenditure of money by local subdivisions. CHAPTER III The General Property Tax Burden and the Cost of Local Government During recent years the cost of government has been a sub- ject of widespread comment and interest. The prime cause of this comment and discussion has been the rapid rise (in terms of dollars) in cost of carrying on almost all of our units of government. It is this increase, which often has seemed spectacular and astonishing, that has brought forth the great streams of comment and discussion. All this, of course, has not been of one flavor. Its purpose has been largely either to condemn or to condone and less frequently to explain. Many have looked upon this rising trend of costs with varying degrees of misgiving. Of these some see in these mounting costs a menace which, if unchecked, will stifle all productive enterprise and crush the energy of an erstwhile free people. On the other hand there are many who see in these rising costs 4 not excessive price for governmental services and activities which will take us far along the road to a utopian society. Or again, others see in these services and activities with their attendant costs but the natural adjuncts of a complex and dynamic age. Obviously there is nothing in common between such diver- gent viewpoints. To the disinterested observer or to the citizen who is earnestly seeking some trustworthy clues as to the meaning of this particular trend of the times little help can be gained from such a welter of conflicting views if not to say undiscriminating opinions. He finds, except in rare instances, too little weight given to certain basic considerations. What are the real effects — of governmental expenditures for specific purposes upon the pro- duction and protection of our economic wealth? Likewise, upon the actual improvement of living conditions and the standard of living enjoyed by our citizens? What is the relation of govern- mental costs from year to year to the growth of wealth and to income? Is government in fact taking an increasing portion of the social income and dipping deeper and deeper into the stream (38) — EE ON ECONOMY AND TAXATION 39 of production? Is the individual producer actually working a larger number of days each year ‘for the government’? What is the real trend in governmental costs when measured not in dol- lars but by some more accurate index? These are some of the questions which the thoughtful citizen and disinterested observer will ask. And he will realize that without some attempt to answer such questions he will not be able to form judgments which will be altogether satisfying. Your Committee hastens to say that with the time and means | allotted to it satisfactory answers to all these questions of basic importance have not been formulated. However, the Committee has devoted considerable study to the increase in the cost of gov- |} ernment, and the collecting and assembling of information and | data upon the subject. It has believed that before judgments are | formed the pertinent facts, or such portion of them as are reason- ) ably available, should be in hand. Effort is made in the followitig pages to summarize this material and to present it in clear and ‘understandable fashion. The General Property Tax and the Cost of Government. In this chapter data are presented upon the general property | tax as it relates to the cost of local government reserving for a | later chapter the discussion of the cost of the state government. | Local governments in Ohio comprise principally counties, cities, : villages, school districts and townships. It was found that accurate information upon actual expendi- tures for all of these thousands of local governments could not be compiled without a prodigious amount of effort. The E eneral property tax is the principal source of revenue by which ' ll of these units are supported. Hence the taxes levied Hor this purpose over a period of years are a very fair measure pof the trend of money costs. . | The following table gives the total amount of general prop- perty taxes levied for the period 1910-1925 for state, county, town- ship, school, city and village purposes together with the percentage tof increase or decrease over the base year, IQIO. REPORT OF JOINT LEGISLATIVE COMMITTEE 40 | ‘oly JO uolsstmUI0D xet, ay} Jo sj10da1 jenuuy “soStaloop So}edIpUr ..q,, e :QIUIISTAY *ALON 12°Glz |IL 928‘ FrF'I9S |29°0GZ [29 FGB‘SL6‘SL [38'e6s [90 S6E‘GrE "LIL |LF'9OT [08 109‘Z06‘EL |80°9a Fo SHZ‘GLO‘S9 |eL°S Cl#8 G2Z‘69I‘s QZ6L 69°192 |Z8 Ge9‘'SG0'9h% |L6°STS |S9 TLP'699'99 |Ga°OLE [0G LOL'SSS°ZIL \O8°9LL |ZO QLE'STF‘FL |89°S6L [99 FIL‘HOS‘SF [69°F C68 990° PSL'S ¥C6L Zl'Fes \6f 9¢e‘918‘cee [steer |¥8 O9B‘9IT‘S9 |e FE |6s Go9‘zeL‘GOT |eg°SOL [ZO 6zO‘rOL‘EL [6h SBI | FT SIL‘L06°9F |66°L CIOL 18h F15'S 8261 GOT] 199 LELOSL'FZS |LZLLT |G0 68F°S6F'SS |ZL°L6Z [99 FSL‘ZZS°FE SL" FST [96 LIE‘68E°EL \G0°8St [es 98L‘8c6‘Tr |¥8°FLE [93 668°F98°ST Ze6L FL°91% |L4 TS9°ZI0‘OGS |OLISt |10 GuF‘sOS‘6G [06°06 [6 $IZ‘e06'26 |9E"IGT [06 LOS*FIL’e1 |29°S9T [oh B60‘F89°Sh |29°66G |Z6 888‘600‘TL 1Z6L GLF6L |28 G09‘988°S0S |90°6FE |06 Ego‘ers'zo |e,°S0% [ee SFO‘GRT‘SL [6G°SFL [0 F68'80L°ZI |66°99T | 14 goR‘orr‘sr FP ¥s9 Sg soF‘LEG‘ts OG6L OUTIL [61 O16‘ FLeLFL ler'FS [1s ZeO‘ZI6‘se |ZE"6SL |8L GE6‘LL8‘9G [SFOS |IL SST‘OOS'TE |9TB0r [28 gee‘srs‘se |s1°98 |L9 0F0‘8Ez‘9 6161 80°82 GL POT‘L80‘FSE |29°sL Fo L9s‘c9S‘98 |G6°28 [66 Gso'sog'Fr [SI'c6 |6F Ze6‘ec0‘0L |¢o'BL |8g Sra‘oge‘’se |60°ss |¢0 $20‘6L0‘F SI6L #9°S9 [60 TzZ‘SG6‘SIl lecuG |¥e OLO‘LFS‘se |So°OL [62 9OL‘THC‘OF 09'SL [LE GEZ‘9GT'6 OL'L9 |F0 FE9‘OLT‘LZG |TO'ST |90 Sz9‘zrB‘e L161 2397 |e ETe‘soe*coL |Zt'zr [09 29F‘es6'6s [10'S LL LLE‘OGT‘SS |L8°89 [FF LES" F8L'8 co'ss 69 GTo‘ess‘Fe = =|g9"s 18 0G8‘Z9F‘S 9I6T w'1s |1z soL‘eco'Te |re'sc les zes‘ezo‘22 |Te'se jes 114‘908'Te [eo°gs [8S L9s‘SFOTL G11g 98 PIP‘968‘°ZO |Z8" Is 69e‘SIe‘s CI6T 13% ° \9F OF'G0S'GS [eF2s |o SFF'F88°9G |19°%S |9L OLT‘ZET'6s |s6°02 _|OF SEF'608'9 21% |I8 GI8‘T6L‘6L |IS°T L¥ GSS‘ 168‘ FI6L oct 6\F2 LFe‘0es*6, {Test |Se°SsT‘ro6‘sa |I¢'6 89°Z9L‘086‘SGZ [18°F 06 080°e96°F FOS IL eF6‘Sze'ST 92°86 06 eco‘ Lcr‘9 S161 61° 08 162‘cI8‘69 |89°F #9 616°F80°CS = |1B" ZB LOP'ZER‘SZ [SSB AIG GGy‘s1g‘F (8° GE FLG‘S6S‘9T feast CIZL LLS‘tZ6°S ZI6L 2'g ie ost‘6g0'99 |6t’ las L84‘°990'TS |ga°¢ Club l6*LI¢‘ce | FF'81 C108 CLL‘ FSF 6L'S 0S FOS‘FIF‘SL [629 A\F6 SOF‘ 96L‘Z TI61 page 20S ‘619 ‘69% aoe fe 191‘ 960‘ 12% Noam 2 919g, ‘eck |°'''''* 166 OST‘ZI7‘G$ |°°*°"***|2e aze‘eca‘9T$ |*°**""° "|e er6‘orE ‘es OI6L ‘OUT unow “uy uno “uy unowy ‘uy unour “uy ur out unoutr 404 3 V 304 wy 04 3 V 04 } V 4 yunowy 404 } V (syuout -ssossy “dS ‘oxq) aselIA pue Ay) TOOYIS drysuA\o TL, Ayunoy 2783S TeH0L ‘SLNUWNUAAOXN) TVIOT GNV ALVIS YOd CZGI-OI6T GAIAUT SAXV] ALdadodg IWAANaL) TON AH1EaViL in he etal ON ECONOMY AND TAXATION AI The general property tax has not been a very important. source of state revenue during this period and it should be borne clearly in mind that the above figures of these taxes accruing to the state by no means represent its total revenues. These state levies so-called have been used in large part to help finance local governmental functions. It therefore seemed wise to include the state levy figures to make the picture of the general property tax more complete. Examination of the figures, particularly the percentages of increase, shows a steady upward trend. The total levied for 1910 was $69,679,502.84 and for 1925 $261,444,876.11, an increase of 275.21 per cent over the base year 1910. Percentages of increase for the period vary considerably for the several classes of govern- mental units being greatest for school districts, i. e., 393.88 per cent over 1910, and with the exception of the state levy lowest for townships, or 166.47 per cent increase. It is to be noted that the rate of increase for total taxes levied accelerated somewhat after 1918 and that a marked increase took place in 1920 from which there has been no recession. This table is useful only to show the increase in terms of dollars for the period and does not throw accurate light upon the real increase or decrease of costs. Dollars not an Accurate Index of Costs.—Dollars, though the standard monetary unit and representative of a currency sys- tem that has steadily conformed to a gold standard, are not an altogether good measure of real costs. It is a matter of common knowledge that the purchasing power of the dollar measured in terms of commodities and services it will command in exchange has fluctuated greatly since 1910. These changes have been spec- tacular and of unusual severity and were important among many far-reaching economic disturbances of the war and post-war ‘period. All this makes necessary some adjustment of money costs if the trend of real costs is desired. In arriving at trends of real cost the trend of fluctuation in the purchasing power of the dollar must be taken into account. To do this a base must first be se- lected to which comparisons are to be made. Accordingly the | purchasing power of the dollar as it was in 1913 was selected as ‘an appropriate base, this being prior to the beginning of the 42 REPORT OF JOINT LEGISLATIVE COMMITTEE marked fluctuations of the world war period. Unfortunately, there exists no definite and adequate index of the changing cost of local government in Ohio. We can only resort to such indices as are available to translate the tax levies of various years into com- parable purchasing power. For this purpose two indices have been used; one, the wholesale price index, and the other, the cost of living index, both as calculated by the U. S. Bureau of Labor Statistics. The year 1913 being used as the base is considered as | 100; all other years for the purpose of comparison being per- centages of increase or decrease based on 1913. From these index numbers fluctuations in the purchasing power of the dollar are easily computed. The following table shows the purchasing power of the dollar on both the wholesale commodity price basis and the cost of living base for the period 1910-1925 in terms of the 1913 dollar. TABLE II. INDEX NUMBERS PURCHASING POWER OF DOLLAR (Based on Index Numbers of Wholesale Commodity Prices and Cost of Living) Wholesale Commodity Cost of Living Year Index Index TU oe cAI arate Ae pronation bane cehies oias VA ee, .991 1.075 ALLS ARE INR OES Se A Si Setar ae ieee ty alee SIE yee | 1.075 1.087 PPE Meat hea «Wait 0 5 ain eT ich Malaise eet, Gy 1.009 1.025 Be me elses Ses tak a.m ore oe Or ant hauls Wk Oat 1.00 1.00 ROUSE ce OF hus df de eRe el te Pelee 1.019 971 Ree Pues Seer 5 RS Be he, et 0 Ween Se ee te . 992 .951 DU eer sal tia dil psc satenoe A Cat Hels, eae ea .789 845 Pea ates ss ME oer clon eee ee St oD 564 .702 FULGDE cuties Phe oh ns Wend aban aca .514 57S READ ar aclensinites sath won aa Sires ee ne ei 484 531 aia Bia ore Shane) 'ny vanes by, heh elokeraiienal shauareete See Acecetee aera .442 .480 ee Re are aah € «Sua WGdig's ies STL aN .681 .564 Pais tin eas ds sy CARS cule san eR Ee .672 .595 “RET Neg MMR Aang tes eons 651 583 a ame Mk gins Alage ae SR Wp ie ork Uae .668 585 2 RGUN My gece ys. Axles bth ata oe th a . 630 #69 ON ECONOMY AND TAXATION 43 These fluctuations have been very marked, the purchasing power of the 1920 dollar marking the low point in both instances, as compared with the 1913 dollar. Since 1920 there has been some increase. Direct Taxes Levied Adjusted to Purchasing Power of the Dollar. — By applying the index numbers of the purchas- ing power of the dollar shown in Table II the following tabula- tion results: TABLE III. Direct Taxes Leviep IN THE STATE OF OHI0 — Years 1910-1925, Apyustep TO PURCHASING POWER OF THE DoLLAR UsiNG 1913 as a BASE Pur- | Direct Taxes Pp Di T chasing Levied — h aie hoa d eg: Power | Adjusted to ? seas Adiuet oes Direct Taxes| of the Purchasing £ Dol P eis te Year Levied— | Dollar Rowerno: (oe oe Money. Com- Dollar — ee of se dines of . modity | Commodity “on - Co igs Price | Price Index. | y FOIE =k Ostet Tides ndex. | Living Index. POLO! et $69 , 679,503 .991 $69 , 052 , 387 1.075 $74,905,466 Cl Sere 66,039,150 1.075 70,992,086 1.087 71,784,556 ae 69,812,292 1.009 70,440,603 1.025 71,557 ,599 UE eee 79,830,347 1.000 79,830,347 | 1.000 79,830,347 As aie | 85,509,420: 1.019 87, 134,099 971 83,029, 647 IS eee ame 91,659,708 .992 90,926,430 951 87,168,382 H916 ......{ 102,305,319 .789 80,718,897 845 86,447,995 © Bl + .,.....)~ 113,958, 221 . 564 64, 272 , 437 .702 79,998,671 e918 ......| 124,087,104 .ol4 63,780,771 Bay (3: 71,101,911 a 147,374,910 484 71,329 ,456 bol 78, 256,077 20 ......| 205,386,503 .442 90,780,834 -480 98 585,521 fo21 ......{ 220,012,522 .681 149,828 527 .0604 124, 087 , 062 MO ie a 224,130,758 .672 150,615,869 .095 133 , 357 , 801 TE re 232,816 , 355 .651 151,563,447 .983 135 , 731,935 1924 ee asile .240),058;596 . 668 163 , 699,102 .085 148 ,859, 244 1925 ......| 261,444,876 .630 164,710,271 .069 148 , 762, 134 As EE The? SR ed Dee eee eel RAED One eanee Rats OO This table reveals certain very interesting things. Whereas the direct mony cost of government has been rising throughout the period this presumably has not been the case with real costs. When allowance has been made for fluctuations in the purchasing power of the dollar the picture is changed considerably. The adjusted figures indicate an actual decrease in real costs for the year 1917 onthe basis of commodity prices, and for the years 1918 and 1919 a decrease on both bases as compared with the 44 REPORT OF JOINT LEGISLATIVE COMMITTEE base year 1913. These were the war years during which concerted effort was made to bring the war to a successful conclusion. Generally speaking there was little or no expansion in the activi- ties and undertakings of our local governments. All emphasis was placed upon the tremendous task facing the national govern- ment. Expenditures for public works by local governments were in many cases drastically curtailed. Important was the fact that wage and salary rates of employes of our local governments were not as a rule advanced during these years to keep pace with rising prices. A third cause for this decline in the real tax burden was the fact that the operation of Ohio’s tax limit laws caused the incurring of huge deficits by many of our local governments dur- ing these years. Many units caught between rising prices and inflexible tax limits were spending beyond their income. Thus it was that for a period, despite an increase in the number of dollars of taxes’levied, the real burden of taxation for local governments declined. In other words the increase in taxes levied for these years was more than offset by the declining purchasing power of the dollar. The adjusted figures show, however, that the situation was sharply reversed by 1921. At this time the reflex of the causes which had produced declining costs from 1917 through 1919 had taken place. In 1921 the taxpayer felt a decided impact of rising governmental costs. While the increase in taxes levied was about $15,000,000 in 1921 over 1920, the adjusted figures show a jump in real costs of about $59,000,000 on basis of commodity prices and $26,000,000 on cost of living basis. True it was that total taxes levied jumped about $58,000,000 in 1920 over 1919 but the effect of this was presumably in large part offset by the fact that the dollar was still declining in purchasing power. But by 1921 prices were falling and the purchasing power of the dollar was increasing due to sharp readjustments in business conditions occurring at that time. Despite these conditions the total taxes levied continued to rise at the same time that the purchasing power of the dollar increased which meant a decided increase in real costs. The further fact that this increase coincided with a period of business and agricultural depression and deflation made the impact of the increase the more pronounced. Since 1921 there have been no such important changes in taxes levied or in real costs although the trend of both has been upward. It may be said ON ECONOMY AND TAXATION 45 that since 1920 the total amount of taxes levied is on a new level. It would appear that with the beginning of this decade, govern- mental costs have definitely shifted to a higher plane. The increase in costs following 1919 was in very large meas- ure made possible by the removal of certain restrictive conditions applying to our local governments during the war period. But of still more importance were changes made in the tax limitation laws permitting the levying of additionaltaxes upon the consent of local electorates. During the war period and after the demand for increased governmental expenditures was steadily growing. Governmental employes caught by soaring living costs were greatly in need, generally speaking, of increased compensation. There was a growing demand for more and better school buildings and for more improved highways as well as for various other public im- provements. The compulsory school age was raised entailing increased costs and there was a general quickening of the desire for wider educational opportunities. Public health activities and sanitary improvements were being more strongly urged. Higher price levels generally constituted a very strong argument for in- creased expenditures. All these factors united to present an almost irresistible demand for the more liberal financing of gov- ernmental activities. This demand led to substantial relaxation of the tax limit laws through the passage of a series of acts be- ginning in 1919. While the passage of these acts which modified the Smith One Per Cent Law permitted the levying of additional taxes the causes for the increased expenditures resulting are to be found in the factors which were at work during the years imme- diately preceding these legislative changes. The combined effect of these factors served to put our local governments on a new scale of costs both in terms of dollars and adjusted dollars or real costs. The following diagram depicts the relation between direct taxes levied and these costs adjusted to changes in the purchasing power of the dollar for the period 1910-1925 with 1913 as a base. This graph shows nicely the comparative trends involved. The period of decline in real costs, the rapid increase in real costs from 1919 to 1921 to a new level which has shown only a slight upward movement since that time are all made apparent. Index Numbers 46 REPORT OF JOINT LEGISLATIVE COMMITTEE | Direct Tax Levy __ Direct Tax Levy adjusted to Purchasing Power of dollar based on Wholesale Commodity Prices. __ Direct Tax Levy aajusted to Purchasing Power of dollar based on Cost of Living /ndex. eos | © Ea oe oe Pe 110 IGIl 1912 1913 1914 1918 1916 1917 1918 1919 1920 192] 1922 1923 1924 1925 GRAPH NO. | InpEX or Direct Tax Levy Apjustep to CHANGES IN PURCHASING POWER OF THE DoLLArR WitH Its VaLue 1n 1913 as A BASE ( PURCHASING Power or Dotiar BaAsep ON WHOLESALE ComMopity PRICES AND Cost or Livine INDICEs.) 1913 = 100. ON ECONOMY AND TAXATION 47 Comparison of Direct Tax Levy with Wage Rates, Com-. modity Prices, and Cost of Living Indices.— Other useful comparisons can be made. The following graph compares the trend of the direct tax levy with those of wholesale commodity prices, wage rates and cost of living index for the period 1910 to 1925. (Graph. II.) It is to be borne in mind that the graph depicts percentages of increase or decrease for the things compared over a base year (1913) which represents 100. The graph shows: (1) that the percentage of increase in the direct tax levy has exceeded the percentage of increase in union wage rates consistently since 1913; (2) that the percentage of increase in wholesale commodity prices exceeded the rate of increase of the direct tax levy from 1916 to 1919 roughly and then dropped sharply in 1920 below the tax levy curve since which time the trend of these prices has shown no such abrupt changes. These trends would indicate that wage earners have experienced some advantage in additional buy- ing power since 1920, but have lost some advantage in ability to pay taxes whether these are borne directly or indirectly. Or to state it another way, the trends would indicate that this increased buying power has been offset to some degree by an accelerated rate of increase in taxes levied. Comparison of Taxes Levied with Assessed Valuation and Population. — A further interesting comparison can be made of the increase in the direct tax levy with that of value of prop- erty assessed for taxation and population growth. The following graph shows such a comparison. (Graph III.) This graph shows the trend of increase or decrease for the three factors being compared in relation to the base year 1913. The index for population growth (estimated) for the period 1913-1925 is 123.5: the index for assessed valuation for the same period is 188.7 and the index for total direct taxes levied is Sy apa In preparing this graph no adjustments have been made for fluctuations in the purchasing power of the dollar. The idea in- volved is to compare the trends during the period of taxes levied, the tax base (i. e., assessed valuatjon) and population. These com- parisons are rather startling. Population increase, while of neces- sity estimated for the most part, has not been phenomenal. On the other hand the trend of increase for direct taxes levied shows Index Numbers 48 REPORT OF JOINT LEGISLATIVE COMMITTEE Li Ny - EE AY GRAPH NO. II INDEX oF INCREASE IN Cost or GOVERNMENT (BAsEep on Direct Tax Levies) CoMPARED WitH WHOLESALE CoM MopiITy Prices, WAGES AND Cost or Livine Inpices. 1913 = 100. FS ON ECONOMY AND TAXATION 49 \\ 1910 1911 1912 1913 19/4 1915 1916 1917 1918 19/9 ie 1921 1922 1923 1924 1925 GRAPH NO. III INDEX oF Cost or GOVERNMENT (Drrecr TAx Levy) ComparepD WITH THAT oF THE TAX BASE (ASSESSED VALUATION OF PROPERTY) AND PoPpuULATION. 1913 = 100. 4jJ.uCG 50 REPORT OF JOINT LEGISLATIVE COMMITTEE a sharp cyrve which is distinctly more abrupt than the increase for assessed valuation. The graph would seem to indicate that the rate of increase for taxes levied is roughly twice that of the tax base. These trends taken at their face value might well cause grave concern. If the tax burden is increasing substantially faster than taxable property an extremely unsound situation exists. Some qualifications must be made, however, to the actual figures for the assessed valuation of property or tax base. During the period 1910-1925 no general reappraisals of property were made in about two-thirds of the counties of the state. Thus, no thoroughgoing attempt was made in these counties to reflect upon the tax duplicate, real increases of value or fluctuations due to rising price levels brought about largely by the shifting purchas- ing power of money. What the exact effect of failure to re- appraise has been, it is impossible to say. During the past year appraisals have been going forward in these counties following a mandatory appraisal act passed at the last regular legislative session. The results of these revaluations should be very inter- esting. In addition to the probable undervaluation of much of the property on the tax duplicate much intangible property such as money and credits has no doubt escaped altogether. In fact the whole situation may be but additional evidence demonstrating that the general property tax fails adequately to reach the tax- paying ability of the public. Assuming that little attempt was made from 1910-1925 in most of the counties to adjust money values of property to general shifts in price levels the following graph is presented. (Graph IV.) Upon the hypothesis that the assessed value of property did not in most instances follow the general rise in price levels this graph represents an attempt to arrive at true trends by showing the tax levy adjusted to the purchasing power of the 1913 dollar. This would indicate that since 1921 the rate of increase in the real cost of government has exceeded the rate of increase in the tax base considerably. This would seem to present the matter conservatively because in certain counties distinct effort has been made to keep property valued for tax purposes in closer conform- ity with shifts in price levels and no allowance has been made in this graph for that fact. Poor as it may be as a standard the tax duplicate can properly be regarded as one of the legitimate meas- ON ECONOMY AND TAXATION Sl 2a aa —— Direct Tax Levy (Cost of Government) Direct Tax Levy aajusted to Purchasing Power of dollar based on Wholesale Comm odity Prices. Direct Tax Levy adjusted to Purchasing Power ——- of dollar based on Cost of Living Index. oe ——_ Assessed Valuation (Tax Basis) | eo — Population 1910 1911 1912 1913 19/4 19/5 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 GRAPH NO. IV INpEX or Cost or GovERNMENT (Direcr Tax Levy) Compared WitH Tax Base (AssEssep VALUATION OF Property) PopuLATION AND Direct Taxes Leviep ApJUSTED TO THE PuRCHASING POWER OF THE DoLLar. 1913 = 100. 52 REPORT OF JOINT LEGISLATIVE COMMITTEE ures of wealth. And after making fair allowance for its inac- curacies it would appear that during the present decade the local tax burden, or cost of government, is increasing more rapidly than wealth in Ohio. A Comparison of Total Wealth with Taxes Levied and with the Assessed Valuation.—The following graph is a com- parison of estimated wealth in the state with taxes levied and the assessed valuation using again 1913 as a base year, and charting the percentage of increase or decrease involved. (Graph V.) The curve for “Estimated Wealth” is based upon figures prepared by the U. S. Bureau of the Census for 1912 and 1922. The estimates of the Census Bureau are of actual physical wealth and do not include the value of such items as stocks and bonds or other classes of so-called representative wealth or of tax ex- empt property. It is interesting to note that the percentage of increase for the assessed valuation runs consistently below that for total estimated wealth. This would indicate that property was undervalued for taxation purposes during this period despite the fact that most classes of representative wealth are taxable in addition to real and tangible property. Of even more interest is the trend of increase for taxes levied as compared with the trend for estimated total wealth. It will be noted that according to this evidence the rate of increase for taxes levied has exceeded that for estimated wealth since 1917 with a. sharp increase since1g1g. While the Bureau of the Census does not make annual estimates of wealth the figures for 1912 and 1922 indicate the general trend presumably and may be regarded as a disinterested and careful attempt to estimate actual wealth. In commenting upon this comparison it would appear to be questionable public policy for the rate of increase of taxes levied to exceed the rate of increase for real wealth for any extended period of time. Unless the bulk of taxes levied actually are used to protect the existing wealth of our citizens and to foster the creation of additional wealth, this existing tendency should not become a permanent public policy. Comparison of Tax Delinquencies with Taxes Levied — Rate of Increase. — Some light may be thrown upon the tax burden question by a comparison of tax delinquencies with the 53 ON ECONOMY AND TAXATION HERE an em CREE CeCe ee Ne eee Bee eee ec eee ee ee NI Sg q ae te (ee font sees, pee tl tye SNIEWON XIIN/ 1910 1911 19, GRAPH NO. V RELATION oF Direcr Tax Levy aNp ASSESSED VALUATION TO THE EsTI- MATED WEALTH OF THE STATE OF OHIO. 54 REPORT OF JOINT LEGISLATIVE COMMITTEE amount of taxes levied. This can be done best perhaps by com- paring the rate of increase or decrease of each for a term of years. The following graph shows a-comparison for the period, 1910-1924. (Graph VI.) In examining this graph a striking decrease in delinquencies in 1919 will be noted. This was not due to unusual collections at that time. Quite the reverse was the case. The authorities of Cuyahoga County “wrote off” a huge sum of delinquent personal property tax items as uncollectible which accounts for this ap- parent decline in delinquencies. So this decrease was only appar- ent and not real. It will be noted further that despite the fact that nearly half the totalamount of delinquencies was wiped out in this manner the rate of increase has been very rapid since 1919. Since 1922 the rate of increase for delinquencies has exceeded that for taxes levied. The trend of tax delinquencies is one measure of the severity of the tax burden. An increasing rate of delinquency is pre- sumptive evidence of a decreasing ability to meet the tax burden. The comparison which has been made is not submitted as con- clusive evidence of a relative decline in ability to pay the taxes levied. There is the possibility of less vigorous administration on the part of tax collecting officials. It is not asserted, however, that such is the case. Increasing delinquency, it may be argutd, is largely due to an increasing ineffectiveness of the general prop- erty tax under the uniform rule of the constitution as a revenue measure rather than to any comparative decline in the general ability of the body politic to meet the cost of government. The exact weight that should be given to these qualifying factors is not known. It is not believed that the rapid increase in delinquencies can be entirely explained by the influence of these factors. Rather it is thought that this rapid increase indicates—presump- tively at least—increasing difficulty during the period involved on the part of the body politic in meeting the cost of government. % The Cost of Government and Social Income. — Some ad- ditional light may be thrown upon the question of whether the tax burden is Increasing more rapidly than is the ability of the tax-paying public to meet it by comparing the tax burden with the aggregate income of the inhabitants of the state. Such a com- parison is a vital one because taxes for the most part must be paid out of income. Unfortunately available figures upon income are of ON ECONOMY AND TAXATION ie ee ee ee Fc esha | Ga ee ees ee Pht eee 19/0 191} 1912 1913 1914 1916 1916 1917 1918 1919 1920 192) 1922 1023 19241 & GRAPH NO. VI INDEX FOR DELINQUENT TAXES AND FORFEITURES AND INDEX For TAXES Leviep ror YEARS 1910 ro 1925 CoMPARED. 1913 = 100 56 REPORT OF JOINT LEGISLATIVE COMMITTEE meager. Those which are available do not cover a sufficiently long period to warrant drawing any hard and fast conclusion. The National Bureau of Economic Research in a publication entitled ‘““The Distribution of Income in the Various States” pre- sents estimates of total estimated income of the population of this state for the year 1919,, 1920 and 1921. A report of the U. S. Treasury Department for 1923* affords figures upon the gross income of Ohio corporations and net income of individuals for the years 1916 to 1923 inclusive. : The trends for these sets of figures and for taxes levied are shown upon the following graph. (Graph VII.) Comparison of Taxes Levied with Money Income in Ohio — This comparison is suggestive rather than conclusive, It cov- ers too short a period to warrant much comment. Moreover the period includes certain years of marked trade and business de- pression which had a pronounced effect upon the income of in- dividuals and corporations. For the period involved it indicates that the rate of increase in taxes levied has exceeded that for income upon any of the bases employed. It indicates further that there was no reciprocal relation between the income experience during the depression period and the tax burden trend, i. e., while income was declining taxes were steadily mounting. It shows, however, that there was a marked recovery in the matter of income of individuals and cor- porations during 1921, 1922 and 1923 which if continued at a similar rate for some time might exceed the rate of increase for taxes levied. Valuation of Farm Crops and Taxes Compared. — The chief source of income of the farmer is the products which he raises. Following is a statement of the estimated value of farm crops in Ohio for the period, rg10-1925. Percentages of increase or decrease are shown in the following graph together with sim- lar percentages for taxes levied. (Graph VIII.) This graph would indicate that the farmer has had less tax- paying ability since 1919 than for the years immediately preceding since most of his income is derived from the sale of farm crops. Causes of Increased Governmental Costs. — It has been said that governmental costs rose sharply to a new level during * “Statistics of Income from the Returns of Net Income from 1923.” 57 AND TAXATION ECONOMY ON 0OI=6I6I ‘Ol1HO AO ALVIS ‘SNOILVAOANOD JO AWOONT SSOXD) UNV STIVNGIAIGNT JO AWOONT LUN ‘AWOONT INawany) TIVIO], ado IVH], HLIIA\ GauvVdWOD) (INANNAFAO AO LSOD)) AAW] XVI LOANIC] AO XAaN] IIA ‘ON HdVad SUL of tol {ne 6/61 S96. = Lilet — 6 Fela AS ESS: a | ae Segre = XFaN/ SYTAWIN REPORT OF JOINT LEGISLATIVE COM MITTEE 58 GRAPH NO. VITE INDEX oF Direct TAx Levy ComPaRED WitH THE INDEX oF EsTIMATED VALUE OF FARM Crops. YEARS 1910 To 1925, IncLustrve. = 100 1913 ON ECONOMY AND TAXATION 59 1920 and 1921. It remains to comment upon the causes of this increase. ; In 1920 the legislature levied 1.8 mills for the “Common School Fund,” an increase of 1.745 mills over 1919. This ac- counted for the large increase of about $18,000,000 over the state levy for 1919. The taxes levied for county purposes increased about $9,500,000 in 1920 over 1919. Township taxes remained about constant. But for school purposes there was an increase of over $15,000,000 in 1920 over 1919. For cities and villages the increase for 1920 over the previous year amounted to over $13,500,000.00. Notable also was the increase for school purposes in 1921 over 1920 which amounted to nearly $21,000,000, whereas for cities and villages the increase was only about $7,000,000 for the same year. Likewise the yearly increase in taxes for school purposes has exceeded that of any other class of local government since 1913. Particularly has this tendency been marked since IQI9Q. The legislature in 1919 passed several measures designed to afford school districts financial assistance. The net effects of these measures were (a) to insure a sufficient levy for interest and sinking fund purposes; (b) to insure that nearly one-third of the 15 mills maximum could be made available for operating expenses, and (c) to allow for a levy of three mills outside of tax limits upon consent of the voters. These measures permitted the pronounced increase in taxes levied for school purposes in 1920 and 1921 which placed school costs on a level over 100% above that of 1918, but were not the cause of increased costs. During the decade of 1910 to 1920 various factors contrib- uted to an inevitable increase in school costs. First, there was a substantial increase in school attendance. In cities this was 47% for the decade and for the entire state 22%. Of great importance was the fact that the rate of high school attendance grew much faster than the total rate of increase and amounted to 70% for the period. (High school education is more costly per pupil than for the lower grades.) Because of this increase there was a de- mand for increased teaching personnel. Then there was the tre- mendous increase in price levels and living costs leading to a demand for increased salary rates. During this decade there were important additions to the school curriculum. These en- tailed added personnel and equipment. In the country districts 60 REPORT OF JOINT LEGISLATIVE COMMITTEE the number of centralized schools increased greatly, to wit, from 171 in 1910 to 722 in 1919. Also the junior high school move- ment got under way. Following the Collinwood fire of 1908 the school building code was revamped, resulting in the abandoning of certain school buildings, the remodeling of many others and necessitated more expensive types of construction in new struc- tures. All of these factors had an irresistible effect upon costs and were to a large'extent outside the power of school authori- ties or the legislature to control. In the case of cities it is noted that there was a considerable increase in taxes levied occurring during 1920 and 1921. During the jlegislative session of 1919 a further financial relief measure was passed applying to all local governments. This was the so- called Gardner Act. It provided for placing existing interest and sinking fund levies outside the 15 mills tax limit upon consent of the voters. The effect of this was to create leeway within tax limits for additional operating levies where advantage was taken of the law. This act was a means whereby many cities and other taxing districts including schools secured additional operating levies. In 1920 the legislature passed a law suspending the opera- tion of the Smith Law in any taxing district for three years upon a favorable vote of 60% of those voting upon the question. By means of these two measures many cities secured additional levies. The financial plight of the cities was perhaps second only to that of the schools during this decade. The revolution in price levels and the inflexible tax limit laws together with the fact that little attempt was made to revalue property in the light of ad- vanced market values placed cities as well as other taxing districts in a financial strait-jacket. The bonds had to be loosened if local governments were to carry on. Thus it was that there was a march of events during the decade, 1910-1919, which made an increase in money costs inevitable. From the standpoint of the taxpayer it was to be regretted that the cumulative effect of these events in this state, because of the effects of the Smith Law, was largely deferred until the peak of the inflation period had passed and a general recession in business and prosperity had taken place. Conclusion. — It has been shown that the money cost of local government has been increasing steadily during the period ON ECONOMY AND TAXATION 61 reviewed, 1910-1925. Taxes levied have been adjusted to changes in the purchasing power of the dollar using 1913 as a base year. On this basis the cost of government is shown as declining during most of the war period and as increasing since that time. It ap- pears that by 1920 governmental costs had risen to a new level from which there has been no recession. Effort has been made to gauge the significance of the upward trend of governmental costs by comparing it with various other things, such as the trend of commodity prices, wages, the growth of the tax base or assessed valuation, the growth of population, the growth of wealth, social income and the trend of tax delin- ‘quencies. The outstanding observation to be made upon all of these comparisons is that the rate of increase in the cost of local govern- ment, expressed in terms of taxes levied, exceeds the rate of in- crease for each of these other factors either for the entire period studied or since 1920. In making these comparisons the best avail- able figures upon wealth, population, income, etc., have been used. Based upon the 1913 dollar the real tax burden has increased 139% since 1910. Moreover most of this increase has come since 1920. With the opening of this decade, governmental costs seem to be on a new level. Certain it is that the cost of local govern- ment is a matter of increasing importance in this state. It should not be regarded lightly or in:a prejudiced manner. The Committee is aware that despite the various compari- sons which have been made it has given no answer to the question of whether government is worth all that it costs. The value of some governmental services can be measured in money terms. Many are of such character as to defy any direct monetary evalua- tion. Thus the propriety of many governmental expenditures is a matter of judgment and opinion or of long and painstaking observation. CHAPTER IV The Public Debt of Local Governments The growth of the public indebtedness of local governments within the state has been enormous during the last two decades. Viewed by the standards of a quarter of a century ago the aggre- gate increase year by year would no doubt be appalling. A total gross debt for these local governments approaching a billion dol- lars would have seemed staggering indeed. However, the piling up of huge debts became such a common practice during the war period and after on the part of so many governments that the average citizen’s capacity for astonishment and apprehension has become dulled. Happily the federal government has made sub- stantial progress already in reducing the war debt. No such ten- dency is present with our local governments in this state. Instead, each year sees the debt burden of these governments grow by tens of millions of dollars. It is recognized that the war debt was in- curred mainly for goods and services used during that period, while the indebtedness of local governments in very large part represents outlays for various kinds of enduring and useful public improvements. Nor is it here intimated that the sound- ness of a public debt policy can be determined by consideration solely of its rate of increase. The Growth of the Total Debt. — The growth of the com- bined gross indebtedness of the local govevrnments in the state for the period of 1910- 1925 is shown below. TABLE IV CoNSOLIDATED Tota or ALL Loca, Dest 1910 — 1925 BORO. Sra Ds ay an f0Es eeu atin: Se cad ee cece $188, 146,146 Las sa'a’a see hive ann aiattaty Wisi sha ole al nas dv OS ny Ge gece 199,260,470 UES ~ asia Go niinsis sialacni walk Viseni ca Oh a Wee ae ae a eee 218,754,113 : SHES cA aps we sraies Fate aA ESS ahh wala ay ae eee ie, ae ee 247,331,459 Ee SE TNS OG Ee | EER Sk Srcamgh a So 293 , 685 , 437 DLS Forsse _—0———0—0—"=S$S$S—S—0—0—0O0E0E0R0000——0—eNee FAISNTONT GZ6T OL OIG LNAWALVIS Laaq IV90'] dalVarI10SNo) A TIS VL 68 REPORT OF JOINT LEGISLATIVE COMMITTEE A Graphic Presentation of the Increase of Local Indebt- edness. — The following graph shows the rate of increase for the indebtedness of cities and villages, school districts, counties and townships for the period 1910-1925 with 1913 as a base year. The startling feature of this graph is of course the “curve” for school indebtedness. Its index renders insignificant the in- dices for the other classes of taxing district. Its index in 1925 over 1913 is 771.9, for counties 360.1,for townships 301.0, and for cities and villages 288.5. The rate of increase for school indebtedness, it will be noted, has accelerated greatly since 1919. This is due principally to unusual expenditures for new school buildings and sites during this period. Wartime restrictions upon building operations were drastic and at the same time enroll- ment was increasing rapidly. This resulted in a marked shortage of school housing facilities in many communities which naturally caused a demand for its correction. The pertinent inquiry to make is whether this peak period of building operations which has caused the very pronounced rate of increase in school indebtedness since 1919 is still to continue or not. It is obvious that the rate of increase for school indebtedness shown for the past fifteen years cannot continue indefinitely without becoming a very acute prob- lem. Only the fact that the aggregate school indebtedness now comprises only about a quarter of the total local indebtedness prevents a critical condition at the present time. The Committe has given considerable study to the present status of school housing facilities and the outlook for the im- mediate future. All this is discussed at some length in a later chapter. Suffice it to say here that there is substantial evidence indicating that the “peak period” has been passed and that future school building needs will be largely those arising from the cur- rent and normal increases in school population. If this view proves to be the correct one there should be a marked decline in the rate of increase of school indebtedness during the next decade. It has been noted that the rate of increase is lowest for municipal corporations. This is interesting because cities have occasion to borrow money for a wider range of purposes than any other class of taxing district. Likewise cities and villages have been accustomed to the borrowing process for a longer period of time than school districts for example. Just what effect the statutory debt limitation has had upon municipal bor- 69 ECONOMY AND TAXATION ON aN THO TUL LHe 193 1916 TYE 1916 197 LUBE TAI 1920 TILL 1922 [923.1 904-1925 Xx GRAPH NO. Inpices ror Dept or SCHOOL DIsTRICTS, CouNTIES , CITIES AND VILLAGES AND TOWNSHIPS COMPARED, 1913 =100, 70 REPORT OF JOINT LEGISLATIVE COMMITTEE rowing is not known, but it probably has not been a deterrent in many instances. * Purposes for which Indebtedness has been Incurred by Local Governments. — After a discussion of the amount and growth of the debt it is pertinent to set forth the indebtedness of the several classes of taxing districts classified according to the purposes for which it has been incurred. While it is a well- known fact that our governments can borrow money only for specific purposes defined by law, it is of interest to know to what extent the borrowing power has been used for various purposes by local governments. The following statements show the indebt- edness of the several classes of local governments as of June 30, 1924, classified by purposes. TABLE VI. SUMMARY OF OUTSTANDING Dest, 93 CitrEs oF OHIO, YEAR ENDING June 30, 1924 Classified by Purposes GENERAL DEBT Street .Jmptovement. (City's: Portion) ’....0... 06s cece Ooiaed $49 673,791 8&8 Street Nepars: (City's: Portion Vic hesaccvs clan Owens 4,253,682 37 Street Cleaning and Sprinkling (City’s Portion)........ 161,900 00 Siceaike + Oaty S Orel bates Os aa coca were als deduewue ation 552,849 71 Sewers and. Drains (City’s Portion) <. . «0.4.x c6 sx Coeees 36,509,234 02 PVGIe ANE Wade bes cata: Ae ir aoa OVA ben Leelee ee. 10,988,656 00 ESPRE -CPONSIG RD on Ne i ex niles Gist cba Poe a Ue Re 8,156,232 10 SNSEN WEB eee Vs iy as a. cranial sEaoe hs Hie otal kee Wie ee 489 ,000 00 RGA A sonigt clues dens eed wey Weekes ow a Phe 21,168,369 39 Gitvavrialivand Publics btallstamacn tye eee we eel eee ey Seer 13,280,251 70 Wat het PIOUS (hh oc ete baer eae c oeetn Cae 1,042,280 00 RADEROG Ys deh N yea re Se wee cae he oe eke ROR: Sees 429,850 00 PURDUE Rican teers Saree uae Se alc ale Sonia e Gaon aan ee 12,610,315 00 sarnese atid Retuse Disposal, 7 coaveen.c acc ac oak ameatee 2,816,550 00 Beware Lisopsal ios cic s ible Woke Wiaetaera bein we eehieiae ane wake 7,765,187 96 DUTP MCMAREIMONE a5 ee a2 ce Santa ec eiak Soh BK sath Oe ee 7,213,868 40 Police MeHAartIMeNly vo-35 nwh.c Uh Ae Pe ok Lees velda onan 1,794,308 51 PION CIGNCY > CROMEL ACER scan cicy he nol Okina ee 32,539,819 59 Street Improvement — (Extension and Openings, Signs, Sidewalks, Retaining Walls, Street Equipment... etGi).c Po cte css ctacc ieee gene 4,604,578 35 * The Committee attempted to get information upon this point by a questionnaire to all the principal cities, but the replies were very meager. ON ECONOMY AND TAXATION 7a EMTs MMOS ts oi vps ches apie 5 YMA Ns LPR AUTON woe 8 ‘ 282,179 00 Ree IS OIOS 5 Fi sia sg. te ars 5 kine sak els bie Weert o 8S e's, ds 7,514,072 81 Emergency — (Emergency and Health Emergency, including High- ways, Flood, Fire, Epidemics, etc.)............0008 1,190,475 00 Correctional and Penal Institutions — (Refuge, Workhouses, City Farms, Infirmaries, etc.) 1, 254, 500. 00 PROT rerelat state Sains rg oki Vig a Pee ¢ osts'Khe SS Weil 9h os 1,683,300 00 River and Harbor Improvements — Ime Use oA Wand, F POtOCHON Yo as csc.) sBsc ees cody sees 6,427,860 00 Public Safety — : Reireminid se Olice Alaris) C6C. 5 Gees cee gai w eaten’ 195,100 00 Street Lighting — (General Lighting Equipment, Power Lines, etc.)... 200,910 00 a ee Sat ee ere estas ce Sig's ok eat bcawebe ns vs 1,402,000 00 Public Buildings and Lands — (Monuments, Memorials, Furniture and Equipment, PRET RTINE REO sa) Cc aire Se, sacs Wipleln ee aie 6s +e be ale 559,460 00 Public Health and Recreation — (Comfort Stations, Bath Houses, Natatoriums, etc.) 1,097,690 00 M@ETHELCINES Saree eo rete nee aie gus bbs Gland ng oilers 299,310 48 STIPE REGE MLLAS ES sane ucghse th races nik nh wine Owe Figitaws eof thoes 507,215 21 WVidtenevedine x tenSIONnS. tamicns ox cv onrs owas mee aonb Ae 151,684 00 LISCE MM COUSH. Scckrocoe Aisa crots ie ake Site ore ahaa Ckouhiacs wala 1,449,068 78 Ot AlaGenerale Went jon kesercas creak oe balls $240 315,550 21 Ween ar CRs ne one Me Ns divs one 2 130,371,597 22 Bulecial Assecemient A GDb son ios .t~ eis wa bae.a cock 54,769,589 47 TS LUNE SSO Cn OR Ee ee $425 , 456,736 90 *) “TABLE VIE VitLtaceE Dest As of June 30, 1924 Classified by Major Purposes PUBLIC UTILITY RO EPIC hex) serge 05? woo sie crate aucst sted c lial e-wureaoa tics wa eee $7,045,992 75 EINCR HANG AGA CAG 2 aid «obese oaralnce wa bone okie ao are 1,487,242 32 ENR PPR CIA Std vd SAS oo cas Dat eon c ewe ace ck Cae 18,000 00 GENERAL DEBT ER CP RDE VOTER Sckiy cic gi ua oe oc nce 8B este d'ayiae'es a 5,768,617 66 EE aon Ra Se nee a oo 192,408 00 Pertwee AOS ANG) SPP. os as ke nah espa eo ee'r's 843 90 RE We a oh alg aie Weldta te ee bbcen hued es 83,013 70 BROT) VNR a On) OR an a 2,059,723 70 RRR St a oy ie alt cis vot > daroolad cecad cc ahee 188,700 00 72 REPORT OF. JOINT LEGISLATIVE COM MITTEE owe alles) gcccle oes SOR ORS he foie a a ee eee oan 429,610 00 PROT ALY case ac cnd cls akin apd ors wy Hein ina ain 0 Cy ae oats a ha ee en iene ere ater 5,000 00 Garbage? Disposal ce 3 ctee's ahs: eager big « win ee rata iene ere ee 800 00 Sewage: Dis posaliosos.x.vdin ce od alias Gilley 3 toph a an Oe eee 1,291,466 52 Fare Dep artenelity fccie aeee cas eM eee alana iota ayR Reels oe ele nia 521,978 00 Deheieney ee. oe eile sat cok Los wON avo oe ame rere 1,075,868 54 ROT ain a5 ch 2 a ie pak Roe oe Sa aire viaenees saws see 112,828 67 Realestate and Armory. Sites 20.4. sas as 2 a/ac.oltviels eer 10,105 66 KSPDREVEL Wie Fe ocean Tee kk ely ek lan, oe eae ea eee 16,300 00 Cnc) CWE Sa RAD poh DR COENEN Ret rahe DS Re AR Sh 10,250 00 WiAtErONPAING hic oom Dx ovate and Lee REE ee tots 160,120 00 HEMET RENO Y He oir coe red oc od ve iin & oo ce WU Sa ee hee 9,500 00 | Pierre nts: SF rye Oe sora, a wie Mad or eetieneetienabrs case We are 2,100 00 Subway and: Dridgessis de, mat ecu a kl Dae eek inary 94,400 00 Panic: Comtort® Stationivcs sa suction ac eae ee oe ee cle 16,000 00 WEISGET ate OTS Stee acted so eine a ure tu aanren 8 Sea en sta ae 158,862 62 MATL: Skee Snes Gate eee Re ee iat ME EE OS Oe ofan Sorta $20,759,732 04 SPECIAL ASSESSMENTS Street! Linprovemenlts ac .ctumccect en ayer cic oe eel oes $17,390,277 62 SELES OPAINS atetne merce ceheretat cloaca taeeranera te ors eee cee eeeiter sare 594,152 51 Streetscleaninevands Spriniclincse. cm en eee eines 10,606 62 SNGIOW ALES Ko eter c Gs eta Breen taht <6, cw wie eae cle ena hee 1,485,769 56 Sewersvandolrains. er sovaiettetrs acer at ee ee ee ee 4,673,106 67 WAASCOITAMICOS huss ce bcc ates a lared etalehiaty nin erS tt ween 1,952,174 28 OES risen Pe 50) fae Bee A Rio ele Vote wo LA Se aka $26,106,087 26 Grand « P Opal sivaeceanh is sie ee lee hie cee ee $46,892,552 24 TABLE VIII ScHoot Dest as of June 30, 1924 Classified by Major Purposes CITY SCHOOLS Buildingg, and Sttes.cc- 821,000 00 eae stognds and. Balding. os sive cvs cne bes Zocapeneads 69,500 00 CUNT NOUS IC The I et ea ee i a 43,000 00 Grade Eliminations and Subway.....:......zececesscees 10,500 00 MME RREQUG ety aoe tt Dia SON oy ass ak ce Soeesa ant Oo 644,623 20 TO OS igs A a ae eye aes Riis sieteooreis S cigs $90,554,339 33 SPECIAL ASSESSMENTS BS este ait dpc ce ihe ORNS aa Stace od ake’ $24,555,499 73 OOO SS SESS Se ae tA MAS aa aL eee a 13,210,603 19 Prater: Distribitting Systettis .. s+. se+.seccceee cece tes 282,370 00 TIME GTI Ns iets ahs) ilies, als oO De od hice « oe 45,000 00 STE Gre A WG Ie Pla Seer ee aoe ve Od a 38,093,472 92 CUE IEE ARTES SM OC Scale one RO MP Se Rage ROD RD $128 647,812 25 ' 74 REPORT OF JOINT LEGISLATIVE COM MITTEE TABLE X Townsuip Dest as of June 30, 1924 Classified as to Major Purposes GENERAL DEBT Roads, Sidewalks, Bridges........--++eeseeeseeeeeeeees $8 361,967 67 Township Halls .......ses.cedee cere eect ee nne ser neesers 130,484 88 GEE CEY foS a live cise ice psiieln Gaels lero k Gaining 23,513 27 Road Machinery ....... Pe ney Pent Oi ERI Se eR ror A 80,840 31 BO Pder Ae) fs Paige g Soa Meni Sat oer Barone pda hale = ale og aim mm 306 68 THCROLELI CY evs cia sicse cla mn shore Ad aid rates SLY om cele Oy Mala 13,512 00 Fire Protection and Equipment.............2- sees ee renee 15,200 00 Library and Memorial Building..............0+ sees eee 28,500 00 WTS CHIL PC OLDS oom bev erae ens ER pete eg 33,350 00 Urata sh 5s chen Waa as SU Sis ed dw Ace in ee ED ee $8,716,642 41 Roadstand se Sidewallesscy veatetssg co sirarca’s tig are cabeialelstraGeecets $5,920,529 63 Granda Ota le ce oe ak oh ee eta eee eter crete rane oe Peas $14,637,172 04 Summarization of Purposes for which Debt has been Incurred by Local Governments.— A general picture of the way the indebtedness of local government is divided as to the principal or major purposes for which it has been incurred is desirable. Accordingly the indebtedness of all these local gov- ernments as of June 30, 1924, has been thrown into a few such broad classifications. This summarization appears below. TABLE XI SUMMARY OF THE AGGREGATE AMOUNT OF INDEBTEDNESS OF ALL OHIO Counties, TowNsHipPs, Cities, INCORPORATED VILLAGES AND SCHOOL Districts AS OF JUNE 30, 1924, CLassir1ep AccorpING TO Major Pur- 0 2> POSES. Purpose Amount Percent (1) Public Buildings, Grounds and Parks (Ex- cept School Buildings and Sites)...... $73 , 809 , 000 9. (2). School Buildings. “and Sites .:2. 2.0. eon ee 181,480 , 000 P (8) Highways, Streets, Sidewalks, Grade Cross- ings, Bridges and Subways........,..... 164,281,000 20.1 ON ECONOMY AND TAXATION 75 (4) Public Utilities (Water, Electric Light, Gas, Pea a ent takes as aii ae otras ee we 139,418,000 17.0 Pept COIL TESSESSIMONES <5 cals ccaia ofS wel nversie is o aha @ 124,890, 000 15.2 (6) Health and Sanitation, Safety, Recreation ; Id HOIMIET PENICY ete gate oe ets eeepc vs 65,795 ,000 8.0 C7) Dencienty, and; Retunding ss... env eee. 59,396 , 000 3 (8) River and Harbor Improvement............ 6, 428 , 000 8 Pe UGING SINE Wer Maiaala’ we tinlcty nym d's nee in a 8's 3,423, 000 4 TAN Re NOR tag conte gale tas ake Mee te KG $818 ,920,000 100.0 This table reveals that indebtedness has been incurred prin- cipally for three general purposes, i. e., public buildings of various sorts, grounds and parks, (2) highways and streets with their adjuncts such as sidewalks, bridges, etc., and (3) public utility enterprises, largély water works. The special assessment debt represents in very large part the property’s portion of street and highway improvements. Somewhat over 75% of the total indebtedness can be attributed to these three general purposes. School buildings and grounds, comprise about 71% of the first classification. The public utility debt is 17% of the total debt. The interest and retirement charges upon the public utility debt are met very largely from the earnings of the utilities in- volved. It is not to be gainsaid that these three major purposes comprise types of improvements which are useful and indeed vital to modern communities. The same observation may be made as to classifications 6 and 8. The only questions involved are whether local communities have provided such improvements and facilities beyond actual needs or what they can really afford and whether borrowing is generally speaking the wisest means of financing them. These are questions which admit of no easy answer. The rapidity with which indebtedness has been in- curred as compared with poplation, the tax base and total taxes as weil as taxes levied for operating purposes of government - would perhaps throw the burden of proof upon those that con- tend that all the indebtedness for these purposes is amply justi- fied and defensible. As to the classification of bonds issued for “deficiency and refunding” purposes there can be no defense except that of ex- pediency. Borrowing for deficiency purposes cannot be defended 76 REPORT OF JOINT LEGISLATIVE COMMITTEE GRAPH NO. XI A COMPARISON OF THE INDEBTEDNESS OF ALL OuIo CountTizs, TOwNSHIPS, Cities, INCORPORATED VILLAGES AND ScHooL Districts COMBINED AS oF Juty 1, 1924, CLAssir1ep AccorDING TO Major PURPOSES. SCALE -25 MILLIONS OF DOLLARS 0 25 50 75 s00 125 150 175 200 225 250 $181,480,000 $164,281,000 se ae $ 139,418,000 gg tres PUBLIC UTILITIES (WATER LICHT AND POWER, GAS& ETC) — | SCHOOL BUILDINGS AND SITES HIGHWAYS, STREETS, SIDEWALKS GRADE-CROSSINGS, BRIDGES SPECIAL ASSESSMENTS ALL PURPOSES DEFICIENCY AND REFUNDING PUBLIC BUILDINGS -OTHER THAN SCHOOLS RIVER AND HARBOR IMPROVEMENT UNCLASSIFIED ON ECONOMY AND TAXATION Wp as sound public policy. Such indebtedness is assuredly a mill- stone around the taxpayer’s neck. It is “paying for dead horses”. For a government to fund on a long time basis any portion of its current or ordinary operating expenses marks the beginning of a ruinous financial policy. Such a policy should be avoided as the plague. It may be said that indulgence in this practice by many of our local governments was induced by the rigidity of our tax limit laws and the failure to rigorously and periodically appraise property during a period of rapidly shifting price levels. This no doubt had much to do with the practice. It illustrates clearly how one set of unsound practices can involve communi- ties in another practice which is still worse in its consequences. Fortunately the issuing of bonds for deficiency purposes has been outlawed. The refunding of bonds is to be condemned in about as vigorous terms. Bonds have in most instances been issued for terms no shorter than the probable life of the improvement financed by them. To refund these bonds when they come due for retirement means that taxpayérs will be called upon to pay for improvements long after they have worn out or become ob- solete. It means also that those who have enjoyed the use of such improvements have escaped paying for them. For them it is a very effective way of “eating their cake and having it’ too. But its injustice should be apparent to all because it throws the burden upon those who had no part in incurring the debt and who have had little or no benefits from the improvements in- volved. Happily, the present requirement that all bonds issued shall be of the serial type in itself prevents much further indul- gence in the refunding practice. The Financing of Capital Improvements by Borrowing. Borrowing is the prevalent method of financing local improve- ments in Ohio taxing districts. Comparatively few capital im- provements are paid for directly from the proceeds of tax levies. Particularly has financing through borrowing been on the in- crease since the passage of the Smith law. This is notably true of school districts which prior to that time paid for buildings and equipment in large part by direct tax levies. Today the financing of any important local improvement by the pay-as-you- go method is exceptional. The pay-as-you-go method has at best found only academic acceptance. 78 REPORT OF JOINT LEGISLATIVE COMMITTEE The arguments advanced in favor of borrowing as a means of financing various sorts of capital improvements are well known. Only the mention of them is necessary here. It is said (a) that borrowing enables a community to spread the burden of an expensive but durable improvement over a term of years instead of having its cost represent a sudden and drastic expense ; (b) that it does not throw the entire cost upon those who happen to be paying taxes at the time the improvement is made but dis- tributes the burden among all those taxpayers who enjoy the benefits of the improvement during its life; (c) that the use of the public credit of a community makes possible the building and enjoyment of many improvements that otherwise would have to | be foregone or greatly delayed and; (d) that a community by such use of its credit can stimulate growth and economic develop- ment to an extent which will amply justify the indebtedness. These are all good arguments when judiciously applied. So plausible, however, are the arguments for utilizing the public credit for a variety of purposes that the legislature has found it necessary to regulate and restrict its use with more and more care. The purposes for which public credit may be used have been restricted by outlawing deficiency borrowing or borrowing for improvements or equipment having an estimated life of less than five years, bond terms have been more closely related to the probable life of the improvements involved, the serial type of bond has been made mandatory, statutory debt limits have been tightened, the power of local legislative bodies to issue bonds has been further restricted. Despite all this, local indebtedness continues to increase at an accelerated rate in the face of these added restrictions made since 1920. It is no doubt true, how- ever, that the full effect of these restrictive measures has not yet made itself felt. The Pay-as-you-go Plan for Financing Public Improve- ments. — There is much to be said for the pay-as-you-go plan of financing many public improvements. Particularly is this true of types of improvements which are being continuously provided by a local government. Any large city, for example, is paving or repaving a considerable number of its streets each year. It is the usual order of things rather than an unusual type of ex- penditure such as that for a city hall or memorial. By continu- ON ECONOMY AND TAXATION 79 ally borrowing to finance the city’s portion of the cost of the annual quota of street building the annual interest charges on such outstanding bonds rapidly approach the amount of the prin- cipal sum borrowed each year. Where such a condition obtains it is obvious that it would be wise for the city to shift as rapidly as possible to a pay-as-you-go policy for financing its annual street building program. It is quite as easy to levy a million dollars a year to actually build streets as to levy a million dollars to pay interest and retirements charges on outstanding bonds. Likewise where a city school district has to build one or more school buildings each year to provide facilities for a growing population it is quite as feasible to make a direct tax levy for building purposes as to issue bonds each year and incur mount- ing interest charges in addition to the principal sum borrowed. The same reasoning applies to the financing of any sort of capital improvement which is not unusual or extraordinary, but which is being provided rather continuously. All this leads to the con- clusion that where a local government is called upon to provide a variety of capital improvements and in a rather steady volume it is good financial policy to meet a portion of the burden by direct tax levies. In fact capital improvement programs should be carefully planned and a mode of financing developed which embraces an economic balance between direct tax levies and borrowing. Fail- ure to make reasonably well thought out plans for public im- provements and the practice of indiscriminately financing all projects undertaken by borrowing has led many of our local gov- ernments into very distressing financial difficulties. Interest and sinking fund charges grow to huge sums. Increased operating and maintenance costs are entailed by the improvements. At length these charges grow to such proportions that the general operating revenues are encroached upon and the citizens are told that the government cannot do this or cannot do that because debt charges are so high or that services will have to be curtailed unless additional taxes for operating purposes are secured. Thus debt charges like the proverbial thief in the night creep up upon the taxpayer and bind him securely before he is aware of what has been going on. Meanwhile the pressure for additional public improvements continues fostered by various public officials and citizens. The government and taxpayer harassed by high debt ° 80 REPORT OF JOINT LEGISLATIVE COMMITTEE charges are in no mood to cut the Gordian knot by authorizing direct tax levies for capital improvements. Instead additional borrowing is resorted to andthe chain of harrowing financial difficulties continues. This sort of process has been typical of many local governments in the state during the last decade or more. It could have been in large measure avoided if these local governments and their citizens had made resolute efforts to finance a reasonable portion of their capital improvements by direct tax levies. The Causes of the Prevalence of Borrowing for Financing Capital Improvements. — Perhaps the most powerful influ- ence in favor-of the borrowing policy was the Smith law. The rigid limitations on tax rates with no similarly drastic limit on the incurring of debt combined to induce a strong incentive to finance capital improvements and other expenses by borrowing. In financing a particular improvement by borrowing, the result in immediate taxes levied was very small as compared to that required to finance it by a direct tax levy. Another general cause of the prevalent practice of borrow- ing has been the plausibility and popular appeal of the arguments advanced for this policy. Often, however, legitimate argu- ments have been overplayed or advanced indiscriminately to bring about improvements of dubious worth or which were in- opportunely conceived. Again, arguments of a specious char- acter are employed. For example, it is often said that business enterprises having good credit borrow to finance their capital improvements; therefore why should not a public corporation avail itself of its credit in a similar way? The analogy is far from sound. A business enterprise operates for profit and when it borrows for financing capital improvements, anticipates that resultant earnings will justify incurring the debt, and further- more it assumes that when it so desires it can liquidate the obli- gation by sale of the properties involved. A public corporation does not operate for profit nor is it a simple matter to calculate the economic return from most public capital improvements. Furthermore, a public corporation does not have the alternative, as a rule, of liquidating its debts by the sale of its capital im- provements. In short, the use of public credit should not be governed by the same standards and practices that govern the use of private credit. ON ECONOMY AND TAXATION SI It is often urged when public improvements are being ad- vocated that they will “pay for themselves” by the increased land and property values which they will create during the time the indebtedness for them runs. This is not true in all cases it is certain. Often it is a moot question whether an improvement “pays its way” or whether it does not in fact increase the general tax burden. Certain it is that public improvements can be in- dulged in to a point beyond any economic justification. The danger of approaching such a situation is greatly augmented by a borrowing policy through which a community can unwittingly get itself into such trouble. Such a condition is far less apt to occur when a community judiciously tempers its borrowing policy with at least some direct levies for capital improvements. How- ever, it may be said that an improvement does not necessarily need to “pay for itself” to be a justifiable expenditure. The added convenience and comforts which it provides may be well worth the cost. The question then becomes one of how many of such conveniences and luxuries a community can afford. Existing legislation is based upon the premise that it is good public policy for local officials and local electorates together to have the power to decide what their communities can afford subject to the statu- tory debt limits which have been set up. Prophecies that pro- posed improvements will pay for themselves should be carefully weighed. Such advocates, sincere though they may be, can upon occasion. lead communities into serious financial difficulties by their sanguinity. Practically all communities desire to grow but an ambitious public improvement program financed with bor- rowed funds will not of itself guarantee that growth. Conclusions and Recommended Legislation. — The fore- going chapter has traced the growth of the gross indebtedness of local governments for the period 1910-1925. Comparison of the rate of increase of indebtedness, taxes levied and assessed valuation is made for this period. The rate of increase of in- debtedness for the several classes of taxing districts is shown as well as the purposes for which debt has been incurred as of the year 1924. Borrowing and pay-as-you-go methods of financ- ing public improvements are discussed and comment is made upon the causes of the prevalence of borrowing. rs ig Oa 2 82 REPORT OF JOINT LEGISLATIVE COMMITTEE A general appraisal of the rapidity of growth, amount and character of the indebtedness of local governments leads your Committee to certain conclusions and recommendations. Not only does your Committee endorse the restrictions upon the use of public credit which have been enacted during the past several years but it recommends a further extension of the prin- ciple of debt limitations, particularly in the limitation of the issue of bonds without vote of the people. The growth of the public debt as compared to population growth, the growth of the tax base, social income and wealth in general as well as the growing proportion of tax levies for debt service in many jurisdictions indicates a necessity for the further restriction of the use of pub- lic credit on the part of local governments. The “Krueger Act” passed in 1925 fixed a more stringent debt limit for municipalities. Net indebtedness incurred without a vote of the people is not to exceed 1% of the assessed valua- tion, and where this limit was in fact exceeded at the time of the passage of the act, new indebtedness incurred without a vote of the people is to be restricted annually to g/1oths of the amount by which the net indebtedness created without a vote of the people is reduced each year. The total net indebtedness limit for bonds is- sued both with a vote of the people and without a vote is fixed at 5% of the assessed valuation which per cent is the same as the previous statute provided. The effect of the new limit is to reduce materially the debt incurring power of municipal legisla- tive bodies. No changes in these debt limits for municipalities are suggested. School Districts — The present debt limit for school dis- tricts without a vote of the people is based upon the amount of tax levies available within certain limitations. The law pre- scribes a total limitation of six (6%) per cent of the assessed valuation for all net indebtedness, but it is provided that total net indebtedness shall not exceed four (4%) per cent of the assessed valuation unless with the consent of the state tax com- mission. It is recommended that net indebtedness incurred by vote of the people be reduced to a flat four (4%) per cent, and the jurisdiction of the tax commission which has not been ef- fectively exercised be terminated. It is further recommended ON ECONOMY AND TAXATION 83 that the net indebtedness incurred without vote of the people be limited to one-tenth of one (1/10%) per cent of the assessed valuation of the district in lieu of the present complicated limi- tation. It is practically unnecessary for school districts to issue bonds without vote of the people. Counties — There are at present no limitations upon the in- crease of debt by counties for purposes other than roads except that a vote of the people is required in practically all instances where substantial amounts are involved. In the construction of roads, however, the county commissioners have a free hand without vote of the people being limited by the size of certain tax levies within and without the limitations against which bonds are issued. It is very difficult to compare this method of issuing bonds with the customary form of limitation on net indebted- ness, and we recommend that a new limitation be written on net indebtedness. It is further recommended that the construction of roads by bond issue without vote of the people be practically terminated. Much may be said for a policy of requiring all roads to be constructed out of tax levies, but at the present time we do not think this is wise. It is felt, however, that the people should first approve the undertaking of extensive borrow- ing for road construction. In order, that road construction may not be prevented by local prejudice, however, it is recommended that the county commissioners be authorized to submit to the people a complete road program covering different parts of the county for approval in a single vote instead of requiring each project to be voted on separately. ‘It is recommended that the following net indebtedness limits be set up for counties including roads and all other purposes: (a) the net indebtedness incurred without a vote of the people shall not exceed an amount equal to one-tenth of one (1/10%) per cent of the assessed valuation. In applying this limitation bonds previously issued for highway pur- poses are not to be considered. (b) the total net indebtedness shall not exceed three (3%) per cent of the first one hundred mil- lion ($100,000,000) dollars plus one and one-half (1%%) per cent of the amount of the assessed valuation over one hundred million ($100,000,000) dollars. Townships— It is recommended that the power. of the county commissioners to levy township taxes for the construction 84 REPORT OF JOINT LEGISLATIVE COMMITTEE of state and county roads be terminated. This tax is practically an assessment without benefitting many of the persons who pay the tax, and is largely responsible for the bitter complaints against road taxes now current throughout the state. If townships are retained, it is recommended that the net debt be limited to two (2%) .per cent of the assessed valuation and no indebtedness incurred unless authorized by a vote of the people. It is recommended that Section 125g giving,the state de- partment of health power to order the issue of bonds outside of debt limitations be repealed. Such a power is absolutely incon- sistent with the whole theory of tax and debt limitations and so long as it exists, it is very difficult to work out a consistent sys- tem. The special session of the legislature required to meet the condition in Allen County was due principally to the large amount of bonds issued under this section. In cases where the debt limitations here prescribed are in fact exceeded at the time the act becomes effective, subdivisions should be authorized so long as such excess exists to issue in any calendar year bonds falling within the class covered by said limitation in an amount equal to a sum not exceeding nine-tenths (9/10) of the amount by which the net indebtedness on bonds of such class has been reduced during the said calendar year. A bill has been prepared embodying these recommended lim- itations. It is recognized that practically any debt limitation which is to apply in a uniform manner to a large number of po- litical subdivisions may be more or less arbitrary. The outside limits, however, are liberal. One (1%) per cent of debt will require annually anywhere from one to one and one-half mills of interest and retirement levies depending on the term of the bonds; a five (5%) per cent limitation on municipalities may mean seven and one-half mills of debt levies; a four (4%) per cent limitation on school districts may mean as much as six mills of debt levies; and a three (3%) per cent limitation on the county may require four and one-half mills of debt levies. It is felt that it is right in principle for the legislature to say to the people of a subdi- vision that they shall not have power to impose on those who come after them tax levies in excess of the very liberal amounts named even if a majority of the people now voting desire to impose that debt on their descendants. The policy of debt limi- ON ECONOMY AND TAXATION 85 tation is much sounder than that of tax limitation, and in the opinion of the Committee far more important. Of course in many cases the amount of debt should be much smaller. The legislature cannot by law create good judgment and wisdom in public officials and each community must look for such judgment and wisdom to the officers which it has chosen to conduct its government. A Codification Bill The bond law containing the new debt limitations constitutes also a codification of the laws relating to the issuing of bonds by local governments. Such a codification is very desirable. At present the procedure for incurring debt is different for every local subdivision and in many cases different for every purpose for which bonds may be issued. Bond laws are scattered through- out the entire code, and it is impossible to determine the total amount of bonds that may be issued. The bill prescribes a uni- form and simple procedure for the authorization, issue and sale of municipal bonds, and repeals probably three times as many sections as it enacts. It incorporates in its provisions all of the bond laws passed in recent years, including the Griswold Act and the Krueger Act. SECTION II CHAPTERS V THE STATE REVENUE SYSTEM CHAPTER VI THE FINANCIAL OUTLOOK FOR THE STATE GOVERNMENT, BUDGET AND APPROPRIATION PRACTICE CHAPTER VII A FINANCIAL PROGRAM FOR THE STATE (87) CHAPTER V The State Revenue Systens General Statement It is intended in this section of the report to present a brief description of the revenue system of the State of Ohio. - Most people are familiar with the fact that the State of Ohio does not derive an appreciable amount of revenue from the general prop- erty tax but is dependent upon various special taxes for the major portion of its revenue. In the following paragraphs the various sources of revenue to the state are described with a brief state- ment setting forth the special and limited purposes for which the revenues from a number of sources are used. State Funds.— In order to present information from which some perspective on the state financial system can be ob- tained it is necessary to describe in a summarized manner the system of “funds” established for the administration of state finances. The General Revenue Fund.— The largest and most im- portant state fund is generally characterized as the ‘General Revenue Fund”. All revenue coming to the State of Ohio from any source and not designated by law to be specifically used for a particular purpose is credited to the General Revenue Fund. Slightly more than half the state revenues are levied and col- lected upon this basis. At the same time several million dollars per year of revenue which is legally dedicated to particular pur- poses is credited to the General Revenue Fund so that in fact this fund is credited not only with all undesignated revenue but also with several millions of dollars of receipts which belong to special funds within the General Revenue Fund. Prior to 1923 there were in effect two general property tax levies for purposes now supported from the General Revenue Fund. One was to provide money for highway construction and the other to provide the contribution made by the state to weak school districts. At the regular session of the legislature in 1923 these two direct levies were discontinued and since that time (89) go REPORT OF JOINT LEGISLATIVE COM MITTEE these functions have been carried on by appropriations from the General Revenue Fund. Transfers of cash based upon these ap- propriations are made to special funds designated as the “High- way Fund” and the “Educational Equalization Fund” but in reality these are subdivisions of the General Revenue Fund. Highway Maintenance and Repair Fund.— For the past several years it has been the policy to set aside certain revenues in a special fund for the maintenance and repair of roads. Prior to the levy of the gasoline tax the state’s portion of the proceeds of the automobile registration tax was the chief source of revenue for this purpose. While the rate of taxation for registration has been reduced with a resulting decrease in revenue the resources of this fund are now augmented by the state’s portion of the tax imposed upon gasoline. World War Compensation Fund.—In November, 1921, the voters of the state approved an amendment to the constitu- tion enabling the legislature to finance the payment of a bonus to world war veterans by a bond issue of $25,000,000 and to pro- vide a special tax levy for the interest on the bonds and the re- tirement of certain annual maturing installments. The proceeds of this levy are credited to the “World War Compensation Fund”. Institutional Building Fund.— The legislature provided for a special tax levy of .25 mills for construction, repairs and ad- ditions to certain welfare and correctional institutions during the two fiscal years 1921-22 and 1922-23. The levy lapsed at the close of the second year but the fund is still in existence by rea- son of the fact that some delinquent taxes now being collected in various counties apply to that special levy and accrue to that fund. Educational Building Fund.— A special levy of .125 mills for the construction of buildings at Ohio State, Ohio and Miami Universities was levied by the legislature at the same time and for the same period as the institutional building levy. The pro- ceeds of this special levy formed the basis for a special fund which is still in existence by reason of the present collection of delinquent taxes. | The present active and important state funds are: 1. The General Revenue Fund. 2. The Maintenance and Repair Fund. ON ECONOMY AND TAXATION Yi 3. The World War Compensation Fund. But during the past five year period substantial revenues have been collected and credited to the other funds now inactive or closed. Sources of Revenue of Various State Funds In the following paragraphs a brief description of the more important sources of revenue of each of the various state funds is presented. The General Revenue Fund.—As has been explained earlier in this statement all state revenues not designated for par- ticular purposes are credited to the General Revenue Fund. This fund derives revenue from a large number of sources a num- ber of which yield comparatively large amounts and many others of which yield only a few thousand. The following tabulation is a summary of the receipts from various main sources of Gen- eral Fund Revenues covering five fiscal years ending on June 30, 1926: REPORT OF JOINT LEGISLATIVE COMMITTEE g2 616 GOT TES eee ee eeee £29 ‘869 ‘T II ‘P68 ‘T LIL‘ SS TI ‘S81 LIL‘ TSS 669‘ 16¥ POT ‘9F8‘T 682 ‘981 80F ‘28 ‘T 818°L16 T10‘9F2L 069‘ TFO ° €93 ‘6603 GPS ‘TSI ‘T G09 ‘ZO ‘F €16 ‘964 ‘3 66608 G91 ‘99 G29 ‘ZET 199 ‘E18 €68 009‘ C93 ‘802 $99 ‘018‘E PS9 ‘Sz6$ 9261 60€ ‘OZT ‘ TE$ 683 ‘8S 66F ‘968 ‘T 619 ‘6IF T 68S ‘SSS LL19‘Z6T 96L SF 208‘ LOF G96 ‘FSF ‘T 980 ‘892 G9L°819‘T O18 FhL €16‘§60‘T GLP ‘609 183 ‘TIS‘T G93‘ LL0‘T 188‘ 103 ‘¥ 660 ‘886 ‘S G81‘S8 GOP ‘8P 129 ‘OFT F19 ‘P98 €86 ‘THE ‘E T68‘0¢ T09 ‘PEGs LOT ‘921 ‘TS S2Z6r SPT “880 ‘Tet Sh0 ‘S80 ‘T 616 ‘9B 1 £16‘ LES ¥86 981 CEE‘ 96T L°6 ‘SOF 90T‘T9E‘T EFS GIL 9F0 ‘SSF ‘T $99‘ LEL 696 ‘F93 ‘T €19 ‘S09 TI9‘8rE‘T 191° 960 ‘T G91 ‘SEL ‘E €80 “S66 ‘T G65 ‘E6 2l8 ‘tr FPS ‘CEI 981 ‘818 08 ‘913 ‘F VFS ‘690‘T C&S ‘TLP‘S £29 ‘S6F ‘TS be6I I8h 99%‘ 6z$ 192 ‘616 ‘22$ . eee Po OU. 8 (C6 6. 0p a6 00s Wiehae © oe os [210 rac ae ee et . Sle, ¢ oe.6. siete oh “gs “hi a ee SOG ere yueg pewrepug CLI ‘F60‘T 082‘ &80‘T "Ths" ""SorteIOy SayeG pue Zurinjoejpnueyy Sr. ioe ZOl ‘FORT i i ed Sajes snoaueyjaosi yy LIF ‘OFT GS3 ‘OIT eee eee ee eee ee ees eser reser eeseve SUI jeaey OFE ‘6ST 689 ‘E8T yey ena cs ae an AT Tey >33e1S 096 ‘202 182 ‘861 o, oi io0, 8 eT Qh ehei 9. wees aA inet an sasuaory SnoaUE[aosI fT F6I F9E ZEL‘°S9E Treeeeeeeessssgsuaory SuIysIy pue Surjunzy 11g‘ 92T‘T ChE ‘OST ‘T eoeceoeesceereceer eee eceees SUOI}NISUT 3381S — sayewuy jo y10ddng Tee: 689 361 ‘629 | yyyeay pue uol}eonpy PREY) Treat TFI ‘E86 ‘T S19‘ 9TT‘T Tree teeesesseess**saday[oD pue saizisiaarluy) CBI‘ TS)‘ T 642 ‘ZE8 ekeus. vier eee seesnee eer cecce suoljzetod109uy MON 189 ‘¥80‘T NAVAN coe cece ere cee ee eee eee eee es }Sa19]UT Aroysodacy 8&3‘ 6LE C88 ‘F8¢ $6.8) o) 2 oc ele © CLs Os ona Wi Chee © 9 eo we e. xe 93918317 982 ‘Lee ‘T €16 ‘01S ‘T See whe. vel Saree. 6) 5's na OS) .era) 6a Saxe], JU} IIYUT STS‘ T3t‘T ELL‘ $26 “Oa “TeysseW aay “sani oyqng ‘salytinceg ‘sueoy ® Burpjing~ ‘syueg — Sjusulssassy OFG ‘ZRG‘e 8E9 ‘GOP'S GR lel ele) p.\6)'6..6, 6. 6-5) Fone neem eo ple satuedui07 dUeINSUT LOv‘TOL‘T 9ST “869 ‘T Teresseeessssssss <4" SHI) Snoauelaosiyy Z£9 ‘98 ZOT ‘Zor Deemer es SUI BINORT, pue ssoidxq C02 ‘9F CZF ‘RF 0) ©, One 86 06 1B ea 6, 6 oO a: ae wid) 6.6%e let lea is soury adig 996 ‘601 892 ‘SIT “‘quowdinby eury 3YSie1q pue ivy Surdaays C26‘ IF8 6ST ‘Seo ‘T oe, © 'b 6 (6) 0 len0. 6 0.4. 0/0 516 ela e/a « ues speosjiey IIIA PPS ‘Fer ‘e ecg ‘eer RO € © 99 8 ee 2 0.60 6 00 08 ws 6 ee 8 Ore Speorprey wea}¢ T&9 ‘FOL ‘T 1T0‘080‘T © Cele 6 era 6 OS Che Sie 2.68. oo suor}ze10d107, USTIIO FT CCP ‘S26 ‘F 106 ‘0&8 ‘F see oe - see eee een ee suoije10d107) dsaUI0G FE9 ‘S61 ‘TS 929 ‘66S¢ eee eer ee ewe Riek ages ape ek SOULE TT Me] aqqeiy E261 2261 IIX ATAVL ON ECONOMY AND TAXATION eee While it is not considered advisable to set forth a detailed description of all the sources of revenue of this fund it is be- lieved that a brief description of the various sources and classes of revenue set forth in the above tabulation will convey to the reader a rather complete idea of the main sources of the General Revenue Fund. Crabbe Law Fines.— The receipts from this source rep- resent the state’s portion of: fines and forfeitures levied and col- lected within the various subdivisions‘of the state from violation of the State Prohibition Laws. Domestic Corporations — Franchise Tax.— This source of revenue represents a franchise tax levied upon domestic cor- porations for the privilege of doing business in the State of Ohio and prior to the last session of the legislature the rate of this tax was 3/20 of 1% on the stock of domestic corporations, but dur- ing the last session of the legislature the rate was changed to 1/12 of 1% of the fair value on an asset basis of the capital stock with a minimum charge of $15.00 as a fee for exercising a fran- _chise and doing business in the state. This tax does not apply to public utilities, insurance, building and loan, bond investment and other companies required by law to file a report with the Super- intendent of Insurance. Foreign Corporations.— Since the last session of the legislature the franchise tax on foreign corporations was levied at the same rate as domestic corporations and is based upon the capital used and business done in the state by the foreign cor- poration. Steam Railroads.— This source of revenue represents a tax of 4% of the gross earnings of railroads from intrastate business within the State of Ohio. Electric Rratlroads.— Under section 5484 of the Ohio Gen- eral Code an excise tax of 1.2% of the gross earnings of electric railroads from intrastate business is levied for the privilege of doing business in the state. Sleeping Car and Freight Line Equipment.— Under sec- tion 5468 of the Ohio General Code an excise tax of 1.2% of the value of the capital stock represented by the capital and prop- erty owned and used in the state by each such company is levied annually. Q4 REPORT OF JOINT LEGISLATIVE COM MITTEE Pipe Line Companies.— The State of Ohio levies an an- nual tax of 4% of the gross receipts from intrastate business on each pipe line company doing business in the state with a mini- mum fee of $10.00 per year. _ Express and Telegraph Companies. — Under section 5485 of the Ohio General Code an annual tax of 2% of the gross re- ceipts of express and telegraph companies from intrastate busi- ness is levied annually with a minimum tax of $10.00 for each such company. Miscellaneous Utilities. —The State of Ohio levied an annual excise tax of 1.2% of the gross receipts derived from intrastate business upon the following utility companies: Natural Gas Companies Water Work Companies Water Transportation Companies Electric Light Conipanies Messenger and Signal Companies Union Depot Companies Heating and Cogling Equipment Companies Telephone Companies Artificial Gas Companies Insurance Companies.—The General Revenue Fund is credited with a large amount of money collected each year in the form of taxes upon insurance companies. These taxes are de- rived in a large part from an annual fee of 2.5% of the gross premiums on risks within the state and from fees collected by the superintendent of insurance as provided in section 657 of the General Code of Ohio. Assessments — Banks, Building and Loans, Securities, Pub- lic Utilities, Fire Marshal, etc. — The revenue derived from this group of sources represents the cost of supervision by the state for the protection of the public, which is charged to the companies and the concerns. Inheritance Taxes.—The revenue from this source represents the state’s portion of taxes levied upon inheritances, Cigarette Tax.— This source of revenue is the state’s por- tion of money derived from licensing of cigarette dealers through- out the state. ON ECONOMY AND TAXATION 95 Depository Interest. — The State of Ohio has at all times large amounts of cash on deposit in the banks upon which in- terest is paid and which represents a substantial source of revenue. New Incorporations.— The corporate grant of the state provides for certain fees to be paid to the state in connection with the incorporation of new companies and these fees and charges represent the revenue from this source. Universities and Colleges.—The various state educa- tional institutions derive a certain amount of revenue by reason of fees and charges to students, and also by reason of the admin- istration of certain functions by the educational institutions upon a self-supporting or cost basis. Most of the money derived from this source is automatically placed at the disposal of the educa- tional institutions by legislative appropriation. Federal Aid. — The federal government makes certain con- tributions to the state government for the promotion of vari- ous lines of education and health, which contributions are shown as a source of revenue to the state. The money must be ex- pended for the particular purposes designated by the federal authorities. Support of Inmates in State Institutions. — While the State of Ohio maintains a large number of welfare and charitable institutions, to a large extent the cost of maintaining patients and inmates within these institutions is charged back to the various subdivisions of the state from which the patients or inmates are sent to the state institutions. Provision is also made for the support in state instituions of a large number of patients and inmates by their relatives or other interested parties which repre- sents a reimbursement to the state. Hunters Licenses.— This source of revenue represents the receipts from licenses required to be obtained for the privilege of hunting, fishing, etc., within the state. Miscellaneous Licenses.— The state collects a considerable number of license fees from a large number of small sources and it is these miscellaneous fees which make up this item. State Faw Receipts.— Each year the State of Ohio has a state fair and in connection therewith a considerable amount of revenue accrues to the state from various. charges, admission fees, etc. g6 REPORT OF JOINT LEGISLATIVE COMMITTEE Canal Rents.— Under supervision of the department of public works the state leases canal property from which a sub- stantial revenue is derived. Miscellaneous Sources.— The state derives a considerable amount of cash revenue from certain centralized units which furnish supplies, papers, etc., to the various divisions and de- partments of the state government upon a cost basis. These re- ceipts together with receipts from the sale of miscellaneous mate- rials for which the state has no further use constitute the receipts from this source. Manufacturing and Sales Rotaries.— There are certain rotary funds in connection with some of the penal institutions of the state which are used to finance the cost of manufacturing bricks and other articles by prison labor and the receipts from the sale of these manufactured articles, which belong to special rotary funds, are credited to the General Revenue Fund making up a portion of its total receipts. Revenues of All State Funds While it is generally understood that the larger portion of the revenue accruing to the State of Ohio is credited to the gen- eral fund it will be observed that the state collects substantial amounts for special purposes, which amounts are credited to the various special funds of the state. The following tabulation sets forth in a summaried form the entire state receipts for all of its main funds during the five year period ending on June 30, 1926. 97 ON ECONOMY AND TAXATION 6§ LE9‘ O19‘ LFS eee e eer eeeeee ee eeer reer ee eeoee eee e tone ry 10 ‘0090'S GI L8r ‘90's 67 IZL‘LIS‘S V9 6rL‘S2I‘S 69 LLZ‘SOT‘TE$ 9261 O€ 216‘ 1hZ ‘FHF bE E12 ‘OT 98 FrF‘9T Tg FIGS LQ LLZ‘9TTL CE S36 ‘SSL IP 626 ‘FIS‘S 9F LOG‘ OST TE$ S26r GB 8FS‘SS‘0S$ GO _-F8B‘BET TSS 66 8F8°Z8L ¥6 086‘Z99 ‘T 68 8FI‘S0E‘T Z9 108‘819‘S GL L0P ‘399 TL #08 ‘062 ‘T GL TI8°808‘¢ GO SII ‘9F0‘S 8b SL6‘9FS ‘9 0€ S6P‘S0L‘°8 OF 916‘ShZ‘F OF LGL‘889‘Z 00 SFI ‘8s80‘ Tet 00 T8h‘996‘6z$ beor £261 $8 STL‘ LL3‘9r$ €& PS0‘SII‘T 92 S29°ZIe'T 63 628° 9S9 LI 601°369‘S 62 9E8‘E8S‘6 00 192 ‘616 ‘6z$ 2261 SUVdA Ad SHNNAADA ALVLS TIX WIaVL seeeeeeeeeeeceseeres TOT “puny uoreziyenby [euoljeonpy “puny SuIpling [euonniysuy “ce s*puny SUIp[ing [euoreonpy “puny aedeay pure sdueusqureyy €. 0 o.0.s e106 6\0'8- 0018 «@ puny ABMUSIFT ete SiBee: Sete e060 6. Wnte).e exo puny snuog eecerecces ‘puny SNUIAIY [e1ouer) Ae Usnkar GC. 98 REPORT OF JOINT LEGISLATIVE COMMITTEE It will be observed that the highest point reached in the volume of state revenue was during the fiscal year ending June 30, 1923, and.that while the amount of revenue remains sub- stantially the same during the following year there has been a substantial decline in the last two 'years. It will be observed at the same time that this decline during the two year period end- ing June 30, 1926, has been due to the abatement of the four special levies for highway construction purposes, educational building purposes, institutional building purposes and educational equalization purposes. The revenues of the General Revenue Fund have remained practically constant throughout but with the repeal of the highway construction levy and the educational equal- ization levy, the demands upon the General Revenue Fund have been greatly increased during the last two fiscal years. The weakness of a system of special funds becomes ap- parent from an examination of the receipts of these state funds during the last few years. When large amounts of revenue are designated for special purposes the inevitable result is over- financing in some funds and under-financing in others CHAPTER VI The Financial Outlook for the State Government Budget and Appropriation Practice Since the close of the last session there has been consider- able discussion on the question of state finances. Statements and interviews bearing on the financial condition of the State of Ohio have appeared from time to time. It was felt that the Joint Legislative Committee on Economy and Taxation should cause some studies to be made to determine the approximate financial condition of the State of Ohio in order that the public can be cor- rectly informed on the subject and in order that the Committee can intelligently advise the General Assembly in 1927 upon certain of the financial problems which will need be considered at that time. Scope of the Study. — The financial structure of the State of Ohio follows, with few exceptions, the principle that revenues and expenditures should be consolidated into one main fund. The General Revenue Fund is the consolidated fund to which most of the state revenues are credited and from which practically all ex- penditures are financed directly or indirectly, except the main- tenance and repair of highways. The proceeds of the automobile license and gasoline taxes are placed to the credit of the main- tenance and repair fund and used exclusively for the upkeep of roads and the administration of these tax laws. Two funds appear on the records as separate funds but they are in reality subdivisions of the General Revenue Fund. These are the Highway Fund and the Educational Equalization Fund. Highway construction is financed from the Highway Fund and except for a contribution of Federal Aid for this purpose, this fund is now financed by an appropriation and transfer of cash from the General Revenue Fund. The Educational Equalization Fund finances the state aid granted to weak school districts and is supported entirely by a General Revenue Fund appropriation. This being the situation, the Highway Fund and the Educational (99) TOO REPORT OF JOINT LEGISLATIVE COM MITTEE Equalization Fund must be considered along with the General Revenue Fund and this study is confined to a consideration of the condition of the General Revenue Fund and these two dependent funds. The Method of Making Appropriations. — Preliminary to a statement upon the financial condition of the General Rev- enue Fund it is considered advisable to present a brief descrip- ton of the method employed by the General Assembly in making appropriations. It is the practice to appropriate a maximum amount for current expenses of the government for the first fiscal year of the biennium. Any unexpended balances of the current expense appropriations for the first year are cumulated with specifi¢ appropriations for current expense for the second year. In other words, current expense appropriations for the first year do not lapse at the close of the year if unexpended but are added to the appropriation made for the second year. The effect of this system is that a certain sum is appropriated for the biennium for current expense with a limitation upon the amount which can be used during the first year. Most of the capital outlay requirements of the state during this biennium are to be financed from the General Revenue Fund and in making these appropriations the General Assembly has appropriated specific sums for specific purposes without restric- tion as to the time within the current biennium when any portion of any such appropriations may be spent. During the last few years the practice has developed of au- thorizing the expenditure of all receipts from certain activities in the furtherance of those activities in addition to the specific ap- propriations made for those purposes. This is accomplished by appropriating these receipts in blank, without an estimate of the amount, for the conduct of the activity from which they are re- ceived. For example, the General Assembly at its last session appropriated $7,564,864.00 for Ohio State University in specific amounts for definite purposes, and in addition to this amount, appropriated in total, without an estimate of the amount, prac- tically the entire revenues and receipts to be received by the state during the biennium from various activities of the University. The revenues and receipts from all sources, appropriated in blank without an estimate, for all purposes during the fiscal year ending ON ECONOMY AND TAXATION IOI June 3oth, 1925, amounted to approximately $5,937,000.00 and will probably be even more during the two years of the current biennium. The receipts and revenues thus appropriated are composed of the receipts of various rotary funds, reimbursements from various sources, contributions from the Federal Government, ed- ucational institution revenues, etc. In view of the extensiveness of this practice it is important to bear in mind at all times that the appropriations of specific amounts appearing in the general appropriation bill, or in other appropriation acts, do not represent total appropriations from the General Revenue Fund by some five and a half to six millions of dollars per year. To state the Same proposition in a different manner it is important to under- stand and remember that not all the General Revenue Fund re- ceipts are available to finance the specific appropriations made from this fund by the General Assembly. The Governor’s Budget. — Under section 154, sub sec- tions 33-34 of the Ohio General Code, the Governor of the State is charged with the responsibility of submitting to the General Assembly at its regular session, a budget covering the proposed expenditures for the ensuing biennium. In accordance with this requirement the Governor submitteed a budget to the last Gen- eral Assembly in which it was estimated that the resources, made up of available cash balance and revenues for the biennium, would amount to approximately $65,000,000.00. The following table presents a summary of the appropriations recommended by the Governor. SUMMARY OF GOVERNOR’S BUDGET APPROPRIATIONS RECOMMENDED BY THE GOVERNOR FOR Current Expense Capital Fund Outlay Total 1925—1926 | 1926—1927 Biennium General Revenue Fand...| $22 206,376.50 | $22,019,588.91 $18,987,115.80 | $68,218,081.21 Special Funds: ° (1) Fish ieee 294 , 300.00 294 , 800.00 12,000.00 600,600.00 (2) Auto Registration 287 , 587.50 287,587.50 3,000.00 578,175.00 (3) Motor Bus Regu- | ations badeouies | 36,645.00 BO OSE OO tangle cece carne 78,290.00 Mataride otal so. ate | $22,824 ,909.00 | $22,638,121.41 $19, 002,115.80 $64 465,146.21 ee eee “Does not include appropriations recommended |for Highway Maintenance and Repair amounting to $5,500,000.00 in 1925 and 1926 and $6,000,000.00 in 1926 and 1927. 102 REPORT OF JOINT LEGISLATIVE COMMITTEE It will be observed that in the above tabulation the appro- priations recommended from the General Revenue Fund as such, are. set forth separately from other recommended appropria- tions. The receipts from hunting and fishing licenses are credited to the General Revenue Fund but under the law are available only for fish and game appropriations and prornotion purposes. Con- sequently, in effect, the revenues from this source constitute, strictly speaking, a special fund and are treated as such in this statement. : Appropriations for the registration of automobiles and motor bus regulation are financed from the proceeds of these special taxes and consequently are not strictly speaking, within the Gen- eral Revenue Fund. It will be observed then, that the appropriations recom- mended by the Governor from the General Revenue Fund amounted to $63,213,081.21, of which $22,206,376.50 was recom- mended for current expenses during the fiscal year 1925-26, $22,- 019,588.91 was recommended for current expenses during the fiscal year 1926-27, and the sum of $18,987,115.80 was recom- mended for capital outlay during the biennium, — these amounts to be financed from General Revenue Fund resources. In submitting an estimate of the resources the Governor cal- culated this amount at $65,000,000.00 without making any de- tailed estimate of receipts from the various sources of revenue, or showing separately any estimate of the unencumbered cash bal- ance as of the beginning of the biennium to which this amount applied. Considering the receipts from hunting and fishing licenses as accruing to a special fund, an estimate of the receipts from this source during each year should be deducted from the $65,000,000.00 set forth by the Governor, leaving an estimate of resources of approximately $64,200,000.00. Auditor’s Letter to the Finance Committee of the Senate. — The chairman of the Finance Committee of the Senate made a request to the Auditor of State for an estimate of the resources which would be available during the biennium, and complying with that request, the Auditor of State under date of February 16, 1925, wrote a letter to the chairman of the Finance Commit- tee of the Senate, setting forth an analysis of the budget sub- ON ECONOMY AND TAXATION 103 mitted by the Governor on the basis of an estimate of resources made by the Auditor at that time. A copy of the letter follows: te February 16th, 1925. Hon. Harry M. CARPENTER, Chairman Finance Committee, Ohio Senate, Eighty-sixth General Assembly, Columbus, Ohio. DEarR Sir: Complying with your request for estimate of revenues for the bien- nium July ls 1925 to June 30, 1927, which, together with available balances must finance the appropriations for the operation and maintenance of the state government including “Additions and Betterments” for said bien- nium, the following statement market Exhibit “1B” is submitted. This statement is a continuation of a previous statement submitted under date March 12, 1934, in response to request of the Governor, in that the depart- mental operations have been brought up to date, February 12, 1925. The only change made in the forecast of March 12, 1924, (Exhibit “A”) is occasioned by a decision of the Federal Courts entailing a loss in foreign corporation fees of slightly over $1,000,000.00 and the passage of House Bill No. 66 making supplemental appropriations from the General Revenue Fund for the remainder of the present ‘fiscal year, amounting in _the aggregate to $1,738,761.30. Any further supplemental appropriations, including the Sundry Claims Bill, will deplete the balance in said fund available for financing the next biennium. Merging the two statements: As to RESOURCES we have Balance available for appropriation for biennium 1925-27. $4,459,857 65 Estimated net receipts, not including rotaries and ap- esr SaLPO st RCENNES Tos ch So oe aa 5 celsie Shite win oo c6e Tokko 53,650,000 00 — JRDCAL 7528 Sele ae SRA PA Ree ae ied Sr $58,109,857 65 To which should be added the revenues accruing from the Automobile Registration Department, estimated at.. 12,000,000 00 Making total available for appropriation............ $70,109,857 65 Summarizing the EXPENDITURE side of the budget, as submitted _by the Governor, which does not include Rotaries, it carries totals as follows: ' For Personal Service and Maintenance, first year........ $29,324,908 80 For Personal Service and Maintenance, second year..... 28 639,12) 41 PARRA EA, COMORES oho 4. ¢ akb gaa d ee uae Lacie sh exe $56,964,030 21 I04 REPORT OF JOINT LEGISLATIVE COMMITTEE Which deducted from available resources given above, leaves $13,145, - 827.44 to finance the State’s proportion of highway construction and all other Additions and Betterments. _ The budget carries an aggregate of $19,002,115.80 for Additions and Betterments. Therefore it would seem that said budget now before you is not upon a sound financial basis (in other words, not a balanced budget, wherein the receipts and expenditures are equal) as it would create a deficit in the General Revenue Fund of the difference between the last two mentioned accounts, to-wit: $5,856,288.39, if allowed as submitted. Appropriations in excess of resources are not only misleading to the ad- ministrative officers but are of no avail to the extent of such excess. It should also be borne in mind by your Committee that the budget submitted provides only $2,000,000.00 each year for Weak School Dis- tricts, while the appropriations for the present year amount to $3,377,000.00. In view of the foregoing I very much regret to advise that additional sources of revenue must be sought and provided unless a further reduc- tion of approximately $6,000,000. 00: is made in the budget expenditures submitted by the Governor. Respectfully submitted, (Signed) JosepH T. Tracey, Auditor of State. EXHIBIT “B” FoRECAST OF REVENUES AVAILABLE FOR APPROPRIATION UNDER 3 PRESENT Laws. Estimate of Unencumbered Balance—June 30th, 1925, General Revenue Fund, per statement furnished the Governor: on: March 1pth. "1924; oe ae oe $8,373,618 95 Deductions by reason of Loss of Foreign Corporation Fees. . $1,000,000 00 Part of Supplemental Appropriation by the 86th General Assembly, Nes Fd Paes ea ees Siielniety aha aie eee 1,738,761 30 2,738,761 30 Revised Estimate of Unencumbered Balance June 30,1925 $5,634,857 65 Deduct Estimated Balance of Rotary Funds not available for “general purpotes;! .5025.. Yate ce eee 1,175,000 00 Estimated Balance Available for Appropriation for Bien- eT, TODD LOOT ec iithn's wait hvou cea 4 een eae $4,459,857 65 Behinaiad Receipts Year 1925-1926 ..... $31,350,000 00 he: Estimated Receipts Year 1926-1997...... 32,300,000 00 $63 , 650,000 00 ON ECONOMY AND TAXATION 105 Deduct Estimated Receipts which depart- ments expend in addition to amounts appropriated at $5,000,000 per year $10,000,000 00 $53,650,000 00 Total General Revenue Available for Appropriations. $58,109,857 65 Add Estimated Receipts from Motor Vehicle License and Natorsbis at wrtore Diennitim. a. casts wee aeuea. cots 12,000,000 00 Total Estimated Funds Available for Appropriations to Be Made by the 86th General Assembly for the Bien- SEINE MES Whee Cee ke yee Wie waist aes ae vd was woese Pan $70,109,857 65 Dated February 12, 1925. It will be observed from an examination of the copy of the above letter that the Auditor estimated the total resources for the biennium available for financing General Revenue Fund appro- priations at $58,109,857.65 which was some $6,090,000.00 lower than the estimate of resources available for General Revenue Fund purposes made by the Governor in his budget. Appropriations made by the General Assembly Payable from the Resources of the Biennium. — The legislature had before it, at the time the appropriation acts were under consid- eration, two widely varying estimates of available resources, the higher one having been submitted by the Governor and the lower one by the Auditor of State. Following is a tabulation showing the appropriations finally made by the General Assembly payable from the resources of the biennium, commencing July 1, 1925, and ending June 3oth, 1927. 106 REPORT OF JOINT LEGISLATIVE COM MITTEE SUMMARY OF APPROPRIATIONS MADE BY THE GENERAL ASSEMBLY PAYABLE FROM THE RESOURCES OF THE BIENNIUM 1925-26 AND 1926-7. t CURRENT EXPENSE Capital Fund Outlay Total 1925—1926 | 1926—1927 Biennium General Revenue Fund ee $23, 922,066.80 | $23,335,008.91 | $17,639,339.50 $64,896 415.21 189 O87: 78" |aniseotiancia tive Coal cate aree a share tan eee 182,687.73 Lorain Relief — unex- pended June 30, 192 TL JOT.IE Nis p a vewewanceen's onde Ceeeucmneus 11,707.11 Reappropriations — Un- | expended June 30, | | YT ES A a lee Wickes cokes | RAR 619,442.51 619,442.51 | ee eee Total General Rev- | | enue Fund...... | $24,066 ,461.64 | $28,835,008.91 | $18,258,782.01 $65 ,660, 252.56 Special Funds Fish and Game......... | $293,600.00 $293 ,600 . 00 $102,000.00 $689,200.00 Auto Registration....... | 300,897.50 300,897.50 3,000.00° 604,795.00 Motor Bus pecleaenry) 72,925.00 72,925.00 600.00 146,450.00 Total Special Funds $667,422.50 | $667 ,422.50 | $105,600.00 $1,440, 445.00 CORAL dcraunea oun eke | $24,733,884.14 | $24,002,431.41 | $18,364,382.01 $67,100,697 .56 _ These figures. do not include appropriations for Maintenance and Repair of Highways. It will be observed that in the regular appropriation act ap- propriations of $64,896,415.21 were made from the General Rev- enue Fund and appropriations of $132,687.73 from the General Revenue Fund were made for sundry claims. At the same time the legislature included within the regular appropriation act, re- appropriations for certain capital outlay projects amounting to $1,537,015.06 to be expended during the ensuing biennium to whatever extent these particular appropriations were not used during the earlier period. The unexpended portion of these ap- propriations on June 30th, 1925, amounted to $619,442.51 and consequently this portion of these reappropriations became in ef- fect payable from the resources of the biennium commencing July I, 1925. During the session the legislature made an appro- priation of $95,000.00 for relief of the City of Lorain and this appropriation became available as soon as it became law. On June 30th, 1925, $11,707.11 of the appropriation had not been ex- pended and consequently this unexpended balance in this appro- priation was also payable from the resources of the biennium ON ECONOMY AND TAXATION 107 commencing July 1, 1925. These items added to the regular ap- propriation for current expenses and capital outlay made a total of $65,660,252.56 appropriated from the General Revenue Fund for the current biennium. The total of these appropriations ex- ceeded the appropriations recommended by the Governor by some $2,447,000.00. . They also exceeded the Governor’s estimate of resources by $1,460,000.00 indicating that the General Assembly was guided by the estimate of resources presented by the Gov- ernor rather than the one presented by the Auditor. Probable Resources. — It is to be remembered that the estimates of resources presented by the Governor and by the _ Auditor of State were prepared as of a period several months before the close of the fiscal year ending June 30th, 1925, and at that time it was impossible to determine any effect upon the rev- enues which might result from legislation to be enacted during the session. It was further necessary at that time to make an es- timate of the unencumbered cash balance as of June 30th, 1925. In the following paragraphs an estimate of the probable resources for the biennium is presented which is based on information, un- available at the time the prior estimates were made. Cash Balance. — The cash balance of the General Reve- nue Fund as of June 30th, 1925, amounted to $8,403,587.81. In- cluded within that amount there was cash belonging to various rotary and special funds amounting to approximately $1,250,- 888.86, and as of that date there were outstanding and unpaid bills amounting to something in excess of $1,400,000.00 payable from this cash balance. Deducting these two amounts leaves an unencumbered cash balance of $5,752,698.95 available for the re- quirements of the biennium commencing July rst, 1925. Probable Receipts. — The following table is a statement of the receipts of the General Revenue Fund for the two fiscal years ending June 3oth, 1925, and June 30th, 1926, classified by major sources and showing separately the amounts of the re- ceipts each year which are appropriated in blank for each year without an estimate. The table follows. 108 REPORT OF JOINT LEGISLATIVE COMMITTEE TABLE XIV TABLE SHOWING RECEIPTS OF GENERAL REVENUE FUND FOR TWO YEAR PERIOD FROM MAJOR SOURCES | Receipts ivisi Source of Receipts —_——_—_——_——_ Department or Division 9 Pp POT tae | AT riper | a Agricultural .........eee+| License and Analysis......... $74,770.15 $69,920.95 me | State Fair Receipts..........«. 192,676.84 176.139.14 Auditor ...... ssisgieeweeese| LADD ACt PANCSssscee a aes a= 1,126,107.14 923,653.68 i yada Sr gcnsasaneirex veer te te rr ee ad 141,120.49 137 , 252.28 uilding and Loan......| % of 1% o an an eee Seaareeen « . eens Caen 105,605.38 115,953.68 fire Marshal ......0+¢ eoe| Restaurant Fees.......sccesces 40,302.50 84,184.00 Diy. of Insurance.......| Fees—Sec. 657......seeeeceeeee 229,233.89 122,938.32 Fees—2.5%, under Sec. 5433... 3,967, 925.16 4, 437,112.69 : Ph Fees—Maintenance Sec. 841.. b bie”? rs a Re Z Div. of Securities........] Fees—Dealers and Agents....| 37,062.00 83,558.44 Public Utilities..... cosene| Maintenance s.evcceeccscves aes 172,092.81 205 , 362.89 Div. Film Censorship....| Censorship Charges........... 41,290.00 44,200.00 Executive... plots Vas: aid Disabled Soldiers : 6a. e0.08'1 éaton te an A1LOPE 4 ELOME cis cared eaten ,670. 120. Highways and Public | ¢ OTKS ss seseesescsoveee Property, Rentale. i. cnsavwes aes | 248,843.94 255,651.76 Industrial Relations......! Boijer and Other Inspections. 33,401.48 89,101.48 | Bogineér Exams. ic cece genet 54,900.00 54,883.00 Non Departmental........) Cigarette Tax... .. 606 473.25 641, 589.68 | Inheritance Tax..... --| 1,492,200.82 2,004 ,671.72 Initial Incorp. Fees........... 748,321.94 966,656.78 Excise—Sleeping Car and | | Freight: Tine. i.. c. amavsssaeee | 140,626.65 | 132,624.78 Excise—Natural Gas........... | 687 ,235.58 661,775.08 Excise—Pipe Lines............ 48,462.32 66,762.64 Excise—Electric Light........ | 1,005,274.60 1,043,078.29 Excise—Express Companies...| 66 , 948.96 60,852.50 Excise—Telephone Gompanies) 489,016.05 532,499.01 Excise—Electric Railroads.... 864,673.89 875,661.25 | Excise—Steam Railroads...... | $,941,383.30 | 8 500,893.35 Domestic Corp. Fees—Old AW ree dia'ma a nals sare nee ae 5 B89, 408. 07 12. con wesc cues “oe | Domestic Corp. Fees—New | WAKES henna alee Sh wane hea cee ere ows $,719,920.80 | Foreign Corp. Fees—Old | | AW araak sin vv sleanewanvigen atners 82 908 70: ti ees one caicen Foreign Corp. Fees—New DAW Siioe dings oe sakloe ns Cok kmot Rk ee EEE 701,873.46 Domestic Corp. Fees an | lected by Attorney General. 165,108.65 150,731.88 | Del. Excise Tax Collected by | ' | Attorney General............ 58,381.55 10,928.64 Depository Interest............ 1,084 154.27 | 737,515.40 Welfare: saciedcas'cenes ....| Maintenance collected by At- torney General. .........000% / 120,014.89 | 31,779.90 Charaties .oests sch ener s | Maint. collected by Treasurer 729,687.15 900,409.51 Cleveland State Hospital.| Maint. collected by Treasurer 31,088.54 28,823.30 Institution for Feeble |. Minded. ces eens sctrs +-e-| Maint. collected by Atty. Gen. 57,054.94 360,610.04 Ohio State Sanatorium..| Patients’ Payments........... 87,129.00 37,342.00 Massillon State Hospital! Maint. collected by Treasurer 22,862.31 | 30,017.79 Other Revenue..... aanan Small sources. .../sa.scseceeete 657,895.82 | 661,632.79 Total available for specific appropriations.............. Zee $24,657 ,732.76 Receipts appropriated without estimates.................. he Lait 6,447 544.98 Total Receipts ..... fhe dre vase she his Feng tegahnens | $31,120,807.46 | $31,105,277.69 a ee ON ECONOMY AND TAXATION 10g It will be observed from an examination of the above table that while the total receipts for the two years are approximately the same, there is a substantial increase in 1925-26 in the amount of automatically appropriated receipts over the previous year and a corresponding decrease in the receipts available to finance spe- cific appropriations made by the legislature. The amount of cash received during the year ending June 30th, 1926, available for financing specific appropriations was $24,657,732.76 as against $25,182,687.27 during the previous fiscal year. There is no rea- son for expecting that these receipts will increase during the cur- rent fiscal year. It would appear then that the resources of the biennium available to finance specific appropriations will amount to approximately $55,085,000.00 and will be made up as follows: Ap eatee Syalaticeas) HE tUUR DODO eke shes Fh cw ee cvs wie es obs $8 , 403,587 81 Less — Cash of Rotary and Special Funds.. $1,250,888 86 Estimated Unpaid Bills............. 1,400,000 00 2,650,888 86 Available Cash Balance June 30th, 1925................ $5,752,698 95 Probable Receipts Excluding Those Appropriated in Blank. Nebo G—— ACHIA mieten ee oo Lecce co or bsiek re 3 $24,657,732 76 WO26>19R7——Estumated - 25.5 care oxi cs ce ewclede 24,675,000 00 Total Probable Resources............ ae Aim stetiens $55,085,431 71 Relations of Probable Resources to Appropriations. — It is important to bear in mind at all times that an appropriation does not represent cash but is merely an authorization to incur obligations up to a certain amount. The obligations arising from expenditures made pursuant to appropriations are paid from the available cash insofar as the supply of cash is available. Ap- propriations in no way affect the supply of cash but the supply of cash should determine the extent of the appropriations. How- ever, such is not the case with the State of Ohio during the cur- rent biennium. The total appropriations made by the General Assembly for the present biennium and payable from the General Revenue Fund amount to $65,660,252.56 as against probable re- sources of $55,085,000.00. This means that the appropriations are not financed by approximately $10,575,000.00. It will be remembered that the appropriations recommended by the Governor amounted to $63,213,000.00 and had the legisla- IIo REPORT OF JOINT LEGISLATIVE COM MITTEE ture confined its appropriations to this amount even then appro- priations would not have been financed by some $8,138,000.00. The estimate of resources made by the Governor was placed at $65,000,000.00 from which should be deducted approximately $800,000.00, the probable receipts of the Fish and Game Fund, leaving $64,200,000.00. No details indicating how this estimate was arrived at were given in the proposed budget, but it would seem that the Governor’s budget was based upon an over-estimate of resources in the neighborhood of $9,115,000.00. Financial Outlook for Year Ending June 30th, 1927. — In the following paragraphs some observations on the financial out- look for the year ending June 3oth, 1927, are set forth. The cash balance of the General Revenue Fund was $2,467,- 367.98 on June 30th, 1926. Included within this amount there was $1,779,555.25 belonging to various special and rotary funds and appropriated to particular purposes. Deducting this amount from the balance left $687,812.73. While it is difficult to deter- mine the outstanding unpaid obligations at any particular time it is assumed that at all times these outstanding obligations are in excess of $1,200,000.00. Assuming that the outstanding obliga- tions at that time amounted to $1,200,000.00 it would follow that there was a deficit of approximately $500,000.00 at the close of the fiscal year which must be carried over against the receipts of the year ending June 30th, 1927. For reasons set forth earlier it cannot be expected that the receipts for financing specific appro- priations during the current fiscal year will exceed $24,675,000.00. Assuming that this amount was already encumbered to the ex- tent of $500,000.00 at the start of the fiscal year it follows that the incurrence of obligations in excess of $24,175,000.00 charge- able to the specific appropriations made by the legislature will re- sult in an actual deficit on June 30th, 1927, to whatever extent obligations incurred during the year exceed this amount. On June 30th, 1926, the undisbursed balances of appropria- tions to be carried over into the year ending June 30th, 1927, were as follows: ON ECONOMY AND TAXATION III BMRA EA DRNSE Tye cee he Rapides oo Tas vce ews cae $2,710,273 44 BENE, MMT AN So ooo che anc se Sem tyr We Co eo snes, baa 6's edie viele 8,720,220 04 Potary and yo pect Punds. cece cae cco ewww ate ece eels? 1,779,555 25 ee is en stocal Etee eORAaee Mliekis Sato 8 cybgee Fe « $13,210,048 73 Less Estimated Outstanding Obligations..............-+. 1,200,000 00 $12,010,048 73 Assuming that on June 30th, 1926, there were $1,200,000.00 of outstanding obligations as yet uncharged to appropriations it will be observed that the unused balances of appropriations car- ried over into the current year are approximately $12,010,048.73. The legislature appropriated the sum of $7,545,290.70 to be trans- ferred to the Highway Fund during the biennium and on June 30th, 1926, $3,511,920.70 of this amount had been so transferred leaving’ an appropriation balance of $4,033,370.00 to be provided for the Highway Fund in the current year. The appropriations for current expense which became ef- fective on July Ist, 1926, amounted to $23,064,073.35 which must likewise be financed from the receipts of the current year. The Situation existing during the current year is that the following appropriations payable from the General Revenue Fund are in effect : 1. Current Expense Appropriations Carried Over...... $2,710,273 44 2. Rotary and Special Funds—Unused Balances Carried Overinnt y. 3. dy obeles aier oe sae Aipatn a 1,779,555 25 3. Capital Outlay Excluding Highway Purposes........ 8,720,220 04 4. Highway Fund Appropriations Untransferred on UPL, EI LBS EE SRE SSR Re a ea eR Re OS 4,083,370 00 5. Current Expense Appropriations for Second Year... 23,064,073 35 RTA eee Rr eres Wg vin cs GAS Miva die fib a ataate fates $40,307,492 08 Less Estimated Uncharged Outstanding Obligations. . 1,200,000 00 $39,107,492 08 The situation existing at the beginning of the current fiscal year is that the outstanding appropriations or authorizations to incur obligations amount to approximately $39,000,000.00 while the probable amount of cash which will be available to pay what- ever obligations are incurred will be in the neighborhood of $24,- 500,000.00. Ti2 REPORT OF JOINT LEGISLATIVE COMMITTEE Obviously it will be out of the question for the state to incur obligations in an amount any ways near $39,000,000.00. At the same time drastic curtailment all along the line will be required to confine expenditures to an amount in the neighborhood of $24,- 500,000.00. As a practical proposition the unused balances of all special and rotary funds tend to represent over-financing of these special purposes and no great harm can result from the use of these bal- ances for other purposes, although there is no authority to use this cash for other purposes. Assuming that the current expense of the state can be con- fined to $22,000,000.00 during the current year and assuming *hat the legislature will approve the use of rotary and special fund balances then it follows that the state can expend approximately $4,000,000.00 for capital purposes including Highway Fund trans- fers and finish the year with little or no deficit. A policy of ex- tremely drastic curtailment in both current and capital expendi- tures must be inaugurated at once however, if the state is to finish the year without a substantial deficit carried over in the form of unpaid bills. The Supply of Cash. — While the real financial condition of the General Revenue Fund depends fundamentally upon the relation of obligations incurred to resources within a particular period, there is at the same time an incidental problem of financ- ing. By this is meant the provision of sufficient cash at all times to meet obligations when they mature. Assuming that expendi- tures for the current biennium do not exceed resources, there will be a scarcity of General Revenue Fund cash during July, August and September of each year under the present revenue system and the time of making certain expenditures will need to be closely regulated to avoid the entire exhaustion of General Reve- nue Fund cash. This situation arises from the fact that under the present arrangement, the collection of revenue is heavily con- centrated into a short period of time with little or no relation to the heavy demand for seasonal expenditures. The following tabulation shows the collection of General Revenue Fund cash by months during the year ending June 30th, 1925, from all sources yielding in excess of $25,000.00 per year. ON ECONOMY AND TAXATION 113 Month TABLE XV Cash Collected MRO Ries Carce ee Mane tn ne ee Scena et aaleaa cae gerey es Ue hays $1,137,089 97 GTS Pre Mes her esi < pone nna ace UN gh diwa wields 8.7 od le gad 1,285,909 68 MeTteMI BETS atta ota dee Nak cicew cestode dele PapPehasatcwers Ov cae 5,314,565 94 SSRN ete eect soe race Tree whey ad eae e DrsiOleTe oie Heal Mts ieieleends 3,226,149 10 TG TESTED ee oe ERO Eee Rr ra nce ney RTO CoRR Rea 4,071,723 08 Ea OR Wi vic 1S. ted «6 lk oe ARR, CORI ei Hele Aas ode ce de's 8,318,588 41 MMM TOO io aiteh cd id hie Sein comsd sane Natase cele el ae ae 6 0 1,139,017 50 Pep CSAs Vande ie es tetas: aC mae + Rderactnre ea tay Sha 4:9 69 918,924 11 MEER el OL — aise OO Re OCT ra ACRE RA fetes ICN CS Breet ensie 911,027 79 Pe octets chad Go teats eae es eee 1,776,810 73 NY DRO) IS ORES, QUT SOUR aR cate Ot erate an ORCI 1,228,791 45 ere err ee orien Ate co hci iae aa Day ances SGie e otaytie 915,900 87 SL Gel Mea Rn SAC tine oe Ce ie So Paes ease havea $30,245,498 68 It will be observed that the co!lections during December are nearly equal to the entire collections of the ensuing eight months. There is an administrative job involved, of regulating expendi- tures to avoid the complete exhaustion of cash at the low point during the year when the supply of cash becomes comparatively low as it has during the last few months. The extent to which the supply of cash has become depleted compared to former years, is indicated by the following tabula- tions showing monthly cash balances of the General Revenue Fund alone, and of the General Revenue Fund and its two sub- sidiaries — the Highway and Educational Equalization funds. TABLE XVI STATEMENT OF MONTHLY CASH BALANCES GENERAL REVENUE FuNpD 1923-24 1924-25 1925-26 1926-27 MGitiGpa we bra weil ntay chs ow. $9,107,690 90 $8,403,587 81 $2,467,367 98 TORY Sew ae vl Seis SER OK 8,016,360 49 6,562,297 30 400,739 80 Ss ae ae ee 7,363,030 25 5,635,947 41 22,287 17 Dagan Somes as cls a brs 8,897,753 97 Gea Le YA | ee em SRELOD ER bel Paros cok ec 8,977,013 86 Dk OdO oN Sodan ee dee ia SOW a ent Mica Ecc. shale 2 10,708,860 13 Groot god 402 5S ioe sans ae Se. $22,794,663 84 16,640,184 &6 BGO DOS: SY o's ewes oe ae Jan. .«... ,° 225888,093. 91 . 15;3387,791-30 PO O80 OL. crude: one's wens. ye: 20,574,603 15 138,995,808 15 SRY 04 BO) tat teirdie's March ... 19,227,417 42 11,393,928 34 Pe OAS OTOL Seed cies April ..... 18,440,719 98 10,647,773 16 A BUA Laser ice tet coreg. Re 16,685,281 95 9,689,488 33 Deed Gale. visswispehiesae *The remaining amount of approximately $875,000 00 from small sources is distributed rather evenly throughout the year. Sky Lee; II4 REPORT OF JOINT LEGISLATIVE COMMITTEE TABLE XVII COMBINED MONTHLY CASH BALANCES GENERAL REVENUE Fund, EpuCATIONAL EQUALIZATION FUND AND HiGH- _ way Funp. 1923-24 1924-25 1925-26 1926-27 MENATL Oars ck sas dechg kena $17,545,870 43 $10,835,191 40 $3,923,468 55 PUM aet ake cake cnet ae 15,518,074 48 8,363,880 73 1,079,971 82 BMIRUSE- fon 4 205 5 ein re 14,080,257 97 6,806,841 44 *129,056 13 DERE wore” odes rutin 14,860,728 01 D089; OL ‘Ola seared OeigherG or ak. ating we 14728. 897-17 3; 428s O20 e Soe sce eevee ICG a earn ha ewe { 15,601,551 88 1,200; O00 Be pnd e Senee IDEGh na sian $25,598,869 02. 20,589,676 83 12,570,198 86 ....:....... Jar evn. 247986501806). 185989) 557 dl TAS OTIS ~ ooce a ee BeBtin. x cars 23,150,451 89 17,638,580 17 9,204,651 63> —. 4 eee March 21,613,152 24 15,419,068 25 8,313, 800°58 itn ceceeeon April 20,793,066 50 14,476,903 27 7, 148 108. 20°; 2s. ee Mave sc. . 3 18,834;021 98 138,042,891 71 5,490 900. 82... sn neces Examination of the upper table shows a General Revenue Fund cash balance on June 30th, 1926, of $2,457,367.98 as against a corresponding balance of $8,403,587.81 one year prior. It is to be remembered that at all times there is an encumbrance of un- paid bills against this balance, and that it also includes consider- able cash belonging to various special and rotary funds. The above figures indicate that the state has been financing its expenditures during the fiscal year just closed in part from current revenue and in part from a surplus from prior years but the surplus has entirely disappeared and unless there is an imme- diate and drastic curtailment of expenditures the supply of cash will be exhausted by April or May of 1927, with no means of replenishment for several months thereafter. Recommendations as to Budget Procedure for the State of Ohio. —In the following paragraphs certain recommenda- tions are made bearing upon the preparation of the biennial budget and appropriation act and the methods of making appro- priations. As has been developed in the course of this statement, dur- ing the current biennium the state is attempting to operate under an unsound budget —a state of affairs which is not only mis- * The overdraft shown as of August 31st, 1926, results from a trans- fer of $1,000,000.00 from the Maintenance and Repair Fund to the High- way Fund and on that date the combined balance of these three funds was $129,056.13 less than the $1,000,000.00 so borrowed. ON ECONOMY AND TAXATION II5 leading to the public but likewise confusing to the members of the legislature and administrative officials. There should be no need for argument on the proposition that the state budget should be balanced for each fiscal period and that appropriations should be kept within the resources for the period to which they apply. It is realized that rules and regulations covering the procedure in the preparatiom of a budget and appropriation act cannot be made effective substitutes for the exercise of good judgment on the part of all concerned. However, it is believed that a systematic approach to the prob- lem of preparing a balanced budget and completely financed ap- propriation act will tend to encourage the exercise of good judg- ment in the handling of state finances, and with this idea in mind certain suggstions are advanced in the following paragraphs, dealing with the steps involved in the preparation of the regular biennial appropriation act. A somewhat unusual situation confronts the next legislature in the preparation of its next appropriation act by reason of the fact that at the last session the General Assembly committed the state to the proposition of changing the fiscal year so that com- mencing on January I, 1929, the state’s fiscal year will correspond to the calendar year instead of ending on June 3oth, as is the arrangement at present. This will mean that in the preparation of the next appropriation act the legislature will be called upon to enact an appropriation covering an eighteen months’ period commencing July 1, 1927, and ending December 31, 1928. Under present financial arrangements the Governor’s budget and the appropriation act must be prepared several months in advance of the commencement of the period to which they apply. Consequently the approximate financial condition of the state as of the beginning of the period to which each budget applies, must be estimated several months in advance. When the change in fiscal period goes into effect as of January I, 1929, appropria- tions will be prepared some time after the beginning of the period to which they apply and complete information can be made avail- able upon the financial condition of the state as of the beginning of each biennium. _ In view of the fact that the Governor’s budget for the eight- een months’ period for which the legislature must provide ap- 116 REPORT OF JOINT LEGISLATIVE COMMITTEE propriations at its 1927 session will be prepared pursuant to ex-. isting statutes prior to the meeting of the General Assembly, only limited changes can be made in the budgetary procedure of the state in dealing with the next fiscal period. Certain suggestions are incorporated herein which can be applied by the legislature at the coming session and other suggestions are presented ap- plicable to budgetary procedure after 1927, which suggestions might well be considered at the coming session of the legislature and formulated by statute into rules covering the subject and to go into effect in connection with the preparation of the budget and appropriation act for the fiscal period 1929-1930. Recommendations Applicable to the Preparation of the Next Appropriation Act.— The following recommendations are presented for consideration in connection with the prepara- tion of the next budget and appropriation act and adopted for _ permanent practice: A. It is suggested that the legislature request detailed estimates of the probable revenues from every source accruing to each state fund from the Governor and also from the Auditor of State. These estimates can be checked against each other and differences of opinion can be reconciled by calling in the various officials concerned, thereby enabling the members of the appropriate committees to arrive at a reasonably sound estimate of what the probable resources of the state will be in the period provided for in the appropriation. B. It is suggested that the efficiency of legislative action in the preparation of the appropriation act could be increased and considerable time and inconvenience could be saved by es- tablishing a policy of having joint sessions of the Senate and House Finance committees and having the same appro- priation act reported to both houses. This would obviate the necessity of having public officials appear more than once in connection with the departmental requests and also would facilitate the ironing out of differences of opinion on pro- posed expenditures earlier in the proceedings. C. During the last few years a number of so-called rotary and other special funds within the General Revenue Fund have been established. The practice has developed of making appropriations in blank without estimates of the receipts ON ECONOMY AND TAXATION 117 from various sources in furtherance of the functions which are responsible for the collection of these particular receipts. The cash receipts from the operation of the various func- tions on.a rotary fund basis are automatically appropriated without estimate to the furtherance of each particular func- tion. Contributions received from the federal government likewise are appropriated in blank for the purposes for which they are contributed without any estimates as to their amount. The result is that approximately 1/5 or 20% of the cash receipts of the General Revenue Fund are on this basis, which means in the neighborhood of $6,000,000 each year of cash receipts are appropriated without being esti- mated and without any definite limitations upon the amounts which may be expended for these purposes. This practice is the outgrowth of the establishment of functions based upon the argument that if established such functions would be self-supporting and consequently in order to measure the extent to which they are self-supporting the receipts derived from these functions have been dedicated to their particular advancement regardless of the extent to which such func- tions should be developed. It is believed that the theory of: this arrangement is unsound and that the underlying prin- ciple in making appropriations should be that whatever func- tions are justifiable in any case should be financed by ap- propriations to the extent to which such functions should be carried on without reference to the amount of revenue de- rived from such functions. In other words, all activities of the state government should be supported insofar as they can be justified by definite and specific appropriations and any revenue derived from the conduct of such functions should be placed to the credit of the General Revenue Fund with- out restriction as to its use. It is believed that most of the existing semi-official funds and rotary funds and appro- priations without estimate should be discontinued and abol- ished and the functions involved placed upon exactly the same basis as all other state functions. It may be desirable to continue the manufacturing and sales, printing and sup- . ply rotary funds, but in the event such rotary funds are con- tinued the legislature should provide that any balance in 118 REPORT OF JOINT LEGISLATIVE COMMITTEE these funds at the end of each fiscal year should be trans- ferred to the General Revenue Fund and placed at the dis- posal of the Board of Control for allotment. These suggestions as to the elimination of this method of making appropriations are advanced not only because it is believed that the practice is unsound tending to the over- development of certain functions but also that as a practical © matter* the present method of making appropriations has resulted in such complication in the state’s finances that few members of the legislature and very few administrative off- cers understand the present system. D. It is suggested that the present practice with respect to ap- propriations for current expense be changed so that the un- encumbered balance of all current expense appropriations will lapse at the end of each fiscal year rather than be car- ried over from the first year of each biennium into the sec- ond as is the present practice. E. It is suggested that so far as possible all appropriations ex- cept for such sundry claims, require a, two-thirds vote, be included in the regular appropriation act. Recommendations to Apply in Connection with the Budget for the Fiscal Period 1929 and 1930. — When the Gen- eral Assembly meets in 1929 it will need to prepare an appropria- tion act covering the period from January 1, 1929, to December 31, 1930, a period which will have commenced before the Gen- eral Assembly meets. It might be well during the 1927 session for the legislature to establish certain requirements in connection with the preparation of a budget by the Governor for the fiscal period commencing January 1, 1929. It is suggested that in the future the Governor be required to include in his budget the following information: A. A detailed estimate of the probable cash receipts of each fund from each and every source for each year of the bi- ennium covered by the budget. The Auditor of State should ‘be required to submit an independent estimate of such re- ceipts also. : ON ECONOMY AND TAXATION i 119 B. A detailed comparative report by the Auditor of State of. actual receipts of each fund from each and every source for each year of the two bienniums just closed. C. A statement of the unencumbered balances on hand in each fund at the beginning of the biennium covered by the budget. D. A summary of the estimated balances, receipts and expendi- tures in each fund and all funds combined for each year of the biennium covered by the budget; also a summary of pro- posed expenditures by each department and subdivision, dis- tinguishing between current and capital purposes. E. When necessary to balance the budget, recommendations for raising additional revenues. Immediate Expenditure Curtailment Recommended. — It is apparent from an examination of the state’s finances during the current biennium that the Governor and the legislature are faced with the necessity of developing sources of additional rev- enue which will increase the annual resources of the General Revenue Fund of the state by several million dollars. It is be- lieved that this task will be extremely difficult even if the present fiscal year is completed without an actual deficit and that in the event there is a substantial deficit at the close of the present fiscal year the task of increasing the revenues to meet future de- mands and at the same time make up the deficit incurred during the current year will be exceedingly difficult. In view of the fact that unless an immediate and drastic policy of curtailment not only of capital expenditures but likewise of current expenditures is inaugurated, a substantial deficit on June 30th, 1927, will in- evitably result. Consequently it is recommended that such a policy of drastic curtailment be put into effect without delay in order that a revenue program designed to meet the future needs of the state can be developed at the 1927 session of the legisla- ture without having the situation further complicated by a sub- stantial deficit at the close of the current fiscal year. CHAPTER VII A Financial Program for the State The state government faces an acute financial problem as revealed by the examination of its financial condition made by your Committee. The days of living to a considerable extent upon an accumulated surplus are over. If continuation of the building of capital improvements and of the present activities of the state without diminution or retrenchment is contemplated | very substantial additional revenues must be found. If only capital improvements now appropriated for are to be completed and no retrenchments in operating expenses are made, additional revenue will be required. In order to avoid a deficit June 30, 1927, it would appear (1) that capital outlay expenditures for the year 1926-1927 should not exceed $4,000,000 including highway build- ing, (2) that operating expense chargeable to specific appropria- tions should be held to a figure approximating $22,000,000, and (3) that in order to finance total expenditures of $26,000,000 for the year the legislature will need to authorize the use of all unused balances of special and rotary funds for other general fund pur- poses. As developed in the previous chapter the total authorized and unexpended appropriations June 30, 1926, were estimated at about $39,000,000. Total resources to finance these appropriations were estimated at about $26,000,000. Upon this basis total appropria- tions for the last year of the current biennium are unfinanced to the extent of $13,000,000 or thereabouts. Under this forecast it is apparent that present capital outlay appropriations cannot be financed without substantial increases in revenue and no additional projects can be thought of without still greater revenues being required. No General Tax Revision Feasible at Present. — In view- ing the financial problem confronting the state your Committee contemplates no general revision in the revenue system now ex- isting. It does not deem a general revision feasible nor even within the realm of possibility until the constitution is amended (120) ON ECONOMY AND TAXATION 121 to abolish the uniform rule. As a practical matter no business income tax or personal income tax could be substituted in whole. or in part for the present indirect taxes while the uniform rule remains intact. The Present Tax Burden on Business and Industry — Your Committee made a serious and diligent effort to discover the relative burden of taxation upon the various classes of in- dustry and business within the state. The results of this study are reviewed in another chapter, but they are as yet not adequate to form a basis for a complete revision and equalization of the present excise, franchise and other state taxes. A superficial study of state taxes would indicate that certain of these are out of proportion to others, e. g., steam railroad and insurance excise taxes as compared to the similar taxes for tele- phone, light and power companies and as compared to the present corporation franchise tax. Your Committee recommends that the 87th General Assem- bly provide for the continuance of the tax burden study so that it may have a broader knowledge of the relative tax burden on various kinds of business and industry upon which to base a gen- eral equalization. Despite its incompleteness a great deal of valu- able information has been collected and tabulated, but because of the difficulties encountered and the need for more time the study has not been carried to a point where its full usefulness can be realized. The Immediate Problem.— Immediate pressing is the condition of the state treasury. It is not within the scope of the powers of this Committee to determine upon a detailed financial policy for the state for the next biennium. The law imposes on the Governor the duty of preparing and recommending a budget for the period from July 1, 1927, to January 1, 1929. It im- poses upon the legislature the consideration of that budget and the adoption of a revenue and expenditure policy. Your Committee desires to point out, however, the problem with which the Governor and the legislature are presented. Dur- ing the past two years the state has been expending between seven million and eight million dollars more than the current revenues for this period. Under existing laws no material increase in revenues can be anticipated and the treasury surplus previously [22 REPORT OF JOINT LEGISLATIVE COMMITTEE existing is exhausted. In fact, unless the executive departments reduce the expense of government there will be a substantial deficit on July 1, 1927. Three alternatives are presented to the state. : f Reductions in the cost of the current operations of the state government may be obtained by a revision of ‘expenditure plans for the remainder of the biennium. This Committee did not have the funds to undertake any comprehensive examination of the various departments of the state government. In its opin- ion the securing of further economies in these departments is a matter which is within the discretionary power of the chief ex- ecutive. By utilizing more fully the provisions of the reorgani- zation code economies in some degree can undoubtedly be se- cured. So far as is known the executive department has not exercised the powers of combining departments and eliminating personnel given by this code. Your Committee does not believe, however, that the legisla- ture is in a position to make any great reductions in the budget requests of the various operating departments or to pass upon the question of whether there is duplication of effort among the departments or whether they are employing three clerks here and there where two might do the work. The legislature will practically be in a position where it must continue the rate of expenditure for current operations.much as it is. It may be said in this connection that reliable statistics indicate, generally speak- ing, that the state government is not operated upon such an ex- tensive scale as are many other states. It is concluded, therefore, that with the assistance of the Governor it may be possible to cut expenditures somewhat but probably not to an extent which will prevent a deficit at the end of the current biennium. 2. If no new taxes are to be levied at the next session*of the legislature it will be necessary to eliminate practically all new capital outlay projects with the possible exception of several mil- lion dollars to meet the federal appropriation for roads so that this sum may not be permanently lost to the state. The appro- priation for capital outlay during the current biennium amounted to approximately $19,000,000. In the opinion of your Committee an annual expenditure of nine million dollars for roads and all ON ECONOMY AND TAXATION 123 other types of permanent improvements is not extravagant but it is, of course, not absolutely essential. As contrasted to a situ- ation where a large treasury surplus existed the desirability of new capital improvements must now be balanced against the disadvantages of levying additional taxes. 3. If the present rate of current expense and permanent improvement expense is to continue it will be necessary to levy additional taxes which will produce substantial additional reve nues. Your Committee has, therefore, given serious considera- tionion to how additional revenue might be raised and has cer- tain concrete suggestions to make which are made in the order _ of their importance. _ (a) The Corporation Franchise Tax — By reason of the recent repeal of the Federal Capital Stock Tax the present cor- poration tax law must be amended. This law provides that in determining the base upon which the tax is to be made the value of the capital stock should be that which was fixed under the Federal Capital Stock Tax. A new base in the legal sense must be provided. However, the essential basis of the law, namely, a tax on net worth, is sound. | The Committee offers a bill which follows the general prin- ciples of the existing law assessing the tax upon the net worth of the capital stock of the company. (In the case of foreign cor- porations the tax is to be apportioned according to the propor- tionate amount of business done and property owned in the state so as to comply with constitutional restrictions laid down by the United States Supreme Court.) For determining the tax base’ the bill provides: “For the purposes of-this act, the value of the issued and outstanding shares of stock of any such corporation shall be deemed to be the total value, as shown by the books of the company, of all the assets of the cor- poration, including all its real and personal property but excluding patents, trade-marks, formulas and good will, remaining after deducting therefrom its total liabilities including reasonable reserves for depreciation, depletion and taxes except its liabilities on account of capital stock, surplus, undivided profits and all other reserves and unrealized losses; provided, however, that the tax commission, in the absence of satisfactory information with respect to such assets and liabilities, may find the value of the issued and outstand- ing shares of stock of any corporation to be the sum of its capital and sur- plus, whether earned or unearned, and its undivided profits.” 124 REPORT OF JOINT LEGISLATIVE COMMITTEE The proposed plan avoids the necessity of filing a balance sheet by the company but permits a company to do so in support of the value it places upon its capital stock. The existing law produced during the fiscal year 1925-26, $3,870,000 from domestic corporations and $708,000 from for- eign corporations, the collections during the fiscal year 1926-27, will presumably be quite similar in amount. Comparing this an- nual revenue with that secured under the old “Willis Act,” prior to the court decision which relieved foreign corporations, there was a reduction as compared with the fiscal year 1923-24, of $1,600,000 for domestic and $361,000 for foreign corporations. It may be assumed that the value of the capital stock of Ohio and foreign corporations under the proposed bill will be much the same as under the present law. It will be seen therefore that if the rate be increased from 1/12 of 1% to 1/10 of 1% the revenue to be derived from domestic corporations will be about $4,650,000 and that from foreign corporations about $850,000. If the rate were 4 of 1% the total revenue produced would presumably exceed slightly that secured under the original “Willis Act”. Since there has been some considerable loss of revenue under the present franchise tax as compared with the previous law it is reasonable that this revenue be restored. (b) A Mortgage Recording Tax—Some years ago a law was passed providing for a mortgage recording tax and exempting this form of credit from the general property tax. This act was held unconstitutional as being in conflict with the uniform rule requiring that all property be taxed according to a uniform rule at its true value in money. In 1918 the consti- tution was amended, Article XII, Section~2, to provide that laws might be passed to prevent the double taxation of real estate and of mortgages or the debts secured thereby. The law which was declared unconstitutional prior to the enactment of this con- stitutional amendment was repealed in 1925. It is suggested that a mortgage recording tax law might be enacted similar in character to those which are in operation in various other states. If this were done mortgages or the debts secured thereby should be exempted from the general property tax. The rate of the tax might well be the same as that applying fr ON ECONOMY AND TAXATION 125 in New York and Michigan, i. e., 1/2 of 1% of the face value of the mortgage. According to the report of the Secretary of State for 1924 there were recorded within the state during that year mortgages, exclusive of those on railroad property, to the aggregate value of about one billion dollars. A tax of % of 1% upon such re- cordings would have produced approximately $5,000,000. Such a tax would presumably produce revenues of from $4,500,000 to $6,000,000 annually and would constitute an important source of income for the state government if no division of the proceeds was made with the local governments. The question of whether a division of the proceeds should be made must of course be considered since presumably mortgages would be exempted from the general property tax. What loss of revenue to local governments would result from such an exemp- tion? A precise answer cannot be given. However, it is be- lieved that the loss of revenue to local subdivisions would be small indeed. This would seem apparent from the fact that in 1924 the value of all credits assessed for taxation was $366,- 080,737, whereas the total grand duplicate was $12,250,389,725. What portion of the $366,000,000 represented mortgages or notes secured thereby is not known since this information is not segre- gated in the tax valuation statements prepared by the various counties. It is known that there are other sorts of credits such as accounts receivable which make up in value a considerable por- tion—perhaps a half or more—of the total involved. The total loss of revenue to all taxing districts combined might not be over, $1,000,000 and certainly not over $3,000,000. Total general property taxes levied in 1924 were $245,000,000. So that on the average the loss to local governments presumably would be about Y of 1% or perhaps 1% of their tax revenues. It would therefore appear that in view of the acute financial condition of the state on the one hand and on the other hand the inconsequential loss of revenue to local governments by exemp- tion of mortgages from the general property tax no attempt should be made to allocate the proceeds of a mortgage registry tax be- tween the state and its subdivisions. If such a tax were adopted it is believed that the state should receive the entire proceeds minus the cost of collection at least until its financial condition is substantially improved, : 126 REPORT OF JOINT LEGISLATIVE COMMITTEE The tax is one which is easy of administration. It would be computed and collected at the time the mortgage is recorded. Nor would this add greatly to the work of the recording officer. Provision might well be made in such a law for the exemp- tion from the general property tax of mortgages which had been recorded prior to the passage of the act by declaration and pay- ment of the registry tax. This also should increase the revenue from the tax during the early years of its application. (c) A Stamp Tax upon Conveyances, Deeds, Etc.—In connection, with a mortgage registry tax a stamp tax upon deeds and conveyances might well be considered. The Federal Income Tax Law of 1924 provided a stamp tax upon bonds of five cents per $100, capital stock issued five cents per $100, capital stock sales or transfers two cents per $100, conveyances, deeds, etc., fifty cents between $100 and $500, fifty cents for each extra $500. These stamp taxes for bonds, capital stock issues, con- veyances, etc., produced $806,664.58 from Ohio for the fiscal year ending June 30, 1925; from capital stock transfers $58,- 049.06. These federal taxes have since been repealed. It is suggested that a similar tax might be enacted for deeds and conveyances by the state for state revenue purposes. If the same rate were used such a tax would produce presumably an amount similar to that secured under the federai tax upon these instruments. A stamp tax of this kind is easy to collect and is indirect in character. It would constitute a revenue measure of some importance. One important collateral benefit would be that it would aid assessing officials materially in determining the tax value of real estate. The tax is suggested only for deeds and conveyances, since Ohio now taxes the issuance of new capital stock, and in the case of stock transfers the small amount of revenue to be realized would scarcely warrant levying the tax. Mortgages should be exempt if subject to a registry tax. (d) £xcise Taxes— The rates for the excise taxes upon the various classes of public utilities vary considerably in amount at the present time. Vor example, the rate upon steam railroads is 4% upon gross earnings from intrastate business, whereas upon electric light companies and telephone companies the rate is 1.2% of the gross receipts from.intrastate business. Again, the ON ECONOMY AND TAXATION 127 rate upon instirance companies is 2.5% of gross premiums upon risks within the state. There would seem to be no rational nor compelling reasons for such variations in rates. The Committee had hoped to be able to complete its tax burden study in order that it might undertake a thoroughgoing equalization of the vari- ous state taxes if this seemed to be required. However, it would appear that in the case of these series of excise taxes some meas- ure of equalization would be justifiable where rather striking differences in rates exist. But since the state government is confronted by the impera- tive need of additional revenue it scarcely can be suggested that the rate upon steam railroads be lowered. On the other hand the rather adverse economic conditions under which many electric railroads operate would argue against raising the low rate of 1.2% which they now enjoy. Rather the legislature should look to those classes of utility companies which enjoy a low rate and which, generally speaking, are having an increasing volume of business. It is believed that electric light companies and tele- phone companies offer very good examples of this combination of circumstances. The following table indicates that this is the case: ! REPORT OF JOINT LEGISLATIVE COMMITTEE 128 ‘0g aded ‘egegl ‘UOIssIMIMIOD xe OTYO 24} jo jsoday [enuuy ‘aSbalIIIp Sa}edIpuy y L68 ‘880 ‘T¢e$ ! papa Mex T2S ‘698 ‘ 8rE$ | 68 ‘ZEr ‘cost | FOS‘ TSS'PES$ | PIO‘'TIO’S6ZS [ROL 166 ‘1S¢‘T corosr‘T = | PrP TIFT 88°E8s'T | OFP‘O9E'T G¥G' SBI T Tretestrssssss* SHIOM Jae M CEP F8E 698‘ 80 GFT‘ F9% 6FI ‘OFZ 926 916 88L' 6B srretes* woRneyodsursy 19}e 18L°96¢ 769 PLS B8F‘S9¢ PIG Ses 689‘ €F9_ 981‘ FITS PORE OSCE, MOSES | 918918‘ FF OSL‘ S6L'0F | B8F'9ES*8E | GLG“OST'TE 086‘6S8'0E | OTS°808'0E Dee iiaee ce Oe ae, 820200 'T 188° 146 106‘ F00'T | G02 FEL, 61L' 196, CSO TERO nat ait eee ts cy pee 190 ‘99802 BES‘ T6T‘9L | BL¥°eVS‘9L | 6LO‘F19'SL OGF SIT'98 | -O605C6L.e8. fo | Gequinejuy TEL ‘GES ‘18° OTS FES'86 | SFS‘80F'SOT | OFS*F6S'98 | OL8°POS'6OT | SOF LEZ'r6 nrreeesessss. speosiey wWeais 961‘ 989°T 8e¢ ‘TIS 'T C6L‘TIT‘T LE6 ‘LETT 789 ‘O18 ‘T 0¢0‘ L219 Sa Eee oe Ee OO | aes £09‘ 06L L66‘9S9 EFS ‘8E9 086‘ P59 | 19% ‘8S 009‘ L&F srr s* Teusig pue Josuassayy 80 ‘8ST 69 ‘TST | 6896S 666 “9TT SbF SEI 620 °86 pon"? Buyoo) pus. Sunroy G29 ‘ZF0'S SPP LIS‘ 6F8‘FL9'S | 6ar‘S8e's | €86 ‘OFT ‘F TOLER Er hires oto ee ssodxq 199‘ 08‘ 8 L6E ‘FSI ‘08 | SS8‘3S6‘0L | SIP ‘646 ‘Th G18 1683-68-51 868 S68 08-85) 2h eT ee ges‘oor‘se | 66r‘2e8'LS | SZL°ST9‘Sts | FT0‘690'OSS +| LOE‘OET “GSS | SPB'EPs css | Se TeanjeNn ecy ‘F21$ [eae oN PE PES ge bi ie i ee Coe steer eee raes[rrrsr errr sees ssfios eter sense serseve Sex) jenyiay | | C361 | F261 861 B61 16T 0261 Auedwioy Jo ainjen SLdIGOaTU SSOUD UNV SONINUVA SSOUD — NOILVINLIdvoaa ITAX HWIdVL ON ECONOMY AND TAXATION 129 It is believed therefore that an increase in the rate of the tax might be made in the case of electric light and telephone com- panies. The present rate in each case is 1.2%. Such an increase probably should not exceed 1%. In view of the large volume of business which these classes of utilities now are doing even a moderate increase in the rate of the tax would produce a sub- stantial increase in revenue. (e) A Billboard Tax—A further possible source of reve- nue of some little importance might be found in the taxation of billboards. While advertising signs of this sort are not permis- sible within the rights of way of our state highways the pres- ence of these state constructed and maintained arteries of travel creates the opportunity for the extensive and profitable use of the billboard along these rights of way. This being true it is not unreasonable for the state to levy some sort of special tax upon this form of advertising. Cities have enacted billboard taxes to some extent. It is quite as appropriate that a state gov- ernment should levy such a tax. The usual method which cities have employed is that of levying a tax of a certain number of cents per square foot or square yard of billboard space. A spe- cial state tax of this sort might well be given consideration. In conclusion it may be said that your Committee believes that if additional revenues are sought the additional burden should not fall solely upon one class of taxpayer or one class of prop- erty. Therefore more than one source of revenue should be em- ployed and the rates of taxation adjusted accordingly. It is be- lieved that all of the foregoing suggested sources of revenue are proper and feasible under present constitutional provisions and limitations. CrdG) asia a Gy SECTION Ill CHAPTER VII THE GENERAL PROPERTY TAX AND A MODEL TAX PROGRAM THE GROWTH OF DELINQUENCIES (131) CHAPTER VIII The General Property Tax and a Model Tax Program The Growth of Delinquencies Abolition of the “Uniform Rule”. — Your Committee rec- ommends that the uniform rule of taxation as contained in Article XII, Section 2 of the constitution be repealed. The specific lan- guage involved is as follows: “Laws shall be passed, taxing by a uniform rule, all moneys, credits, investments in bonds, stocks, joint stock companies, or otherwise, and also all real and personal property according to its true value in money”. The removal of this language from the constitution would require the favorable action of the voters of the state. The Supreme Court of the state has declared that Article XII, Section 2, constitutes a limitation upon the power of taxa- tion vested in the legislature by Article II, Section 1, of the con- stitution. (See ror O. S. 132.) The Court in the same decision declared that Article II, Section 1, includes within the general legislative power granted the general assembly the power of taxa- tion in general. Therefore it would appear that with the uni- form rule provision removed from the constitution the legis- lature would have adequate power to deal with the whole subject of taxation. Presumably no further grant of power would be necessary other than that contained in Article II, Section 1. The Committee’s reasons for this recommendation are as follows: 1. The uniform rule, it believes, is unsound in principle. The uniform rule and its resultant form of tax — namely the general property tax — assume that all property of whatever kind and of whatever earning power is equally able to pay taxes according to its true value in money. It scarcely needs argu- ment to prove that different classes of property do not have equal tax paying ability. Can it be argued that a bond secured by land, buildings and equipment has a tax paying capacity apart from the actual value and earning capacity of the property which is mortgaged? The answer is self evident. The same reasoning (133) 134 ‘REPORT OF JOINT LEGISLATIVE COMMITTEE applies to the capital stock of a corporation. Shares of domestic corporations are tax exempt by law which statute is a tacit ad- thission of the unsoundness of the uniform rule. Much tangible personal property has no tax paying ability at all. Can it be argued that household goods, clothing and ornaments have any tax paying capacity? Obviously they do not. This is recognized to a limited extent by the clause in Article XXII, Section 2, providing that the legislature may exempt personal property from taxation to the value of $500 for each individual. Various other states having the uniform rule are much more liberal in personal property exemptions than is Ohio. All such exemptions are but a practical admission of the unsoundness of the uniform rule and the general property tax. Upon these points we quote from Harley L. Lutz, Ph. D., a national known tax authority, in his able treatise, “Public Finance,” pages 326-320: The general property tax “is still regarded by many people, and in those states which have resisted all attempts at modifica- tion evidently by a majority of the people, as a counsel of per- fection. Nevertheless, its increasing inadequacy has long been recognized by all qualified students of the system, and by all those who have found it an easy matter to reduce their taxes under it, or to evade them entirely. “The theoretical defects, as we have termed them, are in the assumption that property and property rights, taken as a homogeneous whole, constitute an adequate and comprehensive measure of the ability of all citizens to pay taxes. That is, the general property tax rests on the assumption that a given amount . of any one kind of property or property rights represents the same degree of taxpaying ability as that to be found in an equiv- alent amount of any other kind. A further assumption is that property 1s a sufficiently broad measure of ability to reach all persons who have any taxpaying ability. As we have suggested, these assumptions may have been sound enough for practical purposes under fairly simple economic conditions; they became increasingly unsound as the simple conditions of border agricul- ture and handicraft industry gave way to the complex economic structure of modern life. They are absolutely untenable today. __— The first of these assumptions, that property is like a yard- stick and always measures the same amount of taxable capacity, is untenable today because it ignores the changes in the forms and character of property and property rights that have come with modern economic and industrial evolution. One of the ON ECONOMY AND TAXATION 135 most significant aspects of this evolution has been the continued splitting up of the forms of property and the indefinite subdivi- sion of rights and interests in property, until we have at the present time a vast and complicated series of such rights. The | corporation issues stocks and bonds of numerous types, each of which represents a different relation in which the holder may stand to the income, the management or the risks involved in the corporate enterprise. The mechanism of modern trade gives rise to drafts, acceptances and notes, while the modern bank creates deposit credits payable in money by the simple process of dis- counting a note and crediting the borrower with the proceeds of the loan. All of these forms of intangible property or prop- erty rights are useful and convenient devices which have been developed for the purpose of representing different degrees of ownership and control of the underlying economic goods. Their development is indicative of the way in which the interests in wealth have been subdivided in order to improve the effectiveness of our use of wealth for the satisfaction of wants. This sub- division has produced a vast mass of so-called intangible property rights, of which stocks, bonds, notes and bank deposits are ex- amples. For the most part these intangibles represent some kind of interest in or control over economic goods somewhere.* They would be valueless otherwise. Income obtained through their ownership is drawn from that which is produced through the creation, use or sale of tangible wealth. As this income flows from the processes of production it is split up into various por- tions, one of which may go to the holder of a savings account, another to a bondholder, another to the owner of preferred or common stock, and so on. Some of these portions are strictly limited in amount, regardless of the total income which a given enterprise may yield. “Two results follow from this development of intangible property rights, both of which are fatal for the original assump- tion of the general property tax. The first is that these various forms of legal property no longer represent equal degrees of capacity to pay taxes since the amount of income that may be realized varies widely with different forms. The second is, that regardless of the differences in income-yielding power, the taxa- tion of all intangibles as property, in addition to the taxation of *We recognize that some intangibles, such as patent rights, copy- rights, trademarks and business good will, do not represent definite tangible goods. The impossibility of separating all intangibles into these two classes compels us to treat them all alike, but the aggregate of those which do not constitute evidences of tangible wealth is not sufficient to invalidate our analysis. & 136 REPORT OF JOINT LEGISLATIVE COMMITTEE the tangible property which these intangibles represent and rest upon, is double taxation.* It is counting the same thing twice over. We must conclude, therefore, that the property concept no longer contains such simple and homogenous elements that any part of it may be regarded as indicating a degree of ability equal to any other part. We have said nothing of personal be- longings, household goods and other entirely unproductive forms, which are considered, according to this tax, to indicate a great degree of taxable capacity as any other kind of property. A certain amount of these forms of property is frequently specifi- cally exempted from taxation, but this policy is really an admis- sion of the weakness of the general property tax. If property is the measure of ability, then all degrees of possession must represent some degree of ability and to this extent the owner should contribute. “The results of our analysis may be set forth more con- cretely by an illustration. Let us suppose that an individual has a farm which, with all equipment, represents a value of $100,000. According to the theory of the general property tax it would be reasonable to assess him for that amount, provided a full value assessment could be generally made. Suppose, now, that for any reason whatever, this farmer should decide to incorporate his farming business, and that he transfer his title to the land and other property to a corporation, taking in exchange the com- pany’s stock, valued at $100,000. The company’s assets would consist of the farm property and equipment, worth $100,000, while its liabilities would consist of the stock held by the original ‘owner of the farm. According to the theory of the general prop- erty tax, strictly applied, this simple step of incorporation has created $200,000 of property for taxation, consisting of the $100,000 of tangible property which would be taxed to the cor- poration, and the $100,000 of stock which would be taxed in the hands of the owner. It must be clear enough that the mere act of incorporation has created no fundamental wealth, and no tax- able capacity, that did not exist before. An assessment of $200,000 would actually be counting the same wealth twice. The shares of stock represent simply another way of controlling and managing the economic goods formerly held outright by the farmer. These shares have value only if there are genuine cor- porate assets and a real earning power beneath them. They are in the truest sense representative property, or rights to property, and unless the property itself, in the form of economic goods, really exists somewhere, they are the merest scraps of paper. Everyone who has made a mistake in his investments is in a position to realize acutely just how worthless they are. *An exception is made in the preceding note. a . z 4 - na ON ECONOMY AND TAXATION | £47 “It is as true of most other forms of intangible property as of corporation stocks that they are simply representative of economic goods, from which they derive whatever value and in- come power they may possess. Yet every case of the assess- ment of intangible or representative wealth as being co-ordinate with the tangible wealth upon which it rests, is just as clear a case of counting the same thing twice as it was shown to be in the above illustration. The assessment of the property of the corporation and of its stocks and bonds under the general prop- erty tax really means that its assets and liabilities are added to- gether to determine the total value for taxation.” Ohio is now a highly developed industrial and agricultural state. Property within its domain is of many diverse kinds. The development of its industrial and commercial life has meant the growth to vast amounts of various classes of intangible prop- erty and “representative wealth”. Most intangible property has a fixed rate of return which depends upon the earning capacity of real and other tangible property. Personal tangible property is of a great many different sorts, but much of it is in the form of consumable goods which have no productive capacity what- ever. Real property constitutes another class, and so far as the actual application of the general property tax is concerned, the principal class of property. Yet despite the wide differences in the kinds and productivity of these various classes of property Ohio still attempts to tax them all (except for certain exemp- tions) according to a uniform rule. The uniform rule and the general property tax may have been wise and proper in Ohio seventy-five years ago but they are no longer tenable in the judg- ment of your Committee. 2. The uniform rule cannot be enforced. In the case of intangible property no workable methods can be devised for securing the listing of any considerable amount of such property for taxation at high rates. Vigorous admin- istration will drive many owners of such property to invest such holdings in tax exempt securities or to locate such property out- side the state or in some jurisdiction in the state where assess- ment practice is less severe. Many owners will sequester such property running whatever risk may be involved rather than declare it and have it taxed at rates which they believe confisca- tory. 138 ON ECONOMY AND TAXATION If assessment practice is lax only inconsequential amounts of intangible property will be listed and the uniform rule goes by default, resulting in the tax burden falling only upon those classes of property which cannot be hidden, chiefly land and buildings. In Ohio, where there has been as notable an effort to secure the listing of intangibles as perhaps in any uniform rule state, the total of such such property listed averages less than Io per cent of the total tax duplicate. In 1924, for example, the Secretary of State reports that mortgages, exclusive of those on railroad property to an aggre- gate value of about $1,000,000,000 were recorded in Ohio. The total value of credits, including mortgages, accounts receivable, notes, bonds, etc., listed for taxation in the entire state for 1924 was only $366,000,000. Money on deposit and listed for taxa- tion totaled $269,039,951 in 1924, whereas an examination of bank statements reveals that the total amount of money on de- posit in the banks throughout the state was about ten times that amount. No further illustrations should be necessary to point out the inescapable inference that vast amounts of intangible property are escaping taxation. Securing the accurate and full listing of certain kinds of personal tangible property, while not impossible, is very difficult. This is true of such things as household goods, wearing ap- parel and other personal belongings and to a considerable extent of farm products, livestock, poultry, merchandise and raw ma- terials. Much of such property is of relatively little value and scarcely warrants the expenditure of the necessary money and effort to secure its complete listing. This is particularly true of household goods and personal belongings. 3. The uniform rule is unjust and inequitable. The taxation of intangible property such as mortgages, bonds, shares of stock as well as the property which these instru- ments represent is double taxation. This would not be serious if the rate of taxation were sufficiently low. But with an average tax rate of 2% the double taxation resulting where both forms of property are in fact taxed, is a very serious matter. In effect the same wealth is being counted twice and the sum of the two Te et ay en ee ee ON ECONOMY AND TAXATION T39 values taxed at a high rate. Such a procedure approaches dan- gerously near confiscation. It issa well-known fact that while some intangible property is listed and assessed for taxation a great deal is not. This in- troduces another element of injustice for which there can be no defense. No system of enforcement yet devised ‘has succeeded in bringing any considerable percentage of the intangible prop- erty actually existing onto the tax duplicate at the high rates pre- vailing. Therefore it would appear that the injustice of having some intangible property taxed and a great deal not taxed can presumably be remedied only by eliminating the uniform rule. Even in the case of intangible property which does not rep- resent any specific tangible property such as money the present tax rate throughout Ohio is so high that it is equal to one-third or one-half of the current return upon money placed at interest. Money has a fairly fixed rate of return and a form of taxation which exacts any large percentage of that return is manifestly unjust. Real property tends to be unduly burdened under the uni- form rule. By preventing the taxation of intangibles upon an income basis or at rates sufficiently low to secure an adequate listing of them the uniform rule makes impossible the checking of the ever increasing tax burden on real property. Under mod- ern conditions the general property tax tends to become more and more a tax upon land and buildings and with the barrier of the uniform rule confronting it no legislature can do much to change this condition. It is doubtful whether real property should be about the only kind of property and the only important source of income called upon to support all local governments. Yet this is what a continuation of the uniform rule presumably means. This consideration leads logically to still another injustice which the inflexible uniform rule causes. There are many in- dividuals who own relatively little tangible property but who have a substantial earning capacity. The professional classes and the higher ranges of the skilled trades constitute a group whose chief stake is their technical knowledge or skill rather than pro- ductive tangible property. As a practical matter no personal in- come tax can be superimposed upon a general property tax. Therefore many individuals who have tax paying ability but I40 REPORT OF JOINT LEGISLATIVE COMMITTEE little property tend to escape from contributing their fair share to the support of their government. But under the uniform rule this injustice cannot be remedied. Another very serious injustice of the general property tax is that it puts a premium upon dishonesty and evasion. The conscientious citizen is penalized for his honesty, whereas those who evade the tax reap immediate and substantial benefit. Upon this point we quote a pertinent statement from Mr. Lutz, “Pub- lic Finance’, pages 349-350: “The advantage secured by dishonesty is so evident and so immediate and the corresponding penalties for disclosure of one’s intangible property are so severe, that evasion is virtually forced upon the owners of such property. We recognize that the highest dictates of morality afford no justification for violating the laws and committing perjury, but we insist also that there is no de- fense for a tax system which inflicts penalties so severe as to subject taxpayers to an irresistible temptation to evade.” 4. The uniform rule puts Ohio at a very serious disad- vantage as compared with states not having this limi- tation. In these days of free interchange of goods between all parts of the country there is much competition between industries lo- cated in different states. This applies to the products of agri- culture as well as manufacturing. If one state has a tax system which is less favorable-to agriculture, manufacturing and to business in general than the tax systems of surrounding and com- peting states, the state is suffering under a distinct handicap. Ohio is in such a position. Certain nearby states which have great industrial and agricultural development have tax systems which are notably more favorable and equitable to these vital activities. Of these New York and Pennsylvania are outstand- ing. Neither of these has the uniform rule in its constitution. Nor does either attempt to tax all classes of property according to a unform rule. New York does not attempt to tax intangibles including money on deposit as property at all. Its laws also exempt the tangible personal property of business corporations and motor vehicles, except those in the hands of manufacturers and dealers. Household furniture and personal effects to the value of $1250 > y a . f } : } , ; TNR, ON ECONOMY AND TAXATION I4I are also exempt. Debts may be offset against property. Thus it is seen that this great neighboring state has ‘no general property tax dominated by the uniform rule. . It hag eliminated the major difficulties, injustices and inequalities with which Ohio is handi- capped under the uniform rule. In place of Ohio’s attempt to tax all property under a uniform rule, New York has: a. A property tax upon real property and the personal _ tangible property of individuals, partnerships and pub- lic utility companies with the liberal personal property exemption of $1250 mentioned in addition to motor ve- hicles. b. eceiks 2,641,541 Vl A hay PURI ONE TR GO oe ie nea ae ICME ry PA ee ee 3,528,521 HRPM Re sede Dara 8 o.< nu ele Sie ole bps «RIN eAD Kass prays o's « Pate state 2,497,931 (a) 1908-1914—“Amount paid to weak school districts.” (b) 1915-1921—“State aid to weak school districts.” 1922-1926—“Educational equalization fund.” —From Annual Reports of Auditor of State. (c) The amounts of state aid annually disbursed are not an exact equivalent of the amounts annually allotted by the state department of education. In recent years it has been the practice to pass supplementary appropriations in the legislative years making good any excess of the allot- ments over the sums previously appropriated. This practice accounts for the marked fluctuations in disbursements in the last four years, 170 REPORT OF JOINT LEGISLATIVE COMMITTEE It will be noted that since 1919 the trend has been sharply upward with the present total cost to the state approximately six times that of 1919. Examination shows that the rural and village districts are generally speaking the beneficiaries of the present system. In fact in 1923-24 only 6 city districts and 3 exempted village dis- tricts received aid out of a total of 612 districts to which contri- butions were made. These 612 districts comprised 39 per cent. of all districts in the counties affected and 27 per cent. of all school districts in the state. The small number of city and ex-, empted village districts participating was attributable in part to the restriction then in the law that no such districts having a tax valuation of more than $4,000 per child would be eligible to state aid. Defects of Present State Aid System. — The present sys- tem of state aid is open to serious criticism. In the first place, in failing to make adequate use of the county as an agency for the equalization of school costs, the system imposes an exceed- ingly difficult administrative task upon the state department of education. Separate consideration must be given to the needs of each district which applies for aid. To make a thorough ex- amination of the case of each such district would require an ad- ministrative force well in excess of that now available to the state director of education. In recent years the number of dis- tricts receiving aid has varied as follows: Be ae SW ararhiik 9 boas el SLRs Ale: GUNN 8s py taicon cum my aaealiane phage 594 RO 2S50 OS, o euiain Se ee rae tacks eae 612 Lind 27.1: ares Ae AR ee ea eG Mona yig avs. hls GUE e oes 4 700 LOSS HON. seit wctur ome ay oo ks eeu ee are 652 Ft is questionable whether a system should be allowed to continue under which the department of education is to be held respon- sible for disbursing several million dollars annually to some 650 school districts without the facilities for gaining full first hand knowledge of conditions. An adequate administrative force should be provided or a system devised that will obviate the necessity for dealing with individual districts. Such a system can be based upon the use of the county as an equalizing unit. ON ECONOMY AND TAXATION ' GRAPH XII 171 STATE SCHOOL AID AND TAX VALUATION PER PUPIL ENROLLED, 1925-6 TWENTY-EIGHT CounTIES Havinc Lowest VALUATIONS State Aid Allotted Per Pupil County Enrolled* WCISS grit x ccs oe $ 25.49 GAIN “ii.<. ok 31.89 PACKSOM Wain centes 22.09 Adgims? 9... 6 0ccc. 38.76 PN EDEN Ec osc cis 21.33 PRODI 6... das eine» 33.76 Lawrence ..... 18.44 Guernsey ..... 13.61 Cleomont. ....... 17.65 A es) 29.69 EE ee 26.10 Mionroe= <1... 26.96 TSOLOMOEE zo s5.cs 5 9.71 Mocking ....5.4 25.74 Boowm oo... iss. 28.57 |S cae 18.22 Sa os a 10.05 Moroan, 2.2 A... PAGAL Highland ...... 19.74 VATED tics ah. oil eee ee Stee it ReOSShen een ele s:« 5.29 Columbiana ... .78 Coshocton ..... 4.98 Muskingum ... 7.21 Tuscarawas... 4.64 Greene ........ 1.74 Washington ... 14.16 PER Pupit ENROLLED Tax Valuation Per Pupil State Arp Per Pupit Enroiiep Enrolled ° 4109.20 °30 40 fey 4,780 ESS ASSAASSS 4,883 4,891 5,026 5,066 5,117 5,899 ee iN 6,292 6,927 NIAAAAAAAAANN 6,934 7,022 INAAAAAAAAAARAARAAN 7,102 Xi SSS SSSsy 7,276 7,534 SS) 78 7,638 SS 7808 € 47000 7.000 47,000 420000 Tax VALUATION PER Pupit ENROLLED * These figures are the amounts allotted for the year 1925-6, a part of which were actually paid in 1926-7. 172 REPORT OF JOINT LEGISLATIVE COMMITTEE A second criticism of the existing’ system is that it necessi- tates the payment of state aid to distrigts in counties which are amply able to provide for their own het It is not without significance that such wealthy counties as Hamilton, Lake, Ma- honing and Montgomery are regularly represented on the state aid list. In fact, in 1925-26 there were no less than 19 counties, containing state aid districts, which nevertheless had financial ability for the support of education greater than that of half of the counties of the state. This condition arises from the failure adequately to utilize the county as an equalization unit. It re- flects of course the failure of the present 2.65 mill school levy as an equalization device and in part indicates a poorly planned districting system also. Under a satisfactory system of state aid it would seem that the amount of aid should bear a fairly definite relationship to the wealth of the area affected, and that sections having substantially equal ability to finance their schools should receive approximately similar treatment in the apportionment of aid. It can.scarcely be said that such is the case in Ohio, as an examination of Graph XII will indicate. Though nearly equal in valuation per pupil, the four poorest counties varied from $22.09 to $38.75 per pupil in the amount of aid awarded them by the state in 1925-26. To cite another example, Monroe County with an average valuation of $4,883 per pupil was granted an amount equal to $26.96 per pupil, while Belmont County with a valuation of $4,891 per pupil was awarded only $9.71 per pupil. Obviously, under the present system the amount of state aid received bears but a very rough relation to the tax valuation available for school support, though ‘it must be borne in mind that tax valuations in Ohio cannot yet be regarded as a very accurate measure of taxable wealth. Nevertheless, they are the only measure that is available. Furthermore, the amount of state aid granted is by no means a constant or predictable sum. An examination of the amounts paid to school districts in the principal state aid counties in the last four years shows wide variations from year to year. In some counties the amount of aid has risen sharply, in others decreased materially ; and in some it has varied considerably both upward and downward. (See Graph XIII.) Local school finance is also complicated by the fact that the tax rate of the ON ECONOMY AND TAXATION 173 # 200,000 1922-3 1923-4 1924-5 1929-6 1922-3 1929-4 1924-5 1929-6 GRAPH XIII Amount or State Arp Pap To Districts in Six ImportTANT STATE Arp Countigs, 1922 to 1926 174 REPORT OF JOINT LEGISLATIVE COMMITTEE local district is fixed before any assurance can be given as to the amount of state aid upon which it may depend. Under the circumstances the management of local school finance is diffi- cult, to say the least, and planning is precarious. In so far as possible a system of state aid should be so devised that local officials may know with reasonable accuracy the amounts of aid upon which they may count in making up their budgets. There is need for better coordination between the time that applications for state aid are to be made and the budget making period of the local district and the state as well. It is to be noted that under recent legislation the calendar year has been fixed as the fiscal year for the state and all local governments. Tax levying and budget planning are related in the law to the new fiscal period. The applications for and the granting of state aid should be likewise adjusted to the calendar year. Another administrative defect should be touched upon and that is the failure of Section 7595-2 to accomplish its purpose. This section provides for the director of education calling for the advice of the state tax commission to determine in spe- cific cases whether the taxable property of certain districts is on the duplicate at a reasonable portion of its value. The tax commission when such requests have been made has stated that it had no staff assistance to conduct the necessary investigations. Rt has been unable therefore to render such service. It should be obvious that the integrity of a state aid system cannot be maintain- ed if certain districts secure such aid because they are success- ful in keeping the property of the districts undervalued for tax- ing purposes. Securing state aid by such method amounts to “sharp practice’ because it unfairly deprives needy districts of assistance which justice and fair dealing would accord them. Local districts cannot be left entirely to their own devices in these matters. Some disinterested agency of the state should be equipped to protect the state and the really needy districts against such a practice. The law quite logically has designated the tax commission as this agency and clothed it with necessary power. The effective exercise of this function necessitates an organization adequate to take care of the requests made by the director of education. Despite anything the legis- lature may be able to do, various districts will resort to this de- . ON ECONOMY AND TAXATION 175 vice for securing an unfair advantage unless some supervisory agency is in fact equipped to prevent such an abuse. “Ham stringing” the tax commission might well cost the state treasury hundreds of thousands of dollars through the granting of state aid to districts which, if property was properly appraised, could support the minimum standard without financial help. The last general assembly passed a reappraisal law (H. B. 130) under which appraisals have been going forward in many counties. What the results may be is not yet known, but they may have considerable bearing on the amount of state aid re- quired under the present system. Defects Summarized. — Criticisms of the present system of state aid may be summarized as follows: 1. Basing state aid upon a determination of the needs of from 600 to 700 individual districts annually imposes a very difficult task upon the state department of education, for which it is not adequately equipped. 2. Many well-to-do counties now contain school districts re- ceiving state aid which would be unnecessary if the county were treated as a unit for state aid purposes. 3. The amounts of state aid apportioned do not bear a suff- ciently close relation to the taxable wealth of the districts aided, and assessed valuations do not as yet provide as sat- isfactory an index of local financial ability as is required 4. The amount of state aid granted to districts in the principal state aid counties varies widely from year to year, making local financial planning difficult. 5. Under the present system there is a maladjustment between the period at which applications for state aid are made and the budget making period of both local districts and the state. Underlying Principles of State Aid.—JIn an effort to formulate a satisfactory system of state aid, certain principles should be kept in view. In the first place, a reasonable mini- mum standard of education must be financed throughout the state. Fundamentally, such a standard should be defined in terms of educational factors, but it is at present impossible to set up complete specifications of this type. For the immediate future, 176 REPORT OF JOINT LEGISLATIVE COMMITTEE therefore, the minimum standard must be defined in ferms of the financial support normally necessary for the maintenance of the desired educational offering. In the second place, thé system of state aid should be as de- finite and simple of operation as possible. The minimum stand- ard of support should be prescribed in sufficiently specific form so that it can be readily and accurately determined, and the method of providing the necessary revenue therefor should be such that the obligations of both state and local governments can be easily and definitely computed. To achieve this object in deal- ing with the 2400 school districts of the state, it is apparent that the computation of the minimum standard of support and of the amount of state aid must be based upon definite rules or formulae. A third principle which deserves attention is that the primary responsibility for the support of a minimum standard of educa- tion rests upon local government. A county whose tax pay- ing ability exceeds that of the state as a whole cannot with good grace seek state aid for its poor school districts, though such is now the case. Not only is it fair that the adjoining region, which is most closely affected by educational conditions, should bear the first responsibility for assisting the poor district, but such pro- vision is essential if reasonable simplicity in the administration of state aid is to be attained. When, however, a county is unable to maintain the required minimum standard throughout its area without excessive effort, the state must naturally make good the deficiency. Finally, the state should be protected against a needless volume of aid resulting from inefficient local school organization. If in a given locality the cost per pupil of a minimum educational offering is high because of poor school organization, that region should not be allowed to unload the cost of its own inefficiency upon the state. Proposed Plan for Support of a State-wide Minimum Standard. — While no system of state aid yet devised is likely to be entirely satisfactory, the following plan is suggested as be- ing administratively feasible and reasonably designed to accomp- lish the ends desired. The plan guarantees a minimum standard of school support in all districts as follows: ON ECONOMY AND TAXATION E77 1. An average of $900 per elementary teacher and of $1200 per high school teacher actually employed; the number of teachers not to be less than one for each 40 pupils enrolled nor more than one for 25 pupils unless specifically authorized by the state director of education. 2. An amount equal to 25 per cent of the allowance for teachers’ salaries to be used for miscellaneous current expenses. 3. The cost of transportation and board of pupils in so far as required by the law. 4. The cost of tuition paid to school districts in adjoining counties. 5. Tuition received from districts in adjoining counties to be deducted. A minimum school budget consisting of the above items would be prepared annually by the county superintendent of schools for districts within the county district and by the superin- tendent of each city and exempted village district. These budgets would be reviewed and approved by the county auditor and by the state department of education. Such budgets would of course provide only for a minimum standard of school operation and maintenance under normal conditions. They are not intended to cover debt and outlay costs, nor are they expected to meet the full demands of districts which can afford a higher level of educational offering. In so far as current operation is concerned, however, the factors included are believed to afford reasonably adequate support for an acceptable minimum educational offer- ing under prevailing conditions. Furthermore, they possess the merit of being concrete and ascertainable, which is highly desirable from the standpoint of administration. Since the responsibility for the support of public instruction rests jointly upon the state and the local government but in the first instance upon the latter, the plan associates the state and the county in the financing of the minimum standard. In all cases in which the amount required to support the prescribed standard throughout the county could be raised by a county-wide levy of not to exceed 5.5 mills, the county must meet the entire cost. In all other cases a county school tax of 5.5 mills would be im- posed and*the remainder needed to finance the minimum standard a fh oa a 178 REPORT OF JOINT LEGISLATIVE COMMITTEE would be borne by the state. In tentatively fixing 5.5 mills as the limit of the county school levy, a rate has been selected which avoids the necessity of increasing the state expenditure for school aid and bears a fairly close relation to the irreducible school tax of 4.65 mills (4.85 mills in municipalities having no township taxes) now being levied in most school districts. At the same time it is not so high as to impinge unduly upon other necessary levies within tax limitations. It should of course be noted that the rate of 5.5 mills is but tentative. Upon fuller examination it may be found that a somewhat lower rate will be sufficient. In counties not receiving state aid the county school levy would vary in accordance with differences in taxable wealth and in the cost of the minimum standard of school operation. Based upon the conditions of 1923-24, the last period for which suffi- cient data were available at the time of this study, the county school tax rate would range from about 2.5 mills in the richest counties to 5.5 mills ‘in the state aid counties. In addition to this county levy, each school district would be required to levy a tax sufficient to meet its own debt charges, and might levy such fur- ther taxes for school purposes as it desired subject of course to the tax limit laws. While the entire cost of the minimum standard in excess of the 5.5 mill county levy would fall upon the state under the plan, the state would, nevertheless, be safeguarded against unwarranted costs resulting from inefficient local school organization. Such protection arises from the provision that the number of teachers to be considered in computing the cost of the minimum standard shall not exceed one for each twenty-five pupils unless specifically authorized by the state. The important departures of the proposed plan from the existing scheme are the utilization of the county as an equalizing unit instead of the individual district, and the establishment of definite criteria for determining the cost of a minimum standard and the amount of state aid required in its financing. By placing upon the county the initial responsibility for the assist- ance of weak school districts, a partial equalization would be accomplished without state intervention, and the flow of state aid would be concentrated upon those counties having the greatest need. Many counties whose taxable wealth per school child exceeds the average of the commonwealth as a whole would cease ON ECONOMY AND TAXATION 179 to draw upon the state treasury. In fact, the number of state aid counties, 60 in 1925-26, would probably be cut nearly in half. At the same time the state would be relieved of the necessity of dealing directly with several hundred separate districts in the administration of school aid. In addition, more adequate assist- ance would be rendered to those counties which are in reality poor, while the total cost to the state would not be increased. In so far as can be estimated, an expenditure of $3,000,000 would be sufficient to provide the necessary state aid. The Plan and the System of Tax Limitations. — It might be contended that the theory of a compulsory minimum standard of education is inconsistent with the theory of tax limi- tation. However, under the proposed plan we can see no con- flict between the two systems. At the present time a school tax is levied within the fifteen mill limitation in every district in the state, which in practically no case is less than 4.65 mills and in country districts is seldom less than 5.65 nfills. In.connection with the new system of state aid a definite minimum of 5.5 mills within the 15 mill limitation should be set aside for school levies including the county school levy. In cases where the county school levy is less than 5.5 mills the local district would be en- titled to the difference. Of course where the limits permit it, the local districts could also secure additional taxes within the limitations, and the people can always vote additional levies, outside of limitations. The only districts where there might be a serious difficulty in securing the county school levy within the limitations would be those in which the sinking fund and interest levies within the limitations are excessive. This situation should be taken care of by authorizing the county budget commission with the approval of the state tax commission to place outside of limitations debt levies for all purposes where such debt levies exceed say 2 mills within the limitations. Under the provisions of the Krueger Act debt levies can never accumulate again in such volume within the tax limits, and if the situation is taken care of in a few districts, there will be no further conflict. The Committee is firmly convinced that it is a part of the state’s function to provide an education for every child in the state and that no child should be deprived of an education by reason of the poverty of the district in which he lives. CHAPTER X Reorganization of the School District System Small Districts. — Ohio is now divided into more than 2400 school districts, varying in enrollment from less than ten to more than 150,000. Among these districts are 210 which con- tain only a single one-room school. In these cases we have the absurd situation of a board of five members being elected for the administration of a one-room building and the appointment and direction of a single teacher. In several hundred other dis- tricts and in a few counties as a whole the number of school board members actually exceeds the number of teachers employed. In approximately 500 districts the number of children of school age is less than 100. Such districts are obviously too small to permit of efficient $chool organization and in particular to pro- vide for the maintenance of secondary education. Over a con- siderable part of its area Ohio is now attempting to supply high school education with an administrative unit which was laid out a generation or more ago for the purpose of furnishing ele- mentary education through the medium of the one-room school. Furthermore, it is quite apparent that the district which is inade- quate in point of numbers is often likewise deficient in taxable wealth for the support of a modern standard of education.. This division of rural areas into small school districts has greatly widened differences in taxable wealth behind the school system and increased the volume of state aid necessary for poor districts. Ohio in 1914 revised its entire school code and attempted to establish a county school unit. All parts of the county with the exception of cities and of villages of 3,000 to 5,000 popula- tion were to be brought under one administrative and supervisory control. As one factor of this organization the county board of education was given the right to determine school district boun- daries. Various other powers relating to nomination of teachers and principles, to determining course of study, etc., were dele- gated to the county board. Local boards were given certain rights in regard to the appointment of teachers, determination of particular curricula and certain minor duties. (180) “ON ECONOMY AND TAXATION ‘181 Illogical Districting Since 1914 the school code has been aimended until the pow- ers of the county board in regard to districting and to control of school policies have been vitiated to such an extent that many county boards today have little real power. Local jealousies have arisen among districts within the county so that it has been impossible to build a logical system. A study* was undertaken to determine accurately what con- ditions have arisen in Ohio due to present districting laws. The first step in this-investigation was the preparation of maps show- ing the actual districting existing in each county of the state. A tremendous amount of labor was involved in this task as about two years of almost continuous effort are represented. It was found in some counties that no maps had ever’ been prepared showing the local district boundaries. County superintendents were usually quite willing to co-operate, but often personal first- hand investigation was required to secure all the necessary infor- mation upon which to prepare an accurate district map. At last, however, maps for all counties were finished. A set of these is available to this Committee and to the General Assembly. The maps should be of the greatest importance to anyone interested in the subject matter of this chapter. Unfortunately this master set of 88 maps is so large that it cannot be reproduced for inclusion in this report. A careful perusal of the maps, however, will reveal astonishing conditions. Practically every sort of illogical, haphazard and unequitable local districting is represented. Reference is made in the following pages to a few instances of local districting which for the most part represent undesirable conditions. These instances are se- lected as being representative of typical conditions of various sorts which with few exceptions might be greatly improved. 1. In Cuyahoga County, Bratenahl evidently should be a part of the Cleveland district. 2. The Vermilion district of Erie County stretches approxi- mately to the corporate limits of Lorain. This long narrow strip includes considerable frontage on Lake Erie, and extensive track- * This. study was undertaken by Professor C. C. McCracken of the Ohio State University and his conclusions and recommendations have been incorporated in those of the committee. 182 REPORT OF JOINT LEGISLATIVE COMMITTEE age of the New York Central Railroad and the Lake Shore Elec- tric Railroad. Further comment should be unnecessary on this point. 3. In the northeast corner of Fairfield County is a small district with one one-room schoolhouse. This area is poor and the roads are not suitable for transportation. No one wishes to have this area and so it continues to remain an isolated one-room school district. 4. Hamilton County illustrates the fact that small special districts centering around local jealousies are still a vital factor in the administration of Ohio schools. 5. New Richland in Logan County illustrates how a small crossroads village may through local jealousy refuse to combine with large consolidated schools such as are found at Belle Center and Huntsville. 6. Medina County illustrates the effect of a good road as means of transportation. This is shown in connection with the Medina district. 7. Montgomery County illustrates how a small area on an important thoroughfare may refuse to combine with larger areas easily available. 8. Latty in Paulding County is an illustration of how a district carefully follows a railroad presumably for taxation pur- poses. 9. Putnam County offers several illustrations of so-called “shoe-string” districts. Such districts throughout the state are occasioned by church affiliations, tax valuations and the desire to be affiliated with a certain school. 10. Sandusky offers an illustration of the way in which an inter-county problem may be met. Green Spring, located on the boundary between Sandusky and Seneca Counties, belongs to Sandusky County and draws considerable territory from Sen- eca County. Old Fort, located in Seneca County, draws territory from Sandusky County. t1. Vinton County affords an illustration where little at- tention has been paid to consolidation. The old township organi- zation prevails. 12. Wooster Township of Wayne County shows a district that extends at least half way around a city. ON ECONOMY AND TAXATION 183 13. Wood County in general is a very well organized county. Yet it offers numerous illustrations of the small districts that have failed to join with a larger area. It also affords a striking ex- ample (Grand Rapids) of a district that receives a part of the 2.65 levy from another county without having it redistributed through its own county offices. Effects of Existing Districting The multiplicity of local districts within the county school district means a multiplicity of trivial duties on the part of the county superintendent. Darke County with 67 local districts? furnishes the worst example in Ohio, for here the county super- intendent must maintain contacts with 67 boards—68 including the county board—and assist them or direct them in educational and financial matters. It is a well-known fact that needs no particular substantiation at this point that there are in many counties local petty jealousies between district boards and be- tween district boards and the county board. These jealousies mean that the county superintendent must spend most of his energy in avoiding conflicts rather than in building up a real educational program. In the case of Darke County 67 boards means a total of 335 board members exclusive of five county board members. Each of these men may draw from $10 to $20 per year for expenses with an additional $2 for attending an annual meeting of board mem- bers of the county. This means that in Darke County the mini- mum amount paid to members of district boards will be $3,350; the maximum amount that could be paid would be $6,700, ex- clusive of $2 per member for attending the annual county meeting of board members. Were each board member to attend and draw his allowance this would add a total of $670 to the outlay for board members. The minimum per clerk will be $100 per year. Were the clerk of each of these boards to receive this amount there would be an expenditure of $6,700. It is not the purpose of this report to condemn the clerks, but there has been a great deal of com- ment to the effect that many are inefficient. Figuring on the mini- mum, Darke County is expending at least $11,000 per year for *Now @. 184 REPORT OF JOINT LEGISLATIVE COMMITTEE payment of expenses for local board members and clerk hire. . If this were figured on the maximum stated above the county would be expending over $14,000 for these officials. It is justifi- able to raise the question whether the expenditure of these amounts is reasonable in order to gratify local pride. Especially if we were to add the item of waste, due to inaccurate business procedure, often found, the question of the justification of such expenditures would be more doubtful. Location of School Plants The study which is presented here in part does not indicate the location of existing school plants. It has time and again been a matter of comment, however, on the part of those sub- mitting information that, due to the irregularity and the illogical arrangement of districts, schoolhouses can be found, in rival dis- tricts, within sight of each other. It can also be substantiated that districts have been inclined to urge the building of a first-grade high school even though another first-grade high school is avail- able within a radius of three or less miles. This phase needs to be checked more accurately, but so long as such a condition exists as is shown by the aforementioned maps, there is liable to be an undue emphasis laid upon the establishment of first-grade high schools when such are not warranted by the actual needs of the community. It is one of the points in the future continuation of this study to attempt to arrange a community of communities in those counties where the superintendents are willing to engage in such studies.1 The purpose is that in each community there might well be an elementary school while in the community of communities there might be a high school of probably a six years’ course of study. With the existence of small districts and petty jealousies, the logical placing of high schools to serve larger areas is entirely out of the question. Ability of County Board Members Much has been said in the past few years concerning the lack of ability of county board members as compared with city board members. The same point has been emphasized in regard to local board members in rural areas. Because of this criticism of the ability of the board members to conduct the affairs of *Such a study is now being made in Allen County. a a i ON ECONOMY AND TAXATION ~ 185 the schools, which the writer considers unfair, Mr. Charles Hoel of Bexley has been making a study during the past year of the qualifications of the county board members of Ohio for the du- ties which they have to perform. Mr. Hoel’s study of county board members is complete in the form of a master’s thesis in the Ohio State University. It indicates that the great majority of county board members are well able to perform the tasks con- nected with their positions. In the references which have been made to the jealousies of local boards it was not intended to cast any reflection upon the ability of these men for performing the duties which fall to their office, but rather to emphasize the undue stress which they are inclined. to lay upon the importance of their own districts as related to others. This is not meant, however, to: excuse any board members who are grossly incompetent in office. Types of County School Organization There has been agitation for the abandonment of local boards with the appointment-of a local representative from each district, with the idea that these local representatives should form an advisory committee to meet with the county board. The best illustration, probably, of this type of organization is found in the State of Alabama. Kentucky is an excellent example of a state where there are no local district boards and where the entire county with the exception of cities is under one board of five members elected at large. Students of school administration have looked with disfavor upon the idea of a large board which attempts to be representative of all previously existing districts. A small county board of not to exceed seven members, all to be elected at large, is believed preferable. The fact that the county has grown relatively smaller insures competent and fair repre- sentation through a board of not to exceed seven men. The in- termediate step of local representatives seems inadvisable, as the principal of each school should be the one best able to present the interests of his community educationally. If he cannot or does not do this it is always possible for representative citizens to protest to the governing board. Under present Ohio law it is altogether possible that politics may and does enter into the election of county board members. Immediate steps should be taken to provide a means whereby 186 REPORT OF JOINT LEGISLATIVE COMMITTEE these members may be elected each year for a tenure about as long as the number of members on the board. Were this feature intro- duced it would tend to take politics out of the election of the. county board members and would also tend to provide a con- tinuous board. Under the present scheme, when three members are elected, the balance of power in the board may be very easily overturned through some inconsequential matter in the commu- nity that should not have affected the status of the board or of the school officials. : Conclusions and Recommendations In brief the present study is intended to show that the pres- ent plan of allowing school patrons to shift from one district to another for causes which are not particularly sound brings about a local districting which is not economical either financially or educationally ; second, that if the county were made the district and if the city districts were allowed to combine with the county district should they so desire, the matter of districting would be taken care of by a central board and economy both financially and educationally would result; third, that the school system would be materially benefited if very small school districts were abolished. In accordance with these conclusions the following recommendations are made: I. Optional Provision for County School Unit. ‘ 1. The statutes should be amended so as to provide for the formation of a county school unit where such a proposition is approved by popular referendum. This implies in cases where this is done: a. That all local school district boundaries within county school districts shall be eliminated as fixed boundaries with a local governing board. b. That the county school unit shall include all territory within the county with the exception of city districts and with the exception of such territory on the boun- dary lines of counties as it may be necessary to transfer in order to bring about a reasonable and logical dis- tricting. In the latter case a village located on the boundary line in such a way that it should draw from two or more counties would be an example. ON ECONOMY AND TAXATION 187 c. That legislation be enacted that will enable the county board through their executive, the county superintend- ent, and his assistants, to organize the county as city districts are now generally organized. This would mean the following corollaries : (1) A county course of study. (2) Certification and appointment of teachers from ; the county office. . (3) Elimination of the present local districts affected. (4) Study of community factors for the proper de- termination of centers for school buildings. (5) Central organization of the management of busi- ness affairs of the schools within the county dis- trict. (6) Such other items of organization as would ordi- narily be found in a city school system. 2. Permissive legislation should be enacted that will allow the amalgamation of city and county school districts. 3. The county school board should be increased in number to seven and all local district boards be abolished. The tenure should be six years with partial renewal at each election. 4. In order to make the county unit effective a system of levying and collecting taxes should be worked out for the coun- ty as a whole. Our large city districts take care of their financial affairs as a unit, and it should not be difficult to work out a sim- ilar scheme for county districts. Present indebtedness and future needs present immediate difficulties, but it would appear that these may be pooled in such a way as to work no distinct hardship to any community and provide a unity which does not now exist. II, Compulsory Elimination of Smallest Districts. 1. The school laws should be amended to eliminate school districts having an enrollment of less than 100 resident pupils or a tax valuation of. less than $1,000,000, and to provide for their union with adjoining districts. Such legislation would not, how- ever, provide for the elimination of one-room school houses or for the consolidation of school plant, but only for the enlarge- ment of the administrative area controlled by a single board of education. The districts thus abolished should be permitted to 188 REPORT OF JOINT LEGISLATIVE COMMITTEE enter into agreements with adjoining districts for the union of — their territory, but where such agreements are not made the _ county. board of education should be empowered to make the necessary transfers. 2. The statutes should forbid the creation of school dis- tricts in the future unless such districts will have an enrollment of at least 200 resident pupils and a tax valuation of at least $2,000,000. II. Better Trained Administrative and Supervisory Officers. 1. Legislation should be prepared calling for the certification of administrative and supervisory officials in the public school system of Ohio. a. This certification to be granted by the State Board of School Examiners. b. That the examination be set to cover the fields of ad- ministration or supervision respectively rather than that of high. school teaching, as at present required. c. That the master’s degree with a major in the respective fields be accepted in lieu of the examination. 2. In order to guarantee better officials for the administra- tive and supervisory positions, a provision should be written into the law placing the master’s degree with special preparation for the type of work to be done as a minimum requirement. ai 1h order that this may not work a hardship to a success- ful administrative or supervisory official at present in the system, the standard preparation shall be made gradually effective as was done in the case of legal requirements for the professional preparation of teachers. Bills have been prepared embodying the recommendations herein contained. One of these measures provides for the elimi- nation of small school districts, and a second authorizes the substitution of the county, exclusive of cities, for the present rural and village school districts in counties voting to make such a change. It is felt that the elimination of very small school districts is a matter of such vital necessity as to demand com- pulsory legislation providing for their absorption into larger dis- ON ECONOMY AND TAXATION 189 tricts. The substitution of the county unit, on the other hand, is left to the discretion of the local electorate. It is believed, however, that the adoption of the county unit by a few counties may sufficiently demonstrate its desirability to lead to its eventual introduction in other parts of the state. CHAPTER XI Ohio’s. Interest in School Housing A Study of Capital Outlay for Public Schools in Ohto and of the Means of Control Over School Housing Exercised By . State Governmental Agencies The State’s Interest in Its School Plant The tragic Collinwood fire of 1908 caused the people of Ohio to definitely determine that such a catastrophe should never occur again in this state. To realize their determination, they turned, as the people invariably do, to the only agency of govern- ment empowered to cope with such situations, namely the state. The result was, an Act :? Establishing a building code, regulating the con- struction of, repair of, alteration on and additions to public and other buildings and parts thereof; regulating the sanitary condition of public and other buildings, pro- viding for fire protection and fire prevention; and providing for the construction and erection of elevators, stairways and fire escapes in and upon public buildings. This school building code is more stringent, more exacting than that of any other state, for it was designed to forever elimi- nate the possibility that any school building within this state should again become a firetrap. To make the law effective the Division of Workshops, Factories and Public Buildings, operat- ing within the Department of Industrial Relations of the state government, was empowered to pass upon the plans for all school building construction within the state, and to condemn buildings that were no longer considered safe for school use. * Passed May 31, 1911. Laws of Ohio, 102, 1911, page 586 ff. Note — This chapter represents the greater portion of a study made by Dr. J. Cayce Morrison, former professor of school administration, the Ohio State University. (190) ON ECONOMY AND TAXATION Ig! In addition to the foregoing, the state has another control over school buildings through the power of the State Department of Education to certify high schools. While this control is ex- erted indirectly, it has gained steadily in influence due to the fact that there has been a rapidly increasing number of high school graduates each year who desire admission to higher institutions of learning and who can gain such admission only as graduates of approved high schools. After 15 years of state supervisory control exercised under the provisions of the school building code and with the cost of education increasing annually, it is but natural that the people of the state should desire to re-examine and re-evaluate the influ- ence of the measures set up in 1911. It is the purpose of this report to set forth the operation of the law, to describe the super- visory procedures that have been evolwed and to examine the entire program of the state with reference to school buildings, in view of the knowledge that has been evolved during the last decade. Specifically the investigation has been pursued along five lines : 1. The annual capital outlay for school sites, buildings and permanent equipment. 2. An investigation to determine the administrative organi- zations set up by the several states for supervising and controlling school building construction. 3. ‘A preliminary analysis of the functions that State De-. partments of Education are now performing in their attempts to improve the local school plants of their respective states. 4. An analysis of the correspondence of the Ohio State Department of Education with high school districts during the last six years, to determine what influence the State Department of Education is having upon the improvement of school build- ings, sites. and equipment. 5. An analysis of the correspondence of the State Depart- ment of Industrial Relations with architects and school authori- ties to determine the department’s influence upon school building plans and upon the condemnation of old buildings. IQ2 REPORT OF JOINT LEGISLATIVE COMMITTEE Annual Capital Outlay for Public Schools in Ohio During Year Ending June 30, 1925+ During the year 1924-25, Ohio invested approximately $18,- 000,000” in capital outlay, sites, buildings and permanent equip- ment. Reference to Table XXI discloses the fact that $2,396,000 of this amount went for the purchase of land, $13,382,000 into the erection of new buildings and the making of additions and repairs to old buildings, and $1,625,000 to new equipment. The data of Table XXI are derived from the annual reports made by the county auditors to the State Department of Public Instruc- tion; in turn the auditors’ reports are prepared from data sub- mitted annually by the clerks of the boards of education. It may be noted that the total expenditure for city districts for capital outlay was approximately three times as much as that of either the township or the village districts. Of the total amount spent by cities nearly one-third was invested by Cleveland alone. Cleveland, Columbus and Cincinnati were respectively the three higher investors in school plants for the year in question. Examination of Table XXI raises a question as to whether or not Ohio has reached as yet the peak in its expenditure for capital outlay in public education. Interesting light on this question is TABLE XXI— THE CAPITAL eee FOR SCHOOLS IN OHIO FOR THE EAR 1924-25. (b) (a) New Bldg’s (c) District Purchase Taree tenes New Total of Land Additions Equipment | | EMA BP Rcaty wees aa Hae $382,457 11 | $2,904,626 24 $390,806 19 $3,677,889 54 pease abe tetals ayers elas esse 370,379 30 2,689,632 26 299,937 09 3,359, "948 65 iia NA Setar reh, sar 1,644,055 37 | 7,788,987 79 935,185 44 | 10,367,528 60 10,367,528 60 Metal: Sis ee ae ge $2,396,801 78 | $13,382,546 20 | $1,625,928 72 | $17,405,966 79 AIR EERE ESSA os ALFA Oi a ee AWE ae at (Pe I DY paar eee counties are not included; their inclusion would raise the *Data for this chapter, prepared by Mr. Herman E. Michael, grad- uate assistant, Department of ,School Administration, O. S, U. * The exact figure was $18,301,005.01. The data from Table XXI do not include expenditure in Erie and Tuscarawas counties whose reports were not available when this report was prepared. ON ECONOMY AND TAXATION 193 TABLE XXII ANNUAL CAPITAL OuTLAY IN Ogio For ScHooL BurLpINGS AND Grounps, 1900-14 Year Capital Outlay £5 ©. EN Dn eae ah eee ee ee $6,447,026 90 BNR PM Nie Wielars ou 2s sone Revels ws nied oie shiv enelare csc wee ler « 5,186,330 85 a er eer oii roms a oo NS Ge Pia ba nls Dab hie wre 6 5,357,100 66 Ne eran eg ee eS o's, cc csv-nlbw pW'eno hin ier eco + deen Be 5,363,451 99 OR MS ep SACS rs ee 3,893,266 31 SN ee attend HR oi bigs cco ki Se UWS (Av 0a Ue ws a eee wde 5 RE nM ae Fo Gert es cvs POV o's Modo dadveds vba tiencees 11 Ne err ee ee Pooky Ty oie ces ia Ai ates poe aes te oie 4 Re Att POOR eats Cache 6 eh ae en ee ee bP Ae eS Sey tn] ee Ie rn Lin nd or rake b viata are + © * Ue NENA pee eager 16 eetteaters ROOM Mr. arones cases ecle nr ERE cio etsl ein tee inne tease 6 ETICS TRE Zee eis nC anis oo'etoe ce aleee 6 1 Na, ene en A ee a 24 TSS DEEN, Ee Se Pe Ae ee eee 1S ae es bee poe 39 RO 8 BC CT {ERR AD 5 SE tee ay 8 Pr ScWeAT Cate canst ccle lec ca cies eit.as BO ars Mattes atc ee 31 Veat, Flnes.and Stacks — Total... i. .050 006. Oo oie cater 4] mae MERE WE LOCIY | 0 aha 8 aa o,o.0 0's 9's 10.5.5 ote Boe ake ak aay a 4 Dement wrntes, COMSE.. 5 tty ect es De a ae So Ce 24 c. Vent Registers, Warm Air........ | eR GO Se OOD a 9 Oo Meat Flee tAreesiiciiss cccnce cp dee. Die tiee oen ie seis iia 4 Ventilation — Totals s-6 caves cnccescsennsns MO Ae ase tastiest 30 ea MOINS sca Sik ay wild 6 cdi ae Se os nhs cee i DamINCCIGCLILAIVOU ec ciew, cielvece oie aw ace wis eee Vee ieee eee a. aiats 2 GeV entiation. Phases Of o.<+ 0607/0008 RS A oe ee ee 15 d. Wardrobes and Lockers.....:..... LORE ar Por Rete as 6 Standard Ventilating Stoves—Total........... NOME ree gece ae Wes 214 REPORT OF JOINT LEGISLATIVE COMMITTEE Toilets —. Lotal: ca etenens 18 BGheSs a5 k oace orks sa ve eee Ne OCs oiniee eam rf Se ie ge 48 Exits changed and blocked... wo. ...essceeseeee Tee ee tt 20 Electrical (Wicine <3 0.6 cece ct an cs were ka eee OB ocs cnt ve eeee andes 30 IS EEGs cits We aos 0% Waser nc -Apass alge. wiatandie stay oe ocala arena 4 (ia venenaaieeee 0 Steel’ Shutters... reorevewwe seeds seen estes otters SO eR Rae ae 8 Rest Roan yuniseccnk sna ee ec cael emecemeweun D Ae et ek 6 Motion" Picture: Booth. ie. os. ones stk s wena A Seco atecen ete 2 Store> Rooms j “Omission OfF.5006 5 ae e cco ee yA KE eet 5 Balcony. Seatitig vcs ors canon » pele OUR es SPER pee A La 2 Asiditoriut: SOabiie’ cas, bcs ve saeeh ke we niente LA kei ake eee ene 5 Of the 176 sets of school building plans which were consid- ered in this study for 1924, 142 were approved with suggestions for minor changes. Fourteen were approved after one or more revisions had been made by the architect. For various reasons twenty were not approved. Similarly in 1925, 121 were approved without being returned for revision, twelve were approved after one or more revisions, and fourteen were not approved. Table XXVII shows that approximately 120 buildings each year were deficient in one or more aspects of fire protection and that large numbers were deficient in toilet facilities, natural light- ing and ventilation, and in the construction of the compartment for the heating plant and of stairways. No better evidence is needed of the necessity for rigid supervision of school building construc- tion than the briefly summarized data of Table XX VII. ON ECONOMY AND TAXATION 215 General Summary 1. Ohio’s State Building Code was a direct result of the Collinwood fire of Cleveland and was designed, primarily, to protect children against fire hazard, and, secondarily, against un- sanitary working conditions. 2. The very stringent provisions of the Code, the rapid in- crease of school enrollment, the desire of the public for more and better school facilities, and the depreciation of the dollar caused the capital outlay expenditure for public schools in Ohio to increase from $1,310,000 in 1900 to $32,426,000 in 1923. 3. From 1923 to 1925, the capital outlay decreased from thirty-two to eighteen millions. The evidence points to the con- clusion that 1923 represents the peak of expenditure for capital outlay for schools in Ohio; and that the trend of expenditure for capital outlay will gradually approach the trend of increase in population. 4. Ohio is one of 32 states that have vested some control of school housing in state agencies of government. Study of the plans of control set up in these states suggests three reasons for state supervision of school housing: (1) protection against fire hazard, (2) safeguarding children against unsanitary working conditions, and (3) securing facilities for a better educational program. 5. Twenty-six of the 32 states have vested state control and supervision of school housing in their state education depart- ment. Reading of their reports and correspondence with officials responsible for administering the requirements of the law dis- closes two other objectives to be gained, namely, (4) a scientific planning of the building terms of present and probable future needs of the community, and (5) advice to boards of education as to the most economical construction designed to obtain the edu- cational facilities needed. 6. The Ohio State Department of Education exercises a control over school housing through its power and responsibility for chartering high schools. An examination of their correspond- ence with high schools of 36 counties over a six-year period shows that they recommended improvements in building, equip- ment or both for 438 schools. The Department does not have control over elementary school buildings. 216 REPORT OF JOINT LEGISLATIVE COMMITTEE 7. The Division of Workshops, Factories and Public Build- ings approves plans and specifications for all school buildings in the state except in those cities which have their own building departments. An examination of their correspondence over a two year period with reference to approval of plans for new buildings gives ample proof that the life and health of thousands of school children would be endangered if the State did not have such a safeguard as this Division exercises. This Division also has power to condemn school buildings. No recommendations have been evolved from the subject matter of this chapter as yet. The Committee did not wish to do so until the Board of Building Standards had submitted its legislative recommendations which were not available when this report went to press. ON ' ECONOMY AND TAXATION 217 CHAPTER XII Entrance Requirements to State Universities and Colleges Among the matters which have come to the attention of your Committee in the field of public education none perhaps, is of more interest than the amazing growth of the enrollment during recent years in the state supported institutions of higher learn- ing. This most rapid growth has entailed increases in expendi- tures which have been equally imposing. So rapid indeed has been the increase both in enrollment and expense that questions of serious import have arisen which are the concern of those in responsible charge of these state supported universities and col- leges, the legislature and the beneficiaries and the supporters, of these institutions— the people of Ohio. Among the questions which force themselves upon all who examine the outstanding facts are the following: Will the very rapid increase in enroll- ment which has characterized the last decade continue at an equal or perhaps accelerated rate? What increase in expenditures will presumably be involved if enrollment growth continues at an un- diminished rate? Will enrollment growth tax unduly the ca- pacity of the people of the state to finance the cost involved? Will considerations of cost make necessary some method of re- stricting enrollment or greater participation in meeting the ex- pense of furnishing an education on the part of the student him- self or both? Your Committee has had the benefit of some illuminating and provocative discussions of these matters by the presidents and other officials of the state universities and colleges. From the material and data which these spokesmen have presented much interesting and pertinent information may readily be de- veloped. In fact the Committee was distinctly impressed by the admirable grasp of these and allied educational problems shown by the executive and administrative officers of the several state colleges and universities. Of particular interest to the Com- mittee is a statement prepared by Dr. R. M. Hughes, president of Miami University, Oxford, Ohio. This document is entitled “Ohio’s Educational Problem, 1925 to 1935’, and was published by Miami University in December 1925. From it the following extracts are taken: 218 REPORT OF JOINT LEGISLATIVE COMMITTEE Enrollment. — “Six years ago a study was made of the enrollment in Ohio colleges and at that time, in October Ig19, when there were 25,000 enrolled, it was predicted that ten years later, in 1930, there would be an enrollment of 37,000. At the time it seemed impossible either that so many students could find their way to college or that the college could take care of such numbers. Last year, 1924-25, only five years later, Ohio colleges, en- rolled 38,795 students, the growth in enrollment being over twice as great as predicted. Many said that this growth was due to the war and would drop away. In the face of this unprecedented growth and the fact that the colleges are still continuing to grow rapidly, it now seems desirable that a further study be made looking ten years ahead. The following table gives the enrollment of Ohio colleges from 1918-19 to 1924-25.* These figures have been taken from the reports of the State Superintendent of Public Instruction and they are probably fairly accurate. Where estimates were made the figures are enclosed in brackets. * The corresponding figures covering period from 1890 to 1917-18 nee printed and distributed to the Ohio College Association in 1919 by the writer. 219 ON ECONOMY AND TAXATION ESE ¥ZE G08 008 862 6&2 008 £02 OST Ra eerie ie ie te ae ea OLS 088 188 088 C28 €82 BLE #S8 €1Z (222) yee, Mans Pee nae et eee ED 168 (0FE) 98Z 602 09T G3I rain 0L SF 2G ee Sees SI SET ese ChE L0§ (082) 662 BSZ T&S BS SIT Ade EAN Oe SBS ae DOGO ESE D Egg (06%) tFY OFF 9F§ 263 egg 18 012 Be eS Dt SRT ane ROAD EEE TS¢ GTS (008) £02 I 9€ 6 G¢ 68 pie itn ne) oe Ay 91g 9g¢ 1&9 LIL T8L BLL 188 6FS 6LP Menthe a oka et a ea ROR EAY 88 G1g (OTS) 68F 298 918 (0S) SST are Teeeeereececess UQaIC) BUIMOG I8P eee LOF StF 86E 888 008 rand T6T see ce Mes 625. “COTO GanOry 179 6e9 gec — ore 12 £08 628 ie eteeees ee Seseeneeeeee quay 016 (008) (002) (0¢9) 199 cZ9 0&6 09T Leh Stee bs es vier =< TT TOON FOLUC) +8 108 632 109 009 S6F #98 08¢ (008) spi errr mr cama Nn 6. 198 LIL TL9 (08g) ver 6FF OLY 962 L¥T Pentieniitoaienesaerasas 1.01018 100 898 808 108 GéL 119 91S TL9 VPP OTF ik Sh tae Pe Ce eo 016 (08) og. £69 20L $89 182 83F T8€ So ee ee ne 7 aes ee 696 €l¥ 129 rae £08 (OTF) 618 iat Re eee Gate eae ara Se ae ea 190‘T T10‘T 668 882 ZI¢ CSF toh 64% €gT se ene Le ToL ‘T €99°T ZLP‘T Cbs‘ T 290‘T T80‘T 120‘T $99 T8¥ PRS sce Dene oi ee ncaa parece T#8‘T 969‘T TL¢‘T Sgr ‘T 616 ‘T 920‘T +86 698 ‘T 91S SS Or SA te ieee ORES 96L‘T ¢39‘T ZOL‘T 619 ‘T 629 ‘T ecg ‘T 0g¢‘T Z00‘T (836) OS ea ee rene ae Gus‘t (06L‘T) 602‘T T6L‘T 9Sr‘T SIé‘T 8S6‘T 066 G98 Teeereceeces sss UBAIISIMA OLYC $283 ecg ‘3 Teh ‘3S Te‘ OST‘ 9102 OFT €°8 619 Tteesereeeess *QATISIY UI}SI MA OLh‘s 612‘ 8F6‘S 688 ‘3 BLL‘S 09'S TEL ‘S 862‘ Ss Gel nse ba Mon aaa hammies !1 1-o €26'6 PST ‘6 €8¢‘8 P8L‘L LL] L 0099 GOT‘S 16S °F GIG TRA cee Onno ceces sea oe Sane aey Ronee Se-ve61 be-E26r Fe-e2z61 e@e-126I I2-0261 O2-616I 6I-gI6r = SI-#I6I or-6061 661 OL 8161 OIHO NI LNAWTIOUNY ADATIOOD REPORT OF JOINT LEGISLATIVE COMMITTEE 220 L¥8 ‘8 €IT 901 LéT T¥I 98T 10% PSS G&G 89% 686 066 v0E 8I€ 6S¢ &6E 68E 9FE SEF ‘SE (001) (oT) (ST) SFT 981 (06T) (098) (0&2) (082) 98% (£82) 12 FOE B0Z (082) (S38) (¢22) GE ‘SE 16 OTT 6IT 621 99T 6LT 89% 0SZ 88T 8G 08z r6l FOE C&S (0¢%) 66S 606 C61 126 99% (002) SIé F61 TS8 ‘1B agi aL 18 9ST 612 991 TLT 901 BLT LOT FLT £9 (008) 9FT sie 6ST T9§ ‘Se (OTT) PL G0T eT 6LT 981 O9T 9LT OFT (¢2) 9LT SIZ ogg CIT TT€ 66T 810°8T G&Z 18 Lgh ‘ZI 8zI 16 Cal 6F (SOT) 89 (00T) ¥Z TS £02 (0ST) Pteeeeeseeetereeeees TeIOT ee etn eS Oe 4S IA (oR 22 EAT Ao aes ory eee eee eee eee eee eren eee ap [fArepay Coe erese sere seesesreseon Ae[pulyy ° . . . . . ° . . ° . . . . . “IQ oyeyT -*** DIOIXO UOVUIWT AA Dj Vd, eS uoAuay PASTY: "*** goueyaqd "**JIAeX IS -s°* YOUN, core adele —UIMpleg seeees S10, JIG "En? HOI uyof eee ee eens UI9}S9 AA ee cd eqwdey ON ECONOMY AND TAXATION 221 Here is a table which shows the growth in attendance at our high schools and colleges. From 1900 to 1925 increases are shown: GROWTH 1900-1925 SERS MS Eee ORT tr ei et eek mark wenre On eins 2,163,500 52% ParcoimMentstite Gia Ces emis. cece Sato mee oid eecs' aa 278,500 36% Pairoriment-1n Tigh sSchOOlSics .s. as es ewes se eee a 163, 100 286% PURO MMICN [clit COMES CS tausretes pcre crams aiere net sie are «tte ale 31,900 460% ENROLLMENT GROWTH Y peesignan Enrollment oe i he de Enrollment ear of High School Chin Grades = school _ Graduates. © °!fges fo=90:-%.. 8,672,316 760,947 DONE fone tt cae exe 5,549 eA ino Bentcteaitien 759 ,564 ind Oe a ee 5,701 a a 761,775 BS: BIS ee athe 5, 283 I 5 5 8am a. Seis 766 , 325 Es ease Sie a PE Ne 5,919 Sie te aad we (767,825) KTOZE0O) Fn dednis 6,482 A A ee 769,100 BED Ras Ais Us ies 6,570 ree T71 527 AD: Dood Ri Pea ruc 6,812 Ly Se re ei 772,899 GOH Gia ne tone oe 7,048 CNS EE ee ee 781,700 AD BT hee AA tel 6,754 LES ee 771,469 Sg 3 Wee ae ea ae 7,506 99-0). ... -- 4,157,545 (771,500) BOs Oat. tees 6,940 sad RO a Er 771,758 eNO ta ao hae 7,488 Dace Loc easta e's 773,533 EL Wied! 1k enc 8, 243 Ws oe a. oi Seal 771,971 Oy GAN ce! Sosa. ees 8,336 “UL ah, SE ea a 777,975 HUSOOD% wreak 9,096 SS i a ree 763,500 CAI 2 ae a keer as 9,443 eters els 767 ,926 is (yO Se ae ae 9,712 OS TGS ee tie ae 761,733 Gp fen lY Tie Seats ate 11,222 Se a a 791,313 {nde Et NS eam one 11,416 EIS. CoP ot Te ek iaroie Ss 751,876 TOS ky cee 12,406 09-10 .... . 4,767,121 772,699 eg Cae ad os hte ge 12,802 OG a ee 808 ,593 84, 282 ee 13,745 CE er ey wis Ss 772 ,393 BOO 2). Wee as, 14,672 VS Dee a (788 , 400) COR. SLONE. oS leis 16,034 Be Seca ikiie <> Aili To eo a 804, 037 DE ABO ta ox 5o.Fa bs 16,944 14-15 .... 5,088,627 825,901 103, 676 14,429 18 , 293 DU ens eo a bey'd's sks 840,117 108,176 16,552 19,691 “vip i geen ty Mlle ee 865, 764 112,490 17 ,364 20, 698 Dewalt aay 's waves 0s 866,764 124, 066 20,316 20,358 BOLO ere We wa am as 880 , 290 * 130,718 18,794 24,017 19-20 .... 5,759,394 868 , 449 128,538 (18,800) 25 , 466 222 REPORT OF JOINT LEGISLATIVE COMMITTEE 2028 bo 254 meray ators 854,211 151,719 18,904 27,890 yy ee ee ae Tee 902, 449 175,593 21,582 30,971 LEU Wiehe, howe Kerbs 936 , 527 202,347 23,179 33, 209 DOO e 5 14s te anda Sabehaes 1,002,102 212,712 26, 133 35 , 042 24-25 .... (6,321,00() (1,050,000) (220.000) (30,000) 38 , 795 Note: Brackets indicate that figures are estimates only. Following these several lines of growth, and assuming that -approximately the same rate of growth continues in population and in the grades, and modifying the curves for the high schools and colleges somewhat, as they seem to be affected by the total population of high school age, we may expect in 1934-35, ten years hence, the following: 1929-30 Increase 1934-35 Increase Population ............. 6, 300 00 See Sodas 7,350,000" = - 2,689 , 284 3,421,000 8,792,418 Doe D Loa ease ee 2 G82 184m. e «. S apee eel raihete ese ae MN eee Cee Bop ode Seite ents 8,495 , 356 4,364,587 11,354,818 DAO Deine giasent an eters 3 4945356: cic tes S See eee eee DOA AGE Rake ecloaeen 4,365, 232 3,947,792 12,674,195 DOB laa ce nteese sons ASBL UT SS > BA aa te 2 en ee eee ee CN OOS ee ahd ties Bess 4,680,000 4,000,000 13,680,000 DbaeO ee ake es 5000 000 “c= A. -aiiiercnete ee tinea nanan QOS Veaentsctmlces is 5,320.000 4,000,000 14,960,000 DUA Uicnavener colors Facies 55 640;000.- 1. Age See Ree ee crave cine DESO oncom Cahn Tan 5,960,000 4,000, 000 16,240,000 BORO pn. eaverava.caipyele 6; 280), 0005 . Fae ae oa, aenenreiameies BPO Keema Ae 6,600,000 4,000,000 17,520,000 DAH OO ic stose hie eaters 6 920; 0005 2° le ae ae eee ere These figures are large, but the cause is great. They da, however, raise two questions: (1) Should the state continue to admit all graduates of high schools to college without question in the face of the fact that the experience of the past ten years clearly shows that many of these students are not prepared to profit from college oppor- tunities. Would it not be wiser to deny those students admiss- ion on certificate who graduate in the lowest fourth or third of their class? Accept the upper three-fourths or two-thirds of every class on certificate and the lowest fourth or third on exam- ination only? (2) Should higher tuition be charged? The funds now being spent are inadequate and an increase in fees with the same proportionate support by the state would give somewhat more generous funds for maintaining the state colleges. Adequate loan funds should be provided by the alumni for assisting all a ——s- sr e”)h(l ON ECONOMY AND TAXATION 225 worthy students needing aid and certainly the great majority of students attending state institutions today are amply able to pay $75 or $100 a year tuition. Finally, we who are in charge must not allow the quality of our work to deteriorate. It would be far better to provide ade- quate instruction for 15,000 than inferior instruction for 25,000. The state must determine how many may be cared for in state colleges. The quality of work of the state colleges must be kept worthy of the state.” Such forecasts of growth of enrollment and costs will no doubt cause surprise to those unacquainted with the trends which seem Clearly to be operating. Great weight must be given to the observations and study of one who has the standing and experi- ence possessed by the author of the statement which has been extensively quoted. It will be noted that Dr. Hughes definitely questions the wis- dom of the unrestricted admission of all graduates of high schools who present themselves for entrance to these state institu- tions. He also raises the question of whether higher tuition should be charged suggesting that a $75 or $100 annual charge would not be excessive. Finally, he makes the very significant statement that, “The state must determine how many may be cared for in state colleges. The quality of work of the state colleges must be kept worthy of the state.” The enrollment growth of the state-supported institutions of higher learning is, of course, not unique to Ohio. State uni- versities throughout the United States have been growing rapidly and in some cases faster than here. Privately supported colleges and universities have likewise grown by leaps and bounds, with the result that many of these institutions, including some of the largest, are finding it necessary to place a definite limit upon the number of students they will receive. One result of such limit- ations is to divert many students to state institutions where there is no limit upon enrollment. Moreover, the students so diverted may often be those with poorer scholastic qualifications since with _the limitation on numbers in private institutions has come a strengthening of entrance requirements and the opportunity for selection. While the Committe has not made a philosophical nor scien- a Oy EO 226 REPORT OF JOINT LEGISLATIVE COMMITTEE tific study of the causes for the increase of enrollment in higher educational institutions, some of the causes are sufficiently obvious to any one familiar with the conditions, such as: 1. The ambition of the American people to progress. Parents want their children to have the advantages which they have seen others enjoy and which they themselves perhaps have missed. 2. The widespread prosperity of the country, which has brought economic independence to an enormous population. 3. The proof given by college educated men in the World War that college and university education does prepare men for leadership. 4. The demand of industry and business for college graduates. A local condition operating in Ohio namely the raising of the compulsory school age forcing many additional thous- ands of students into the high school which naturally in- creases the number who apply for college entrance. The Committee believes that all of these influences will con- tinue to operate and that the numbers demanding education will continue to increase much more rapidly than the total population. This leads to the consideration of what is the duty of the state with respect to supplying practically free, the highest type of university training to the sons and daughters of its citizens. on The Obligation of the State in Furnishing Higher Education. —Among the reasons ordinarily given for the state-support of higher institutions of learning are: 1. The democratic theory that all the people are entitled to an equal opportunity insofar as such opportunity can be assured by the state. This includes not only equality before the law, but an opportunity to the young to prepare themselves to meet social and economic competition. 2. That it is for the benefit of the state not only to educate its citizens so that they are able to read and write and understand elemental political questions, but to train leaders not merely for actual public service but for the purpose of stimulating and guiding the political and other activities of the people as a whole. 3. The special purpose of preparing men and women for teach- ing in the public schools. =. ON ECONOMY AND TAXATION 227 4. The development of institutions which form the capstone of the whole public school system, and which may carry on research and experimental work in various basic fields of industry such as agriculture, commerce, mining, etc., for the benefit of the state as a whole. The development and support of the various state univers- ities and colleges in Ohio and other commonwealths furnishes splendid proof of the belief of the American people in higher education. These institutions are among the most admirable projects that have been built up and fostered under our form of representative government. No thoughtful person would think it wise to retard their healthy and necessary growth or to im- poverish them in their operations. They must continue to grow in their capacity to serve an energetic and progressive people and to meet the needs of a dynamic and rapidly changing civilization. Your Committee has no desire to propose any measures which would curtail in any way the usefulness of Ohio’s institutions of higher learning. The time has come perhaps when it is necessary, or at least appropriate, to consider whether redefinition of the state’s re-- sponsibility in furnishing higher education should be undertaken. This is a proper matter for legislative consideration since it is defined in effect by statute. The law provides (See G. C. Sec. 7658) that all graduates of first grade high schools are eligible without examination for admission to state supported schools. This obligates the state to provide facilities for all having this qualification who apply. A thoroughly democratic conception of the state’s responsibility does not necessarily involve the premise that the state shall endeavor to furnish a higher education to all who apply regardless of their ability and inclination to profit by the expenditure of money and effort required. A truly democratic concept might well be based upon the proposition that the state will furnish the opportunity for higher education to all those who give reasonable assurance of ability and inclination to utilize such an opportunity profitably. Coroll- aries of this concept are (1)that the opportunity afforded should not be impaired by the presence in state universities and colleges of many who cannot profit by the opportunity and (2) other equally meritorious functions of the state government should not 228 REPORT OF JOINT LEGISLATIVE COMMITTEE be penalized or retarded because of the cost involved in attempt- ing to impart a higher education to all that apply to state institu- tions of learning. If this concept is to be accepted it is obvious that some workable and equitable method. must be devised to test the ability and inclination of those who seek entrance to the state colleges and universities. Having in mind the tremendous increase in enrollment during the past decade in these institutions, the predicted trend for the next decade, the probable costs in- volved, the present fiscal condition of the state government and data upon the number of students dropped from these institu- tions annually for scholastic reasons your Committee has pre- pared a bill upon the subject of entrance requirements to the state supported colleges and universities. The principal features of the bill may be described as follows: A state board of college entrance is set up to be composed of the presidents of the state universities and colleges, the state director of education and three other members to be appointed by the governor and who shall have had a minimum of five years_ secondary school teaching or administrative experience. The term of office is fixed at five years. The board shall provide for the preparation of entrance examinations to the state colleges and universities and finally. approve all such examinations; fix the times, places and regul- © ations for such examinations; provide for reading and grading the applicants’ examination papers and issue certificates of ad- mission to qualified applicants for entrance to the state univers- ities and colleges. No compensation is provided for the members of the board but only necessary expenses. The board is given discretionary power to grant certificates — of admission without examination: “...to applicants, who hold certificates of graduation from any high school of the first grade in this state or from any other school, wherever located, which the state board of college entrance shall find to be of educational merit equal to Ohio high schools of the first grade, if such appli- cant shall have ranked in average scholarship during the high school course or its equivalent among the upper two-thirds of the students in the classes in which such applicant has been en- rolled and shall be recommended as qualified for admission to ON ECONOMY AND TAXATION 229 college by the principal of the school from which such applicant holds a certificate of graduation”. The board shall be attached to the state department of edu- cation for administrative purposes. The bill as drawn authorizes but does not compel the board to require the undertaking of the examination by all candidates for admission. This recommendation is based on the opinion of the university authorities that most unqualified students’ are found among those who ranked in the lower third of their high school classes. In view of the different standards of grading existing in different schools, it may seem best to the legislature to require that the examinations be set for all candidates for ad- mission. Elimination of the Unqualified Desirable. —In the con- ferences held upon the subject matter of this bill there was agreement that students who are not qualified by ability and in- clination to profit by the opportunity of a higher education are not desirable members of a student body. Such persons place ad- ditional burdens upon instructors, hinder the progress of the bet- ter qualified, increase instructional-and administrative costs, tend to impair scholastic standards and incur unnecessary expense on the part of the state as well as their parents or guardians and per- haps most serious of all consume time and energy of their own which could be more profitably spent elsewhere both to them- selves and society as a whole. It is understood that from ten to twelve per cent of the members of first year classes at the College of Arts, Philos- ophy and Science of the Ohio State University are dropped during that year largely for scholastic reasons which percentage amounts to 300 or 400 students. A similar condition prevails it is believed at the other state schools. Upon this point the following extract is taken from the Annual Report of the Board of Trustees of the Ohio State University for the year 1921. Student Scholarship — College of Arts, Philosophy and The following table gives a survey of delinquency Science. in scholarship during the year; 230 REPORT OF JOINT LEGISLATIVE COMMITTEE Nov. Dee. Feb. Apr. June 192 1921 1922 1922 = 1922 Put on probation..........e00. SEO Sasi 212 106 137 Delinquent but not-put on pro- \ atidhy aloes ees eed yeaa O68. F5 as ae 785 686 619 Out under tules. ac s avdalee oon cetacean aeied 360 Per cent of gross enrollment for the year dismissed............ 12.1 Considerable light may be thrown upon the reasons for the necessity of a considerable percentage of dismissals by the follow- ing tabulation prepared recently by state university authorities. This presents a classification of freshmen in various departments and schools of the state university according to the scholastic rec- ords of these students in their high school education. This shows that a total of 23% of the 2683 freshmen matriculated had been in the lower third of their high school classes scholastically. CLASSIFICATION OF FRESHMEN BY HIGH SCHOOL GRADES G(ood) A(verage) - Lower College Total Ubber Middle P(oor) No. % No. % . No. % Agriculture ..... 221 79 36 100 45 42 19 Ap. Optics....... 5 4 80 ee oa 1 20 aly eoeN ee Ne EN 884 283 32 375 42 226 26 Arts—Educ. ..... 17 12 71 4 23 1 6 Com—Jour. ..... 582 160 27 248 43 174 30 Education ....... 394 188 48 152 39 54 14 Engineering ..... 509 175 34 230 45 104 20 Pharmacy ...... 54 10 19 26 48 18 33 Vet; Med... 2433 17 3 18 9 53 5 29 a ee 0 le 0 IN ECONOMY AND TAXATION ; 231 Classification of freshmen according to high school records. Ratings were established by the high school principals and the Univer- sity Examiner. > Upper Division means 85-100%; middlé 78-85%; lower 65 and 70 to 78%. Pyne kee | In commenting upon the causes of poor scholarship the Trustees’ report of 1921 says: “That the scholarship of college students here and elsewhere is much below what it should be is universally admitted and has been widely discussed in educational circles. Boys and girls go to college much more as a matter of course and with much less personal effort than was formerly true; high school courses are much less directed toward meeting college requirements than they were; an increasing number endeavor to earn their way through college and attempt too much work; distractions of all kinds multiply each year some connected with college life and others incidental to life in a large city; a thousand interests press upon the attention of the student and so-called college activities con- stitute the major interest of not a few; college classes are crowded beyond the possibility of effective teaching; elementary courses are in the hands of young and inexperienced teachers; even ex- perienced teachers become indifferent and uninspiring. . “One local factor that is of vital importance is found in the fact commented upon in this report last year that the Ohio Statutes require the College of Arts to admit all graduates from a first-rate high school. Colleges other than state institutions do not accept ill-prepared students. Moreover, most of the better colleges of the state now refuse to admit any student who did not graduate in the upper two-thirds of his class. The University should prepare a card of advice to be placed in each high school of the state describing a proper course for admission to colleges. It should also press for a change in the statutes that will author- ize the University Examiner to reject all candidates for admission whose certificates are unsatisfactory either in character or scholar- ship.” Practically all college and university officials admit and com- plain that a very substantial percentage of their students come to college not for a real educational purpose but because it is popular and fashionable to do so, and, that when there, this type of 232 REPORT OF JOINT LEGISLATIVE COMMITTEE student is apt to do as little intellectual work as possible and spend most of his time enjoying himself. These observations apply quite as much to state institutions as to others. The proposed bill, while not initiated or proposed by the University, meets in effect the recommendation voiced in this Trustees’ Report by setting up an entrance examination require- ment for thése graduates of high schools who by their scholastic record should show some further evidence than their diploma that they are equipped to undertake a higher education. This bill also requires the recommendation of the high school principal for applicants who are not required to take an examination. It is believed that of all school officials concerned the high school principal is in the best position to pass upon the personal and scholastic qualifications of applicants. Fees. — The question of the adequacy of the present fees and charges made by the state supported institutions has been raised. It is the general feeling of your Committee that great care should be exercised in determining what they shall be. Nor is it implied that there has been any lack of careful consideration given to this whole matter by university and college authorities. It is believed that restrictions upon attendance at state supported institutions should not be economic to any considerable extent but rather should be related to scholarship, ability and inclination. In other words, the state supported institutions of higher learning should be available to all qualified young men and women within the state who apply at as low direct costs to them as are con- sistent with the number to be served and the financial ability of the state as a whole to provide the necessary facilities. A tabulation of the fees charged by a considerable number of publicly supported colleges and universities prepared by the Ohio State University shows that the charges of this institution are relatively moderate to Ohio students and relatively high for non-resident students. This the Committee feels is a good policy. Distinctly preferential treatment should be accorded to students resident in this state. Apropos considerations for keeping the fees as moderate as possible (except for non-residents) the following information furnished by the Young Men’s Christian Association at the Ohio State University is pertinent. While these statements are not ON ECONOMY AND TAXATION 233 from an official university source there is no reason to doubt their accuracy. “Forty per cent of the students work straight through the school year and take care of all expenses without any out- side assistance. Sixty per cent of the students work during their vacations or other odd times and take care of all or a portion of their educational expense. Ninety per cent of the students work at some time during the school term and take care of all or a portion of their expense.” In the light of such evidence of self help it would seem un- desirable to increase student fees unless the need for additional revenues from this source was inescapable. Summary.—Enrollment in the state institutions of higher learning has been increasing at a phenomenal rate during the past decade. This is true also of most privately supported schools. The rate of increase will presumably not diminish unless checked in some manner by legislative action since the causes for an in- creasing enrollment will continue to operate so far as can be dis- cerned. The state law now provides that all graduates of first grade high schools are eligible for entrance without further qualifi- cations to the state supported schools. Therefore any limita- tion upon enrollment is a matter of legislative policy. It is believed that a truly democratic concept of the state’s responsibility in furnishing higher education is carried out if the state furnishes the opportunity to all who give reasonable assur- ance of ability and inclination to utilize such opportunity profit- ably. It is therefore recommended that a board of college en- trance be established with authority to require entrance examina- tions for all applicants for admission to the under-graduate courses in the state universities and normal schools, and that no applicants for admission who have not at least ranked in the upper two-thirds of his school be admitted without such exami- nation. : Such a recommendation is prompted by: 234 REPORT OF JOINT LEGISLATIVE COMMITTEE (a) Data concerning scholastic failures in state supported insti- tutions. . (b) Undesirable effects of admitting any considerable number of unqualified students. (c) Predicted enrollment growth. (d) The state’s financial condition. (e) Recommendations of university authorities for a limitation of enrollment. } The Committee does not favor increases in student fees because : (a) In its opinion economic restrictions on attendance should be as moderate as possible. (b) Information indicates that a large percentage of students now finds it necessary to help meet through gainful en» ployment their necessary expenses. SECTION V CHAPTER AIT COUNTY AND TOWNSHIP GOVERNMENT CHAPTER XIV SYSTEMATIZING FINANCIAL PROCEDURE OF LOCAL GOVERNMENTS AMENDMENTS TO THE INHERITANCE TAX LAW A TAX BURDEN STUDY (235) CHAPTER XIII County and Township Government Part 1— County Government “The County, the Dark Continent of American Politics,” such is the title of one of the very few volumes dealing with county government in the United States. While the government of the city has been the subject of prolonged study and investiga- tion within thé last two decades and while the improvement of school administration has received widespread attention, the county has continued almost unnoticed and unaffected by move- ments for increased governmental efficiency. In organization it remains basically as it was three-quarters of a century ago, and in administrative methods it follows in large measure the time-worn ruts of past decades. Growing Importance of County Government. — Yet the importance of the county in the political system has greatly in- creased within recent years. In Ohio, since 1910, the volume of county taxation has more than trebled, mounting from $16,000,000 in I910 to $53,000,000 in 1925, ard the amount of county indebtedness has risen from $27,000,000 to $138,000,000. Where a tax levy of $3 41 per capita was sufficient for the support of county government in 1910, a levy of $8.48 per capita was re- quired in 1925. On a similar basis county indebtedness has grown from $5.55 to $22.00 per capita within the same period. Why have these increases taken place and what do they signify? It cannot be said that they reflect merely the change which oc- curred in price levels during the past decade, for they greatly ex- ceed that change. The truth is that these increases are indicative not only of a radical decline in the purchasing power of the dollar but also of a striking expansion in the volume of county services. Expansion of County Activities. — The following table shows approximately the degree to which the growth of county costs since 1910 may be attributed to the change in prices and the extent to which the expansion of county activities is presumably the principal factor: (2387) 238 REPORT OF JOINT LEGISLATIVE COMMITTEE Per Cent of Total Amount Increase TOLO “county tax levy oo aice son ae eae ens $16 , 259,000 ee 19D countivs tase levy. aamlse poche eteuae weaver ars 53,019,000 ee Total increase in county levy, 1925 over 1910..... 36,760,000 100 Increase attributable to reduced purchasing power Of dollar is. Fine asec ee ae ee 19 ,032 ,000 52 Increase attributable primarily to expansion of SCEVICES un Sio-ci cc cavere Siar ie soe ices ae seater mera 17,728,000 48 Allowing for the decline in the value of the dollar, there nevertheless has been an increase of 109 per cent in the cost of county government since I910, as evidenced by tax levies. To assume that this increase is largely, or even materially, due to a laxer handling of public funds or to a lower standard of admin- istrative efficiency does not appear reasonable; for the last two decades have witnessed a considerable improvement in the tone of local politics in the United States and no little effort to raise the level of public administration. It is justifiable, therefore, to infer that, eliminating the price factor, the growth of county costs is chiefly accounted for by the extension of governmental services. The growth of county activities, and consequently of ex- penditures, has come about both through the introduction of new governmental services and through the enlargement of services previously existing. Though the functions of the county under- went little change in the latter part of the nineteenth century, im- portant additions have been made within the last twenty years. Of these the construction and maintenance of hard surface roads has, of course, overshadowed all others. Between 1910 and 1925, county highway levies rose from $4,800,000 to $20,600,000 and now represent about 4o per cent of the total levy for county purposes. In addition, highway construction has been respon- sibte for the greater part of the increase in county indebtedness. Among other activities introduced within the last two dec- ades in Ohio may be mentioned mothers’ pensions, blind relief, the establishment of county hospitals and tuberculosis sanato- riums, and the development of a county health organization for rural territory—to mention some of the leading changes in the fields of health and welfare administration. In the realm of _ * That is, the difference between the 1910 and 1925 levies when the 1925 levy is converted into dollars of 1910 purchasing power in accord- ance with the wholesale price index. a ON ECONOMY AND TAXATION 239 agricultural activity most counties have provided for the support of farm agents, and some have availed themselves of the au- thority to maintain experiment stations and to raise money for the eradication of bovine tuberculosis. In addition, county sewer and water improvements have been made possible, and the crea- tion of county park districts has been authorized. The last decade and a half has also seen the transfer to the county of the appraise- ment of property for purposes of taxation. Thus, the county has supplanted the township as the unit for tax assessment and as the leading agency for rural road improve- ment, assumed new welfare functions, entered the fields of health administration and of agricultural activity, and in urban counties has begun to assume importance in the development of parks and sanitary improvements. Probability of Further Growth of County Services. — Nor is it likely that the expansion of county activities is soon to cease. On the contrary, there are good reasons for believing that county government is now in a period of transition and that in the not distant future it will play a much more important role in the sys- tem of local government than at present. In the first place, it is practically inevitable that rural communities, like urban commu- nities, will increase their demands for governmental services. In precisely what directions such pressure may be exerted it is diff- cult to predict. Present movements in various parts of the coun- try would seem to point toward a further expansion of county health and welfare activities and toward a more elaborate system of improved county roads. The establishment of county police systems is by no means impossible in the more populous counties, and a greater development of sanitary systems under county con- trol may be expected. In the second place, there is strong evidence that the county is destined further to supplant the township in the service of rural communities. In more than half of the states townships are at present non-existent, and in other commonwealths there is a ten- dency to transfer governmental functions from the smaller to the larger unit. In Ohio this tendency has been particularly marked within the last fifteen years. Highway administration has largely passed into the hands of the county commissioners and the county surveyor, even where the township continues to 240 REPORT OF JOINT LEGISLATIVE COMMITTEE pay the cost. Township assessors have been abolished and their work vested in the county auditor. Health administration, in so far as it existed, has been transferred from the township to the general health district of the county. At the same time, it is note- worthy that such new activities as have been authorized have almost without exception been vested in the county rather than in the township. That the trend will continue in the same direction in the next decade seems altogether probable. With the rapid improvement of the means of transportation and. communication the advantages of the larger governmental unit increase, and the conditions that formerly favored the development of the township pass away. In so far as metropolitan centers are concerned, the future may also hold important developments for the county, though prediction in this case is far from simple. The problem of se- curing a uniform administration of certain services throughout the metropolitan area creates the possibility of a transference of power from municipalities to the county as the one all-embracing governmental unit within the region. Whether such a develop- ment will take place will, of course, depend in no small measure upon the degree of public confidence which county government can command. In any case a discussion of county government cannot ignore the growing need for a larger administrative unit to which some municipal functions may safely be transferred in metropolitan areas. Present Functions of the County.— ‘The present func- tions of the county may be briefly summarized as follows. In the first place, the county serves as the local district for judicial and election purposes. Strictly these are, of course, functions of the state in the performance of which the county is merely used as the administrative area. The cost, nevertheless, falls primarily upon the county, though county officials are not permitted to determine its amount. Secondly, officers of the county are responsible for the maintenance of order and the prosecution and custody of of- fenders. County officials are likewise charged with the adminis- tration of the general property tax and with the collection of the inheritance and cigarette taxes and of some lesser forms of rev- enue. The county also provides for the recording of deeds, mort- gages and other legal instruments. ON ECONOMY AND TAXATION 241 In the field of public works the county is the principal agency for the construction and maintenance of bridges and of improved roads other than state highways. Not only does the county sur- veyor have direct charge of the paving and repairing of county thoroughfares, but also of the improvement of township high- ways. In addition, he has general supervision over the mainte- nance of all township roads. The county likewise maintains the principal drainage ditches, and constructs and operates water and sewer systems outside of municipalities. The welfare functions of the county include institutional care of orphans and indigent persons and outdoor relief of ex-soldiers and sailors and of the blind, together with the provision of moth- ers’ pensions. In some cases counties also operate hospitals and tuberculosis sanatoriums, not to mention a variety of lesser ac- tivities some of which are required by law and others of which are optional. Finally, a survey of the county can scarcely omit the county park district and the general health district, which supplement the work of county government proper over the whole or a large part of the county area. ~~ Present Administrative Organization. —In administra- tive organization county government presents a picture of extraor- dinary complexity. Beside the three members of the board of commissioners each county elects eight administrative officers, namely: auditor, treasurer, surveyor, prosecuting attorney, clerk of courts, recorder, sheriff and coroner. With the exception of the commissioners and the auditor, who serve for four years, the terms of these officials are two years. While the major part of the work of the county is carried on by this group of officials, there are also a variety of appointive officers and boards, as well as ex-officio commissions. Nor is there any uniformity as to the method of appointment. The boards of trustees of county children’s homes, of hospitals, and of tuberculosis hospitals are appointed by the county com- missioners. The trustees of county memorial buildings and of libraries, on the other hand, are appointed by the common pleas court, as are also the soldiers’ relief commissions. The probate _ judge appoints the board of visitors and the county park com- mission where park districts have been established. The sanitary engineer and the superintendent of the county'home are appoint- ON an Pier od 242 REPORT OF JOINT LEGISLATIVE COMMITTEE hysnoyy yen proude 'pruse Aug 11 SEG] RAR | Py an BAR GT feng Eq Peakq ! L-3 1 wotscitutudy | 1 dmc t v4tdso 1 i} » Gurdpym 1 Me | Gq posumbaa jessuve abu el Dead SY2 spi 7! oe pete e4yidsou pois | ' Hywmosy My jouor4do f ey Ao ps | ‘i <> iy be oh hg’ 3° mshi (i Saree? Sp tei ae i et tL. neces mv] he paambaa unoy 10 pavog fey puebe a ! ass ae H papel ; NeXsuos te SULOH ' LULUADY 1 AUN | -LO’ AND, 1 phon way: ' Yt[o2H } a) hae yo “pavog | / A ada ees fe een se CH SAG CH Sq! sane b SUA PMY) + svoay pry) trorssi Wutuory “NOLSSIULtLoy Wors tA2d] SOLIS ‘A » popng ply buryus fo pavog $0 pavog a SA0Uol Ss Wuauror) ‘san Z ‘sah 2 ‘sah Z san}, | |[sihg aiour 10} S44no ‘abpup 44ane fh ino 9 Aepacrey | | $4eHS | |4oy 139 arg o4g SP>1q wouter 4° p2°0g SADBLO/ hin ROL) Lo Gaus | H 4e pais cake & 4orIssiur Mary s'1 PIPES ON ECONOMY AND TAXATION 243 ees of the board of commissioners, while the superintendent of the detention home is chosen by the juvenile court judge. Thus, the selection of administrative officers is scattered widely and with little apparent logic among the electorate, the county commis- sioners and the courts. County Organization Defective.— To say that county government is planless and antiquated is but to affirm what every- one familiar with its operation has long realized. The truth is that the county violates almost every principle of business and of governmental organization which experience has evolved.. It is, indeed, the product of centuries of slow but largely hit-or-miss development. In some of its features it dates with comparatively little change from medieval England. The coroner’s office, for example, which has been the butt of jokes for a generation, has its origins in the thirteenth century, and has remained throughout the centuries more because of inertia than because of any real necessity for its retention. The sheriff’s office is likewise an inheritance from early English: times. Other offices have their roots in seventeenth, eighteenth and early nineteenth century conditions. As is almost inevitable in view of its history, the product of this long process of piecemeal development is a need- lessly clumsy and complicated governmental machine. The present system of county government is subject to serious criticism both from the standpoint of administrative effi- ciency and of popular control. As a business organization the county lacks a responsible head. The board of county commis- sioners, which plays the leading role, is neither the chief executive nor in the fullest sense of the term the central policy determining _agency of the county. As an executive it appoints certain ad- ministrative officers, but the bulk of the work of county govern- ment is handled by elective officials over whom the commissioners have only limited control. The powers and duties of these officials are largely determined by law, and the organization of their de- partments and the selection and removal of their subordinates is in their own hands. No single governmental body can control the personnel of the principal county offices, enforce co-operation among them, or be held accountable for their administration. Even where the commissioners possess the appointing power, its effectiveness is in some cases curtailed by the existence of long- term administrative boards. 244 REPORT OF JOINT LEGISLATIVE COMMITTEE In no other branch of government is administrative authority so decentralized. In this respect the county stands out in sharp contrast with the forms of organization that have proved most successful in American business and with the types of govern- ment which have been found most satisfactory in municipalities. Both in private business and in city government the necessity of a central executive head, possessing authority to select the prin- cipal administrative officers and having responsibility for their supervision, is now recognized. Yet in the case of the county such an agency is utterly lacking. Such control as the county commissioners possess over ad- ministrative officers is largely financial in character. The com- missioners make appropriations and approve claims against the county. Even here, however, their authority is not complete. Both the courts and the board of elections determine the extent of their own expenditures without interference by the commis- sioners. In a number of cases, judges or administrative bodies may authorize expenditures or certify budget estimates which are legally binding upon the commissioners, though in practice the latter are probably often modified. Within special tax limits the commissioners are required, for example, to levy a tax suff- cient to meet the full budget estimates of the soldiers’ relief com- mission and another to cover the estimates for mothers’ pensions as certified by the juvenile court judge. In several cases the authorization of public improvements is vested in the courts or made subject to their review. Ina few instances the number and salaries of county employees may likewise be fixed or altered by the courts. Until recently the commissioners were even without full authority in setting the total amounts to be allowed elective officers for the payment of subordinates, and within these allow- ances the number of such employees and their individual salaries are still determined by each official for himself. Not only does extreme decentralization interfere with the administrative efficiency of the county, but it also inflicts an exces- sive burden upon the electorate. While the voter of Cleveland, Cincinnati or Dayton is only called upon to select councilmen, and the citizen of Toledo need vote only for a mayor and councilmen for the conduct of municipal affairs, he is expected to choose three commissioners and eight administrative officers for the ON ECONOMY AND TAXATION 245 administration of the county government. Such a task is usually beyond the ability of even the best informed citizens. The long county ballot undoubtedly fosters blind voting and militates against popular control in any real sense of the term. If democ- racy means simply the right to vote for any and all officials, county government is, of course, democratic; but if it signifies effective popular control. over public affairs, the present organ- ization of the county with its multiplicity of elective offices is fundamentally undemocratic. The present system of county government is also subject to criticism in that it fails adequately to recognize the differences in governmental needs which characterize the various sections of the state. Urban and rural, rich and poor, growing and declining counties are all fitted to the same pattern. Vinton County with a population of 12,000 and an assessed valuation of $13,000,000 and Cuyahoga County with a population of over 1,000,000 and a valuation of $3,000,000,000 are compelled to employ the same basic organization. Because some counties have need for a full- time recorder or clerk of courts, all counties are forced to elect such officers. Were it legally possible, many small counties would no doubt find it to their financial advantage to combine activities and reduce the number of officials, and many large ones would discover that their administration could be more efficiently con- ducted if organized along more modern lines. Alternative Plans of Governmental Organization. — In the development of new types of county organization, it will probably be necessary for a time to rely heavily upon the experi- ence of cities. While the reorganization of county government is only beginning to make headway, much has already been ac- complished in the case of municipalities. In general three dif- ferent types of organization have been developed by cities, which with some modifications might be applied in the realm of county government—the manager plan, the commission plan and the council-mayor plan. The manager plan provides for the election of a legislative body of whatever size seems most suitable and the appointment by such body of a manager, who will appoint and remove the heads of administrative departments and exercise general super- vision over administrative business. This type of organization 246 REPORT OF JOINT LEGISLATIVE COMMITTEE is in operation in Cleveland, Cincinnati, Dayton, Springfield and a number of smaller cities of the state as well as in some 350 municipalities elsewhere. Under the commission plan both the legislative and the executive functions of government are vested in a single elective body of from three to seven members. Unlike the present boards of county commissioners, the members of such a commission indi- vidually serve as heads of administrative departments, and sub- ordinate officials are appointed either by the commission as a whole or by the particular commissioner within whose depart- ment the positions are located. Though this form of organi- zation is used in several hundred cities, it has found less favor in recent years than other plans of government. Friction has not been uncommon among the members of the commission and the need for a single administrative head has been particularly felt. Many cities formerly operating under the commission plan have, as a matter of fact, accepted the manager form of organization to overcome these difficulties. The council-mayor type of government calls for the election of a legislative body and of a mayor as chief executive, who ap- points, removes and supervises the heads of administrative de- partments. With many variations this is, of course, the common- est form of municipal organization. Any of these plans could without difficulty be applied to the county and would result in a very decided simplification of its governmental structure. Either the manager or the council-mayor form would insure the presence of an administrative head with general oversight of county operations and real responsibility for the conduct of administrative affairs. The commission plan, though less satisfactory from this standpoint, would greatly re- duce the number of elective officials and would bring department heads together within a single body. Any of the three plans would afford as ample popular representation in the determina- tion of county policies as now exists, and the manager and the council-mayor plans would both permit a much more representa- tive controlling body than the present boards of county commis- sioners. However, it is not the purpose of this report to deal with the relative merits of the various forms of local organiza- tion, but merely to indicate some of the alternatives to the present ON ECONOMY AND TAXATION 247 arrangement which might be employed if change were made possible. Necessity of a Constitutional Amendment. — Unfortu- nately the state constitution now stands in the way of a thorough- going reorganization of county government. Section 1 of Article X of the constitution has been interpreted by the courts to require the election of all “county officers.” Any position which is ad- judged to be a “county office” must therefore be filled by popular election. To cite an example, the provision of the original Smith Law with reference to the county budget commission was held unconstitutional, because it included in the budget commission an official who was not elected by the county as a whole. Further- more, certain county offices are specifically mentioned in the con- stitution, and their existence is either assumed or definitely re- quired. Among these are the county commissioners, sheriff, treasurer, recorder and clerk of courts, the election of the last named official being specifically provided for. Under the circumstances, the legislature is seriously handi- capped in attempting a revision of the system of county govern- ment. If any satisfactory reorganization is to be undertaken, the constitution must first be amended. Your Committee, conse- quently, has prepared and recommends the submission of a con- stitutional amendment with reference to county government. A Proposed Amendment as to County Government. This amendment provides for the repeal of Article X, dealing with counties generally, and of Article IV, Section 16, requiring the election of the clerk of courts. It also proposes a new Article X, defining the powers of the legislature with regard to county government and allowing counties some discretion in selecting their own form of organization. Briefly summarized, the amend- ment authorizes the legislature (1) to pass general laws as to county government and (2) to enact optional laws which may be adopted by any county by popular vote. ‘The proposed amendment reserves to the legislature the defi- nition of the powers and duties of counties. In this respect it differs materially from the municipal home rule provision, which confers upon municipalities all powers of local self-government. Such a grant of authority has been deemed inadvisable for two reasons: first, because the operation of two agencies, the munici- 248 REPORT OF JOINT LEGISLATIVE COMMITTEE pality and the county, having “all powers of local self-govern- ment” within the same territory would inevitably lead to conflict and confusion; and secondly, because the county functions in large measure as a local agent of the state in the administration of state policies and should as a result be subject to more imme- diate state control than is imposed upon municipalities. Under the amendment the powers of all counties would be fixed by state law, and the machinery of county government might be established in either of two ways. All counties, not electing otherwise, would be organized in accordance with the general county laws. On the other hand, counties so desiring could adopt by popular vote a form of organization provided by an optional county law. In dealing with the structure of county government in this manner, the amendment can scarcely be said to be experi- mental. It merely carries over into counties methods of deter- mining governmental organization which Ohio has applied in the case of cities and villages since 1912 and which are employed by many other states in dealing with municipalities. In conclusion the situation may be summarized as follows: The work of county government is rapidly increasing, but the present machinery of county administration is both complicated and difficult of popular control. To secure a short ballot and a simple and more efficient type of organization, a constitutional amendment is necessary. If county government is to be organ- ized in accordance with the needs of widely differing regions, if ina word the requirements of both Vinton and Cuyahoga Counties are to be met, complete uniformity of administrative structure cannot be imposed. This difficulty can be overcome by empower- ing the legislature to enact optional as well as general county government laws and by permitting counties to select their own form of organization from among the plans authorized by such optional laws. If needless offices can be eliminated and the machinery of county government be brought into line with the requirements of local administration, there is every reason to expect that substantial savings as well as improvements in service will result. Sas ON ECONOMY AND TAXATION 249 PART TWO — TOWNSHIP GOVERNMENT Ohio is one of seventeen states in which the township exists as a separate governmental unit*. Historically, the township system in this state had its origin in the eighteenth century, when settlement had scarcely begun. Its roots are embedded in early rural conditions, with poor roads, slow communication and a consequent demand for small administrative units. Neverthe- less, it has remained as a part of our governmental organization, though the conditions which produced it have largely passed away. The township system covers the entire state with the excep- tion of about a score of cities, among which are most of the larger cities and their suburbs. At the present time there are 1383 townships in all. The number of such subdivisions within a single county varies from 8 to 28, but in the majority of cases it ranges between 12 and 15. The area of the township is usually about 30 square miles, and the population outside of municipalities is ordinarily between 600 and 1400, the average being under 1000. Functions of the Township. — The work of the township is largely confined to three fields — highways, poor relief and cem- eteries. In practice road maintenance overshadows all else and frequently represents almost the sole item of expense other than the payment of elective officers. Under the threefold division of highway work among the state, the county and the township the bulk of the road mileage is under the jurisdiction of the town- ship. But since these are the less important highways, township activity is limited chiefly to the care of dirt roads. The work of grading, dragging and gravelling is handled by an appointed high- way superintendent or by the trustees themselves. In addition to maintenance, the township may, however, undertake the improv- * The township exists in name in 22 states, but in five of these it is only a county district or precinct and not a separate political unit. The New England town must not be confused with the township, which is a quite different type of governmental agency. See Porter, County and Township Government in the United States p. 308. 250 REPORT OF JOINT LEGISLATIVE COMMITTEE ing and paving of roads. In this event the plans are prepared by the county surveyor and the work is executed under his direction. While an examination of township tax rates might create the im- pression that an extensive program of township road improve- ment has been carried out, such is not the case, for the greater part of the township road tax goes toward the financing of state and county highway construction. Poor relief is the second function in order of importance. Here again the field is shared with the county. The township is responsible for the administration of outdoor relief, while the county provides institutional care and certain specialized forms of assistance. The admission of indigent persons to the county home is, nevertheless, in the hands of the township trustees. In point of expenditure poor relief is a significant though modest ‘item in the cost of township government. In addition, townships commonly maintain cemeteries and may authorize the construction of local ditches. Several other activities have also been authorized, but are as a matter of fact very rarely undertaken. Among these are the establishment of li- braries and the creation of parks. More recently the purchase of fire equipment and the lighting of public roads have been provided for. This practically concludes the list of possible township activities. : Township Organization.— The administration of the township is chiefly, but not entirely, in the hands of a board of three trustees elected for a two year term and retiring as a body. They are the taxing and appropriating authority and have general control over finances. The trustees are likewise responsible for township highway activity and serve as the agents for the admin- istration of poor relief. Such authority as the township possesses with reference to local ditches is also vested in them, and they have charge of the maintenance of cemeteries unless they have appointed a separate board of cemetery trustees for that purpose. The remaining powers of the township are assigned to the trus- tees for the most part, but the statutes ordinarily require the approval of the voters for any of the less usual undertakings. Township records and accounts are kept by the clerk, who is elected for a two year term. He also performs the functions of a treasurer, but funds are required to be kept in a depository - —-——- ——— > ON ECONOMY AND TAXATION 251 chosen by the trustees. The township also elects one or more constables to preserve the peace and to serve as agents of the justices of the peace. In practice the constable is chiefly the handy man of the justice’s court, the maintenance of the peace being left to the county sheriff. Such other positions as the township possesses are filled by appointment. The trustees may, but are not required to select a highway superintendent for the care of the roads. If a library is maintained, a library board must be appointed by the trustees. Where a township park has been established, the law now provides for the appointment of a board of park commissioners by the common pleas court. Each township, therefore, possesses at least five elective officers exclud- ing the justice of the peace, who is a judicial rather than an administrative officer, and a varying number of appointive positions. Decline of Township. — There can be no question as to the decline of the township in Ohio. The last fifteen years have witnessed a gradual paring away of its functions and a shifting of authority to the county. In 1913 the appraisement of real property was transferred to the county and in 1925 the assessment of personal property was similarly centralized. The establishment of general health districts in 1919 displaced the township as an agency of health administration, and the revision of the ditch laws in the same year omitted the township as a drainage authority. In the latter case, however, the township has partially regained its position. Of far greater importance has been the centralization of highway activity under the road laws of 1915. Though the town- ship trustees retain the right to order the improvement of town- ship roads, the plans are drawn and the work is directed by the county surveyor. In short, the township trustees have become a local improvement board with power to authorize but not to manage highway construction projects. In practice it may prop- erly be said that the township has become primarily a road assess- ment district to assist in the financing of state and county high- way improvements, for the greater part of the township taxes are now levied by the county commissioners for exactly this purpose. Only in the case of the maintenance of unimproved roads does the township retain its independence, and even there 252 REPORT OF JOINT LEGISLATIVE COMMITTEE the county surveyor has been given general supervision and all expenditures in excess of $50 require his approval. It is thus apparent that Ohio has taken’a long stride toward the elimin- ation of the township as an agency of highway administration. The decline of the township is by no means confined to Ohio. A similar process is at work in other states in which the township system exists. In fact, it is only in unincorporated suburban territory that the township shows a marked tendency to expand its functions. There the transition from rural to urban conditions has in some cases resulted in the township taking on many of the activities of a municipality. Nor should the fact be over- looked that the majority of states are operating without a town- ship system at all: Among the younger states of the West this is the case without exception. It is likewise noteworthy that at least one of these states, Washington, has authorized the creation of townships but that local communities have not seen fit to avail themselves of such authority. In the South, where the county is the unit of local government in rural territory, un- successful attempts have also been made to establish the township. Since the Civil War the township system has been introduced in Maryland, Virginia and West Virginia, but only to be aban- doned after brief trials*. With the exception of a few Prairie States the township system has made little headway since 1850. Reasons for Decline. — Why has the township declined? Fundamentally, the answer is to be found in the fact that it no longer meets the governmental requirements of rural life. In the first place, modern invention has removed the necessity for-rural administrative units of such small proportions. The telephone, the automobile and the improved road have overcome distance to such a degree that the county of today is in reality a smaller and more wieldy governmentl area than the township of half cen- tury ago. A second factor in the decline of the township is the increas- ing complexity of governmental services and the consequent necessity of better trained officials. Whereas the ordinary farmer might build and maintain the old fashioned dirt road, the trained engineer is needed to direct the highway activities of today. To ion See Fairlie Local Government in Counties, Towns and Villages, pp. ON ECONOMY AND TAXATION 253 cite another example, with the limited knowledge of preventive medicine which prevailed two generations ago, rural health administration involved little more than ihe drainage of swamps and the occasional enforcement of quarantines, while today it is a science which calls for the trained sanitarian and the public health doctor. Changes such as these inevitably ring the knell of the unskilled, part-time local official of the type upon which the township must necessarily rely. Only by enlarging the admin- istrative area to make possible a reasonable specialization in ~ public work and by the employment of full-time officials can the requisite degree of training and skill be secured in the perform- ance of public services. Ohio has already recognized this fact by the substitution of the general health district for the township in the field of health administration and by the partial centraliza- tion of highway activity in the county. Similar considerations underlay the transfer of tax assessment from the township assessor to the county auditor. That they will eventually bring about the complete centralization of highway maintenance and poor relief in the county seems altogether probable. Should these functions be transferred, little would remain to justify the re- tention of the township as a separate governmental unit. While the centralization of functions in the county has arisen principally out of the desire for better service, it also involves an element of economy. Administration through the larger unit avoids needless duplication of equipment and per- sonnel. To what extent Ohio has saved money by vesting the maintenance of paved roads in the county surveyor rather than in township highway superintendents as in a few states cannot be exactly determined, but the amount is no doubt considerable. That further economies in road machinery would be possible if all road maintenance were similarly centralized in the county appears certain. The purchase of’ separate township road outfits to be used for a few days or weeks and allowed to rust for several months each year can scarcely be termed good business. Still another consideration leading to the decline of the township has been the necessity of wider resources for the fin- ancing of public undertakings. This has been a matter of par- ticular importance in the construction of improvements such as modern highways. Here the greater wealth and superior credit 254 REPORT OF JOINT LEGISLATIVE COMMITTEE of the county have made it the better administrative agency. Furthermore, the county serves in part to equalize local differ- ences in wealth and thus to make possible the improvement of services in communities whose poverty would otherwise block development. : Conclusions. — ‘The Committee has reached the following conclusions with reference to the future of township govern- ment in Ohio: a 1. The decline of the township is inevitable and will continue. The process of decay which has been particularly evident in the last decade and a half is due to a fundamental cause, namely, the fact that the township is no longer suited to the requirements of local government in rural areas. The con- ditions which were originally responsible for its creation have ceased to exist. Its ultimate elimination seems practically certain therefore. 2. The Committee recommends the immediate abolition of the township and the transfer of its remaining functions to the county. In practice this would mean chiefly the centraliza- tion of road maintenance in the county surveyor, and the substitution of a county officer for the township trustees in the administration of outdoor relief. Both of these steps: have been urged by persons desirous of improving rural ad- ministration in these fields, and such a centralization of ac- tivities is now a fact in many states. Such occasional town- ship enterprises as parks and libraries should be also trans- ferred to the county. 3. If the township is to be retained for the immediate future, the handling of funds and the keeping of accounts should be transferred from the township clerk to the county treas- urer and auditor respectively. Such a transfer would in- volve no great enlargement of the work of these officials. In fact, the addition of an extra deputy or clerk would very likely be sufficient in most counties, and the cost would probably be less than the present expenditure for township clerks. The net result would be a much better administra- tion of township finances, greater protection to the taxpayer, and a simplification of state supervision of public accounts. CHAPTER XIV Systematizing Financial Procedure of Local Governments Amendments to the Inheritance Tax Law A Tax Burden Study In this chapter several matters are treated which are distinct from each other but which are thus presented as a matter of con- venience. The subjects relate to — (1) A bill systematizing financial procedure for local govern- ments and fixing aggregate tax limits. (2) Proposed amendments to Ohio’s inheritance law. (3) Description and status of a tax burden study under- taken by the Committee. Proposed Legislation relating to the Levying of Taxes and Systematizing Financial Procedure of Local Govern- ments. Your Committee has prepared a bill reincorporating into the law certain statutes relating to the levying of taxes, to the financial procedure governing subdivisions of the state and supplementing the existing financial procedure by providing a uni- form system of funds for political subdivisions, and further developing a uniform budgetary practice. In this bill an aggregate tax limitation of 15 mills on the assessed valuation of each subdivision is provided, subject to the exceptions included within the bill. The 10 mills limitation is done away with, it being practically meaningless under existing conditions and the so called “internal limitations” are to a large extent eliminated. The exceptions to this 15 mills limitation included within the bill are substantially those existing by reason of recent statutes providing for the exemption of tax levies for certain specific purpose. The conditions under which these ex- ceptions to the 15 mills limitation may be made effective are re- codified in the bill. Briefly these exceptions to the 15 mills limit- ation can be made effective in one of two ways. 1. It is provided by the re-enactment of an existing statute that any municipality can by its charter or an amendment thereto, provide for its own tax limitation either for all purposes of the municipality or simply for current oper- ating expenses. (255) 256 REPORT OF JOINT LEGISLATIVE COMMITTEE 2. It is further provided in the bill, substantially by the re- enactment of an existing statute, that the taxing author- ities of any subdivision, other than municipalities which have provided a local tax limitation in their charter, can by resolution, upon two-thirds vote of the tax levying body, declare the amount of taxes which may be raised within the 15 mills limitation to be insufficient, and to declare in the same resolution that it is necessary to levy a tax in excess of such limitation for any one of a number of purposes - enumerated. The bill further provides for the procedure in submitting such tax levy to the vote of the people, for can- vassing the results of the election and for certifying the levy authorized to the County Auditor. In this bill the provisions for a uniform budget procedure for all subdivisions of the state as provided in the Vorys’ budget law are re-enacted with some modifications and extensions. Certain provisions governing the expenditure of money by sub- divisions of the state are likewise re-enacted with some modifi- cations tending to reduce all expenditures to complete appropri- ation control and with other modifications tending to liberalize the expenditure of money pursuant to appropriations. New Legislation Supplementing Existing Provisions for _ Uniform Financial Procedure in Political Subdivisions. In the proposed bill provision is made for a uniform system of funds for all political subdivisions to take the place of the rather indefin- ite fund arrangement now existing. It is proposed that there shall be established in each subdivision the following funds. . General Administrative Fund. . General Improvement Fund. . A Judgment Fund. . A Special Fund for each special levy and for revenue de- rived from other sources than taxation which the law pro- vides shall be used for a particular purpose. . A Special Bond Fund for each bond issue. . Such other funds as may be prescribed by law. (mm rad Qu. eh O It is intended by this proposed statute to definitely establish a general administrative fund to which all revenue whether de- rived from general taxation for current expenses or from any Le a oe ON ECONOMY AND TAXATION 257 other source shall be credited, unless such revenue is dedicated by law to a particular purpose. With a view to providing definite financial arrangement for the payment of-final judgments rendered against political sub- divisions, a judgment fund is provided to be set up with the requirement that the chief fiscal officer of each subdivision annu- ally certify to the taxing authorities the amount of taxes necessary to provide for the payment of final judgments and such estimate shall be placed in the annual budget by said taxing authority in the full amount. Where special tax levies are levied for particular purposes the proposed statute will re-enact existing requirements that the proceeds of these special levies be set aside in special funds to safeguard the use of the money for the purpose for which it was raised. And likewise it will still be necessary for the fiscal authorities in each political subdivision to maintain a special fund for each bond issue and for each utility publicly owned and operated. Ohio’s Inheritance Law. Your Committee believes that for the most part Ohio’s inheritance tax law is a satisfactory example of legislation in this field. There seems to be no occasion for any extensive revamping of this statute. Three suggestions are however presented. (1) Provisions for reciprocity in taxation of successions to intangible property. Serious injustice can be done under the inheritance laws of various states through the multiple taxation of intangible property. For example — intagible property not located in the state of the decedent’s residence may have its succession taxed in the state of residence as well as by the state where the property is located. This obviously is a double burden and may be a very heavy one. It is recommended that Ohio’s present inheritance tax law be supplemented by a provision which will prevent such multiple taxation in cases where reciprocal legislation is operative in other states, i.e., Ohio will not tax the succession of intangible property located in Ohio but belonging to a non-resident decedent if the state of decedent’s residence taxes that succession and conversely if such state does not tax the succession to intangible property therein located belonging to a decedent resident in Ohio, “San ae a 3 258 REPORT OF JOINT LEGISLATIVE COMMITTEE The need for such reciprocal treatment of intangible property in jurisdictions other than that of the decedent’s residence is recognized generally by students of inheritance tax legislation. Various states have such reciprocal provisions and it is time Ohio adopted this policy. There is no justification for continuing present practice. (2) The taxation of an annuity or life estate terminated by death of annuitant or life tenant. In such cases it is recommended that when the tax upon such an interest has not been previously fixed, its value shall be com- puted upon the basis of the annuity or income actually paid or payable to the annuitant or life tenant during the period for which such person was entitled to the annuity or life interest. (3) Taxation of estates dependent upon contingencies, con- ditions, etc. The law now provides (See Sec. 5343 General Code), that where the rights, interests or estates under any succession are dependent upon contingencies or conditions the tax shall be levied at the highest rate that would be possible upon the happening of any of such contingencies or conditions. Provision is made for refunders where in fact a contingency or condition takes place which necessitates levying the tax finally at a lower rate or the making of a complete exemption. It is recommended that the present sections of the law be supplemented with a provision of the following character. Direct that the probate court, upon motion of the executor or trustee, shall compute the tax at the lowest rate which would be possible under any of the contingencies or conditions which might apply whereupon the executor or trustee may elect to pay such tax and deposit with the county treasurer cash or bonds equal in value to the difference between the tax computed at the lowest rate and at the highest rate possible. Such bonds or cash shall be held by the treasurer until the actual happening of a particular contingency or condition, but the income therefrom shall be paid to the executor or trustee. When the contingencies or conditions to which the succession is subject have happened the court shall determine the tax finally and refunder of all or part of cash or bonds deposited shall be made as determined by the actual amount of the tax as finally determined. ON ECONOMY AND TAXATION 259 In cases where the executor or trustee is a corporation doing a trust business no deposit of cash or bonds shall be required, but the liability for the payment of any additional tax shall be secured by the capital stock of the trust company and the fund deposited with the state treasurer as provided by law in the same manner and to the same extent as for the faithful discharge of the duties by such trust company in respect to any trust. These suggested changes and additions to the inheritance tax law have been incorporated in a bill which has been prepared for introduction at the forthcoming session. A Tax Burden Study. The question of what tax burden various industries actually bear excites much controversy and speculation. Some contend that industry and business — par- ticularly some sorts—are taxed comparatively lightly, while others, often the industries themselves, assert that the tax burden is most grevious which in some cases amounts to confiscation or forces removal to some other jurisdiction. The tax burden on industry, its distribution and amount, its effect upon produc- tion, its effect upon saving and the creation of new industry are among the most vital problems confronting legislative bodies. With the constantly upward trend in governmental costs these matters become more acute and some consideration of them is inescapable. Your Committee desiring dependable, first hand information upon the actual tax burden borne by Ohio business and industry, including agriculture, initiated a tax burden study. Through the questionnaire method large numbers of business enterprises of various sorts have been invited to give the Committee in a con- fidential manner complete figures as to federal, state and local taxes paid during the last five years; also figures of net income or * net loss, net worth, dividends paid, property owned inside and outside the state and other pertinent information. From these data the Committee is preparing tabulations by classes of industry or business of the comparative tax burden as measured by the ratio of taxes paid to net income, to net worth, to dividends paid and to the value of property owned. These ratios constitute common measuring sticks applying to various and diverse classes of industry and business, by which a comparison of the tax burden upon each may be made. Different . 260 REPORT OF JOINT LEGISLATIVE COMMITTEE industries and businesses are taxed in different ways so that com- parisons of tax burdens can perhaps best be made by a method such as this. From this study it was hoped that a generally true and un- biased picture could be had of the tax burden and how it bears upon different classes of industry and business. The Committee is fully aware that any changes in the tax laws should preferably be based upon an accurate appraisal of existing conditions rather than upon so-called “general knowledge”. Therefore this study was undertaken. It is believed that it is the first time so compre- hensive a study of this sort has been undertaken in Ohio. This study is well advanced, but-in the judgment of the Com- mittee the returns from certain classes of industries were insuffic- ient in number to constitute a fair share of the total number in- volved. Much difficulty, in some instances, has been encountered in securing information despite the fact that only composite: re- sults would in any event be published. The plan of the study affords each class of industry and business an opportunity to state its own case with reference to its tax burden. There is, generally speaking, criticism by each class of business that its tax burden is too high, or inequitable, or increasing too rapidly. The Com- mittee was desirous of securing first hand information upon each industry’s tax burden so that if a general revamping or readjust- ment of the various business taxes were to be undertaken it could be done in as intelligent and scientific a manner as possible. The returns which have been received have been tabulated and so far as they go reveal illuminating information and com- parisons. The Committee was diligent in its efforts but because of the difficulties encountered was unable to complete the study in the time allotted. It is sincerely hoped that a way will be found by the incoming General Assembly for the completion of this valuable study. In all many hundreds of returns have been made by banks, other financial institutions, manufacturing con- cerns, and utility companies as well as by farmers. A larger and more representative number of returns should be secured how- ever, before any specific conclusions are definitely formulated. But with a large part of the work already compiled the study should be pressed to completion. ee ee ee ee PROPOSED LEGISLATIVE PROGRAM (261) PROPOSED LEGISLATIVE PROGRAM Following is a list of legislative measures which the Joint Legislative Committee on Economy and Taxation believes should be enacted. The foregoing report has presented the case for these proposals but it seems wise to enumerate them in one place for ready reference. Bills have been prepared, except as noted, for introduction. I. Proposals designed to promote economy in government. a. A constitutional amendment which will make possible the reorganization of county government. The elimination of small school districts. c. An optional plan for establishment of a unified county school district. d. Proposal to abolish township government. 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