Supplemental Information to the Levy Presentation Board Work Session 01/31/06

Scenario #10,.50% SDIT plus interest earnings associated with additional available cash The Board of Education requested that the above scenario be developed as an for comparative purposes to those that were included in the Levy scenarios presentation.

Scenario #10,.50% SDIT plus interest earnings associated with additional available cash

HB920 & HB66 “Effect” on Operating Revenue - Defined The following slide depicts the impact on the operating revenue by Ohio General Assembly legislated acts – most notably HB920 & HB66. In essence, the top “blue” line represents our total operating revenue projection and it is presented as “flat” due to the restricting characteristics of the before- mentioned legislation. The Overall increase or rise in operating revenue in the early fiscal years of the line graph is the direct result of the passage of a 5.5 mill $4.808M operating levy in November 2003.

HB920 & HB66 “Effect” on Operating Revenue – Graphical Depiction

HB66 Only “Effect” on Tangible Taxes Defined The following graph visually depicts the impact of the recently enacted HB66 and the ultimate elimination of the tangible personal property tax on businesses. These tax dollars represent $4.0M or 8% of the district’s operating revenue. The “blue” line depicts the elimination of the tangible tax by 2010, while the “pink” line represents the State subsidy to offset this loss in revenue. Further, the “pink” line or State subsidy is reduced and will ultimately reach zero by 2013, which means that the State does not permanently make up the $4.0M loss of our operating revenue from tangible taxes.

HB66 Only “Effect” on Tangible Taxes 100% Base-Year Hold-Harmless Aid Phase-out of Hold- Harmless Aid, It will equal $0 in 2018

Hudson City School District Operating Fund Expenditure Growth Index Analysis (1999 to 2008) Defined The following line graph represents the annual percentage change in expenses for the fiscal years presented. The culminating effect, was a reduction-in-force of district personnel in the Spring of The FY2003/04 budget reductions were made permanent for FY2004/05 and lowered the overall expenditure baseline. Beginning in FY2005/06 and thereafter, typical school expenditure growth rates have been assumed including those adjustments as referenced in the January 20, 2006 levy scenario presentation.

Hudson City School District Operating Fund Expenditure Growth Index Analysis (1999 to 2008) Reductions to expenses Lay-off Includes modified assumptions from Forecast

Explanation of percentage changes for Fiscal Year’s thru actual & 2006/07 proposed What follows is an attempt to review the operating budget reductions that have been historically implemented Fiscal Year thru and that which is being proposed for Fiscal Year The reader is reminded that the budget reductions, were largely made permanent in Fiscal Year , which would explain the redundancy of reduction description.

Actual 2001/02 Budget Reduction Breakdown

Actual 2002/03 Budget Reduction Breakdown

Actual 2003/04 Budget Reduction Breakdown

Actual 2004/05 Budget Reduction Breakdown

Proposed 2006/07 Budget Reduction Breakdown

Analysis of a “Typical” Expenditure growth rate between fiscal years The following graph details the fixed and variable cost factors impacting the “typical” public school operating budget expenditure growth rate.

Analysis of a “Typical” Expenditure growth rate between fiscal years DescriptionPercent Personnel Costs: embedded in collective bargaining agreements or Federal & State Law (STRS, SERS, Medicare)2.56% Purchase Services: Utilities, Out of District Tuition, Contracted Transportation, Contracted Health & Nursing Services0.38% Supplies & Materials: Bus Fuel, Adopted Textbooks, Custodial Supplies, Paper0.03% Other Expenses: County Auditor and Treasurer's Fees, Liability & Property Insurance0.03% Sub-Total Fixed Costs3.00% Personnel Costs: Negotiated Increases to Collective Bargaining Agreements2.00% Sub-Total Variable Costs2.00% TOTAL:5.00%

School District Income Tax Q & A Q: Who pays the tax? A: Only residents of the Hudson City School District. This includes those sections of the district outside of the Hudson City Limits - Boston Twp., Boston Heights, and Cuyahoga Falls. Q: Are pensions subject to the tax such as STRS? A: No, under the new tax base created in HB66, pensions are not subject to the school district income tax. This includes pensions received from STRS, SERS, PERS, Social Security, Rail Road, etc. Q: What income is taxed? A: HB66 defines income under this alternative tax base as earned income and self-employment income. Therefore it functions as a wage tax. It does not tax passive income such as: interest, dividends, capital gains, pensions etc. Q: Are there any deductions or exemptions to arrive at my taxable income under this new alternative school district income tax base? A: Yes, salaries and wages indicated in Box 1 of an individual’s W-2 for earned wages represents the new alternative taxable base. Below is an illustration of what Box 1 represents. 1. Gross Salary: 2. Less Deductions to arrive at SDIT base: Pre-tax contributions for health insurance Pre-tax contributions to an annuity (403B, 457, 401K) Flexible Spending Contributions (125 plans) Contributions to qualified pension plans (STRS, SERS, PERS) 3. Alternative Tax Base for School District Income Tax Purposes Q: Do businesses pay the school district income tax? A: No, businesses will not be subject to this tax like a property tax.

School District Income Tax Q & A Q: Do minors or those under the age of 18 have to pay the SDIT? A: Yes, there is no age restriction or exemption for those above or below a certain age limit provided they have earned income within a calendar year and not passive income such as pensions, interest, dividends, etc. Q: Do S-Corps have to pay the SDIT? A: No, S-Corps do not have to pay the school district income tax as prescribed in HB66. In addition, those persons with Line #’s on following forms must pay the new SDIT –Line 1 of taxpayers filing federal form 1040EZ –Line 7 of taxpayers filing federal form 1040A –The sum of Line 7 – wages, salaries,, & tips Line 12 – business income or loss Line 18 – farm income or loss Line 17 – but only the portion of line 17 that represents distributions from partnerships that are subject o federal self-employment tax, reported on form 1065, Schedule K-1, line 14 Q: Can Hudson City School District combine the new SDIT with a new property tax levy? A: No, present law does not permit such an option

Levy Time-Line February 6, 2006 – Last date to file resolution of necessity with the Ohio Department of Taxation for a School District Income Tax Levy. February 16, 2006 – Last date to file resolution to proceed with levy request with the Summit County Board of Elections. Regularly Scheduled Board of Education Meetings: –February 6, 2006 –February 13, 2006