Valuation Forecasting Ohio University Leadership Program Mike Sobul, CFO/Treasurer, Granville EVSD & Consultant, PFR March 21, 2018 PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS Overview 1) Residential Property Valuation Forecasting 2) Agricultural Valuation Forecasting 3) Pipeline Valuation Forecasting 4) Valuation Changes and Future State Aid PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values ODT publishes historical data of sales ratios and median home values by County Jurisdiction City Village Township Data comes from each “valid” sale of a piece of existing property in the state PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values ODT publishes the total value of new construction every year published by Taxing district School District ODT publishes real property values by School district Both data files come from the real property abstracts filed by county auditors PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values Datasets available on ODT Website Sales Ratio dataset http://tinyurl.com/sales-ratio New Construction and Real Property By school district and by taxing district http://tinyurl.com/New-Con-and-RealProp Both data files come from the real property abstracts filed by county auditors PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values Key column in sales ratio table is the far right Median market to price ratio These are medians of the ratio of the value, for tax purposes (before the 35% assessment rate) of each property that sold to the actual price During a reappraisal or triennial update, ODT is looking for the rate to be in the 92-94 percent range The # of Sales column show the valid sales in the jurisdiction Valid sales exclude sales of new homes and distress sales PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values This shows that almost all of the residential value in Berea is in either the cities of Berea, Brook Park, and Middleburg Hts. Using abstract data for Berea also shows that all of those three cities are fully within the Berea School District PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values For the school district, use a weighted average of the sales ratios to determine a district-wide ratio Based on the real property abstract, about one-third of the residential value of the district is in each of the three cities PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values You can build our own real time sales ratios Arms length transactions, build a file of sales prices to the values of the properties on your county auditor’s website Build relationships with local bank, mortgage companies, or appraisers. They can provide you with periodic updates of appraised values for sales or refinancing relative to taxable values without identifying particular properties to protect confidentiality PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values Note of caution, for small school districts and small jurisdictions If there are not at least 50-75 transactions in a year, the sales ratios are not going to be statistically significant Pay more attention to countywide sales ratios, they are more likely to be applied in your local area For general longer-term trends: Three-year averaging slows the implementation of value declines Three-year averaging slows the implementation of valuation increases once housing market turns PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

What is Happening Going Forward 2017 Tentative Residential Valuation Changes PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values Forecasting New Construction Use a combination of Line 3 (New Construction) and Line 14 (previous year’s value, land + building) from the real property by school district abstract to build an historical growth ratio series PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values New Construction has begun to increase very slowly Watch new building permits in your overlapping jurisdictions If you can acquire historical data on building permits, match those to the new construction data from the abstracts to assist in identifying long-term relationships Property coming off exemption is treated for tax purposes like newly constructed property Property going on exemption is essentially the same as destroyed property PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Residential Values Keep in mind the timeline for new construction If a permit is applied for in the Spring of 2018, assuming construction begins in the fall, and it is completed in the Spring of 2019 It first goes onto the tax rolls for a January 1, 2020 lien date for taxes collected in 2021 This means that even once the new construction market turns around, there will be a significant lag before you start seeing new revenue PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Forecasting Agricultural Property PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

What is Happening Going Forward In counties going through reappraisal or triennial update in 2017, CAUV values are expected to decline by an average of 31.7% statewide In 2018 counties, CAUV values are expected to decline 21.5% In 2019 counties, CAUV values are expected to decline 20.6% PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

What is Happening Going Forward In areas with strong growth in residential values and little agricultural property, tax rates will be rolled down by tax reduction factors to prevent gains in local revenue In areas where agricultural values decline more than residential values increase, tax rates will increase to prevent local revenue from falling In areas experiencing both of the above situations, the two will work opposite each other to keep tax rates stable PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

What is Happening Going Forward Counties going through reappraisals in 2018 or 2019 are likely to see increases in residential valuation Just because residential values are rising does not mean that districts will get more money Just because agricultural values are dropping does not mean agricultural dominant districts will get less money PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

What is Happening with Pipelines Two major pipelines are coming on line over the next few years that can have significant impacts on school districts The Rover Pipeline was partially put in service during 2017 and is expected to be fully operational in Ohio in the next couple months The Nexus Pipeline has been approved but the company is still going through site acquisition and right- of-way procurement PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS Rover Pipeline PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS Nexus Pipeline Fulton County Columbiana County PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

What is Happening with Pipelines Value is comprised of three things Pipeline miles Compressor stations Meter and regulating stations Value is depreciated over 30 years, starting at 98.3% and falling to 15% The assessment rate is 88% and the full voted tax rate applies There is no impact on reduction factors PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

Valuation and the State Funding Formula The sharp increases in CAUV values in 2014 and 2015 was the primary cause of nearly 200 additional districts going on the funding guarantee in FY 2018 Sharp increases in residential values in 2017 and 2016 will have a similar impact on more urban and suburban areas in FY 2020 (assuming the funding formula does not change) Declining CAUV values will cause more rural districts to get poorer, especially combined with higher residential values Three-year averaging of values will stretch the progression of the impacts over several years PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS Key Takeaways Barring changes in housing markets or the economy, residential values should continue to grow solidly Agricultural values are likely to continue falling through 2022. Pipelines are potentially a game-changer in some areas of the state Public Finance Resources can help districts navigate through potential disruptions and changes PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS Services Five Year Forecast Software  More than a compliance document Cash flow monitoring Modeling scenarios Graphics and dashboards Planning tool Consulting  Maximize your effectiveness Financial consulting and cash flow monitoring Forecast review and analysis, “what if” planning Presentations to key stakeholders Special Projects Data Interpretation  Data driven decision making Multi-year data sets to identify trends Benchmark analysis reports to see how you compare Graphics that are easy to read, understand and explain Data driven decision making PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS

PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS PFR Contact Information Mike Sobul Consultant Public Finance Resources, Inc. PO Box 1822 Columbus, OH 43216 mike@PFRCFO.com Phone: 614-732-5948   Debra Hoelzle Chief Operating Officer Public Finance Resources, Inc. PO Box 1822 Columbus, OH 43216 debra@PFRCFO.com Phone: 614-732-5948   www.PFRCFO.com PUBLIC FINANCE RESOURCES: EMPOWERING THE PUBLIC'S FINANCIAL LEADERS