Tuesday, October 30, 2007

Bad Optics

During the Spring of 2006, Superintendent Dale McVey recruited Dave Lundregan to chair the committee set up to campaign for the passage of the bond levy which would ultimately fund the construction of Washington Elementary and Bradley High School. Mr. Lundregan in turn recruited Bobbi Mueller as co-chair. They named the campaign "Our Kids Can't Wait." As we all know, the campaign was successful. Washington Elementary is open, and the construction of Bradley High School is well underway (as I can observe from my window as I write this).

Why is it that a campaign committee is established when a levy needs to be put on the ballot? It would seem to me that if the district leadership does a good job of educating the community continuously about how money is being used and where it comes from, when the time comes that more money is needed, the community would be well-informed and supportive.

Instead, the district leadership sets up these campaign committees and gives them the task convince the majority of the voters, in a short period of time, that a pile of money is needed. It is a tough and expensive task to overcome the initial negative reaction folks have to being surprised with a request for more money, especially when the amount is substantial.

The "Our Kids Can't Wait" team decided that a community survey was in order. They contracted with Saperstein Associates, a Columbus based public opinion research firm, who designed and executed the survey. I was one of the folks the called, and spent a good deal of time on the phone with the interviewer. The questions were quite interesting, and I've long tried to get someone to share the results with me.

These surveys aren't cheap. Saperstein Associates charged the campaign committee a total of $18,300 to design the survey, perform the interviews, and analyze the results. Another $10,900 was spent with Burges & Burges, a political strategy firm based in Cleveland. In total the committee spent about $45,000 on this campaign.

Where does that money come from?

That information must be filed with the Board of Elections, so while I was down there dealing with some other paperwork associated with being a candidate for Hilliard School Board, I asked to see copies of the "Our Kids Can't Wait" campaign finance reports.

The majority of the contributors were individuals, PTOs, and other small organizations who put in $50 to a few hundred dollars. While their numbers were many, the total dollars raised from these folks was a small fraction of the total funding needed.

Edwards Golf Communities also put $2,000 into the fund. Edwards is the developer of Ballantrae. That makes it easy to understand their interest in seeing the levy pass: the construction of Washington Elementary had been long anticipated by Ballantrae residents, and would be an important selling point to potential future homebuyers.

One major contributor was Fanning Howey, who gave $10,000. Fanning Howey is a firm that specializes in the architecture, engineering and project management of school construction. It also happens to be the firm that was hired by the school district, for a fee of $2.2. million, to be the project manager for the construction of Bradley High School.

Fifth Third Bank also put in $10,000. When a bond levy passes, the district sells municipal bonds to raise the cash to build the schools. Fifth Third will be handling $60 million of these bonds, and their commission could be expected to be substantial.

Burges & Burges also gave $500 (after having invoiced the committee the $10,900 mentioned above).

A boss of mine sometimes used the phrase "Bad Optics" to mean something just didn't look good. To me, there's some bad optics associated with having businesses contribute to political causes which put money right back in their pockets. In this case, Fanning Howey and Fifth Third fit into that category.

When I served on the Board of the Hilliard Education Foundation, we weren't shy about asking for money from corporations who made a lot of money doing business with Hilliard City Schools. I suspect that this is the spirit in which Fanning Howey and Fifth Third Bank were solicited by the "Our Kids Can't Wait" campaign.

But there is a fundamental difference between what HEF does, and the purpose of this committee. Contributors to HEF know the money is granted directly to teachers to fund some of their great ideas that can't be paid for with tax revenue.

But a successful levy campaign would put millions of dollars of taxpayer money in the coffers of Fanning Howey and Fifth Third. As altruistic as their contributions might be, it still has bad optics.

My solution is to not use these levy campaign committees at all. Don't get into these situations of needing a lot of money to run a campaign in the first place.

Our administrative team has public relations/communications folks on staff. All we need is a communications strategy to effectively educate and inform the people of our community about the economics of the school system. There are hundreds of professional educators in our system, so wouldn't you think that the development of lesson plans for this subject is right up someone's alley?

Monday, October 29, 2007

Don't Let Apathy Win

As of July 2007, the number of registered voters in the Hilliard City School District was 43,751.

What a shame it is that in the 2003 election, only 12,823 people chose to vote for school board candidates. The 2005 election was even worse, with 11,129 people voting for school board candidates.*

There was a slightly better turnout for the 2006 bond levy - 15,394. The vote was 8,229 FOR to 7,165 AGAINST. Think about this a second: Less than 20% of the voters in our community made the decision to commit 100% of us to paying off the $75 million mortgage for Washington Elementary and Bradley High School.

In the coming four years, the Hilliard Schools Community is going to face a gut-wrenching financial situation: how do we deal with a projected $40 million annual funding shortfall? The way that question is answered will affect the quality of life, the cost of living, and property values in our community in very significant ways.

If you haven't cared before, you need to start now. You need to decide whether you want to return to the Board the incumbents who led us into this mess, or replace them with experienced business executives who fully understand the situation and know what to do.

I recognize that the folks who read this blog and SaveHilliardSchools.org are ones who do care, and are going to vote on November 6th. The folks that need to be reached is everyone else.

As far as media goes, the best way for reaching the people of the community remains the community newspapers: Hilliard Northwest News and This Week Hilliard. Both have run decent articles during the campaign. A couple of friends and I have passed out 1,000 flyers, and there are a number of yard signs posted in strategic places (although a couple of mine have disappeared).

Still, the most effective way to reach the voters is personal contact. Not just from me, but from each of you. So please take this as a request: Please tell everyone you know to come out and vote.

If you are so inclined, I would appreciate your recommendation that they vote for me.

* approximation calculated by taking the total number of votes cast for board candidates and dividing by the number of open seats. There may have been cases of people not voting for as many candidates as were allowed, which would throw this calculation off by a very small amount

Friday, October 26, 2007

Win-Win Pt II

At this week's "Meet the Candidates" night, a question was asked about our support of the Win-Win Agreement.

Part of Doug Maggied's answer was that we pay $1 million/yr to Columbus City Schools to satisfy the revenue sharing conditions of the Agreement, but that we get back $10 million/yr in tax revenue from the properties in the Win-Win area. Net is $9 million/yr in revenue to the school district. Doug seems to think that makes it a winning proposition for Hilliard City Schools. But that's not the end of the story.

The Win-Win areas are parcels of land that have always been in townships within Hilliard City Schools until annexed to the City of Columbus so developers could get water/sewer services for all the homes they built. These areas include a number of significant commercial parcels, include the massive Buckeye railroad yard and many of the businesses near the Rome-Hilliard and I-70 interchange.

But lots of kids live in those areas as well. The Win-Win area encompasses neighborhoods such as following (with the number of students, source = data provided to the Redistricting Committee):

Western Lakes: 401
Golfview Woods: 214
Village at Thornapple: 225
Saddlebrook Condos: 224
Hilliard Green: 203
Hilliard Village: 182
Sweetwater Estates: 164
Bayside Commons: 195
The Meadows: 123
River Run: 70
The Glen: 195
Stonewyck Manor: 23
Scioto Trace: 32
Cabot Cove: 55

The cost per student is $9,860/yr in our district, so we eat up that $9 million in net revenue if there are 1,000 or more kids living in the Win-Win areas. The list above adds up to more than 2,100 kids, and this is not complete. These 2,100 kids alone represent $20.7 million in annual cost.

That $9 million of net revenue we get out of the Win-Win area doesn't look so hot now.

So does this mean I think we should withdraw from the Win-Win at the next opportunity? No. Even if it seems to make sense from a fiscal standpoint, these neighborhoods are part of the Hilliard community. Hilliard City Schools did not annex the land these homes sit on - they were always part of the Hilliard School District. The people who bought those homes did so believing they were buying into the Hilliard Schools community. It is politically unthinkable to abandon our neighbors at this point.

These facts are part of the truth everyone needs to understand. It means that it's not just Mayor Schonhardt and the Hilliard City Council we have to hold accountable for letting developers build houses all over, it's also the decisions of the Mayor of Columbus and the Columbus City Council we need to influence. The terms of the Win-Win will need some significant changes next time around.

With your vote, I'd like to fight this battle from a seat on the School Board. But it will take the politicial might of our whole community to regain control over these politicians and developers.

Thursday, October 18, 2007

Teacher Salaries and Truthtelling

In the October 18, 2007 issue, Hilliard This Week published a story titled “School salary negotiations to begin next week.” A key sentence in the story was this:

The first wage increase negotiated for the teachers took place in January 2005 with a 3.5 percent hike, followed by a 3.65 percent raise in 2006 and again in 2007.
As I alerted readers in an earlier post, this is not the whole truth. The members of the teachers’ union – the Hilliard Education Association – get two raises each year. The first, the one noted in this story, is the amount that the entire payscale is raised.

For example, a teacher who has a Master’s degree and 10 years of service would have been paid $56,971 in 2006. In 2007, a teacher with a Master’s degree and 10 years of service gets paid $59,050. The difference is $2,079, or 3.65%.

But here’s the rub. We’re not talking about the same teacher!

A teacher with a Master’s degree and 10 years of service in 2006 becomes in 2007 a teacher with a Master’s degree and 11 years of service. The pay for a teacher with a Masters and 11 years is $61,500. So this teacher’s pay would increase from $56,971 in 2006 to $61,500 in 2007. That difference is $4,529, or 7.95%.

When $96 million of our annual operating budget goes to pay salaries, the difference between 3.65% and 7.95% is $4 million per year. Isn’t that worth more complete disclosure?

This is my #1 complaint about the way our school system is run – the leaders hide the truth. They don’t talk to us about the magnitude of the funding shortfall our treasurer is forecasting ($37 million/yr by 2011), or how much our taxes will have to go up to cover this shortfall (40%).

They don’t tell us when they do a deal with a developer to put in a mile long water line costing us $834,000 but that the developer gets to use for free.

We don't know about these things because the Board sprints through the public part of their agenda in minutes, then retires to Executive Session for hours, where such things are discussed out of the public eye.

If you’ve had enough of this, please vote for me on November 6th. Meanwhile, please make sure all your friends and family in the Hilliard School District know about this blog, and the associated website:


Monday, October 15, 2007

Superintendent's State of the Schools Address

Superintendent Dale McVey delivered his annual State of the Schools address on October 2, 2007. I regret that I failed to attend, but Mr. McVey was good enough to send me the text of his address, posted here.

Mr. McVey sets a very positive tone with his message, which is appropriate. We have an excellent school system, which is a tribute to all who play a part.

But there is danger on the horizon, and I don't understand why our school leadership avoids ringing the alarm bell. Readers of this blog and the SaveHilliardSchools website know that funding is an immediate and critical issue - the most critical in my opinion. Without adequate funding, the ability to operate our district at current performance levels is jeopardized.

Once again, an important opportunity came and went without our school leadership communicating any real numbers. Saying they're available on the website (see page 107) isn't good enough; these numbers should be front and center every time the topic of school finances come up. Allow me:

Our treasurer forecasts an annual funding shortfall of $37 million by 2011. To raise an additional $40 million/yr with our current tax base requires raising our property tax rate by 16 mills, or 40%.

Mr. McVey focuses the problem on the fact that the State of Ohio has frozen its funding to us. This is indeed an important factor, and we need to be sure we keep our face in front of our legislators and the Governor's office. But we should be prepared if the answer we get from the State is to keep our funding where it is.

Being prepared means making sure the folks of our community understand the basics of funding, and what has changed over the past decade -- an explosion of residential homebuilding without commensurate commercial development. The developers have harvested our community and left us with the bill.

If you don't understand this statement, send an email to me at savehilliardschools@msn.com. I'll spend all the time with you that you need to understand.

Saturday, October 13, 2007

Lisa Whiting Appointed to Board

My congratulations to Lisa Whiting on being appointed to the Hilliard Board of Education, taking the seat of Cheryl Ryan, who recently resigned.

I've had the pleasure of serving with Lisa on what became the ACT Committee. We also served together on the Redistricting Committee, as members of one of the small groups assigned with coming up with one of the option sets.

She's a smart, dedicated and motivated supporter of our school district, and a good choice by the Board. I hope to have the opportunity to serve with her.

Friday, October 12, 2007

Corrections to NW News Article

My thanks to the Hilliard Northwest News for running an article about my campaign in this week's issue. However, there are a few things that need to be corrected, both in fact and in tone:

  • My role at CompuServe Network Services was Chief Technology Officer, not 'chief technical director'
  • My hometown is Charleston WV, rather than Charles Town.
  • Terry was the Chief Financial Officer of her company when she retired

Those are just minor details. The more significant corrections I'd like to make are:

  • The sentence: "We are about to enter a time when enormous amounts will be needed by our schools because of decades of friendly decisions in our community" should read: "...due to decades of developer friendly decisions in our community."

  • This article paints a picture that the only thing I care about is funding. It is indeed a critical issue, and one that will shape decisions in every facet of district operations. If we don't keep our schools adequately funded, we'll feel the pain in every area.

    Of course I know there is a broad spectrum of matters which need attention. But we have competent professionals in the classrooms and in the administration who are trained and experienced in those areas. To do what they know needs to be done, the community must provide them with the fiscal and physical resources. In my opinion, this is a primary duty of the Board of Education.

    The Board carries out this responsibility by: a) ensuring that the people of our community understand how funding works at a fundamental level; b) taking an active role in community development policymaking; and, c) keeping the pressure on our state officials to provide the tools we need (e.g. impact fees) to control our own destiny.

Please let me know if you have any questions about my agenda.

Thursday, October 11, 2007

Endorsement Interview – Hilliard Education Association

I, like the other three candidates for the Hilliard School Board, was invited by the Hilliard Education Association – the teachers' union – to participate in the process used by the HEA to decide whether to endorse any candidates in the upcoming election on November 6th. To learn more about the candidates, we were sent a list of questions in advance, and asked to come in for an interview on September 19th prepared with answers to the questions.

Because I was out of town for the entire month of September, I submitted my answers to the HEA in writing, and made myself available for an interview after returning, if they desired. They did, and on Oct 1, we met. I'm assuming the other candidates met with the HEA committee earlier.

I was notified this week that I did not receive the endorsement of the HEA; that they chose to endorse Doug Maggied and Dave Lundregan. I respect their choice and thank them for the opportunity they gave me to present my thinking to them.

I thought that you would be interested in the questions they asked, and how I responded. First, the written questions:


September 18, 2007

Hilliard Education Association
5491 Scioto Darby Rd, Suite 001
OH 43026

Dear Endorsement Committee Members:

Thank you for the opportunity to respond to your questions. I hope that my written responses will suffice until I return to Columbus approximately September 26, 2007. You can also find out a great deal about my views on many topics by reviewing my website, http://www.savehilliardschools.org/, which I began in February 2006.

State your reason for becoming a candidate

The reason is simple: There is much work to be done to address the fiscal challenges our district faces, and I have the training, experience and motivation to be able to contribute. It would be much easier for me to ignore the challenges of the school district now that my children are adults, but the school district is the most important organization in our community, and it is my civic duty to be part of the solution, not part of the problem. My efforts over years to convince the current board members that they must educate the community about school funding, and communicate more effectively in general, have failed. Rather than give up, I have decided to run for a seat on the board and drive for change from the inside.

I have no experience in matters of school system management, but have extensive background in the leadership of large organizations with substantial budgets (larger than that of our school district). However, I believe that the primary role of the school board is not to second guess the professional educators in our system, but rather to see that they have the resources to get the job done. The key resources for our school system should be obvious: a) well-trained, motivated and effective faculty and staff; and b) economic viability. My expertise is the latter.

What qualities and experience will I personally bring, and what three major issues will I advocate?

Qualities/Experience: I have served in leadership roles in both professional and volunteer organizations for most of my life. As a professional, I began my career in 1973 as one of the early employees of CompuServe, as a night-shift computer operator. By the late 1990s, I had become the Vice-President of Network Technology and Chief Technology Officer of our telecommunications division, leading an organization of over 700 people worldwide, and managing an operating budget in excess of $300 million per year and a capital expenditures budget over $100 million per year. After CompuServe was acquired by Worldcom in 1998, I was named the Vice-President and General Manager of the UUNET Web Hosting Service. I retired in 2000 at age 46.

I am currently an investor and executive in Rivet Digital, a high-tech startup firm headquartered in the Hilliard City School District.

As a volunteer, I serve as a leader in our local church, Mountview Baptist, and have been instrumental in the strategic planning for both our congregation and our state organization, American Baptist Churches of Ohio. I am a member of the Board of Directors of the National Black Programming Consortium (http://www.nbpc.tv/) headquartered in Harlem, New York, and currently serve as Secretary. I am the Treasurer of The Ohio State Chapter of Triangle Fraternity, the alumni organization of this national collegiate fraternity of engineers, architects and scientists.

I am a past member of the Board of Trustees of the Hilliard Education Foundation, including Chairperson for the Evening of Excellence in 2000, and continue to be a sponsor of HEF events such as the Spelling Bee and Casino Night. I participated in the financial committees now known as ACT and the Treasurer's Committee, and served on the most recent Redistricting Team. I am also a past member of the Board of Directors of Pinnacle Data Systems, a publicly-held corporation headquartered in Groveport OH.

I was a member of the committee which performed the most recent update of the Brown Township Comprehensive Plan, creating conservation style (lower density) land use policies for the western half of our school district.

I hold a BA in Management from Capital University.

My wife Terry and I have lived in the HCSD since 1979, and our two daughters attended school in the HCSD from K-12, both graduating from Darby High School. Our eldest is a teacher in northwestern Ohio, while our youngest is in her first year of medical school.

Major Issues:

Educating the Community about School Funding
- Improve Communications between the District and the Community
- Demand a Voice in Community Planning and Management
- Develop a Long-Range Strategy for Growth
- Campaign for Impact Fees

How would I address these issues? (the answers were taken directly from my website, so I will not reproduce them here)

HCSD is not meeting AYP requirements within some of our sub groups, how would I address this issue? What support and materials would I offer teachers?

I am not an educator, but rather a businessman. I would have to depend on the judgment and advice of the educators in our district to determine how to best address this issue. I view the role of the Board as being one of setting objectives, policies and standards; of monitoring performance of the leadership against those objectives, policies and standards; and to muster the resources – primarily fiscal – to get the job done.

With increasing diversity of our school population, how would I as a school board member represent and explain to the community "why" we remain in "Continuous Improvement?"

I would say that this is a flaw in the way these ratings are structured, one which needs to be fixed by the Ohio General Assembly. While it is appropriate to indicate that AYP is not being met for some subgroups, the overall performance of the district is not being communicated fairly.

After all, the purpose of these rankings is to tell current and potential residents of the school district how well our kids are being educated. In a very real way, it assures the taxpayers in the community that they are getting the performance they feel they are paying for.

Nonetheless, no one should ignore the fact that there are populations of immigrant kids in our school systems which continue to need extraordinary attention. We can argue that the standards are too aggressive, or that the federal government should contribute more to the extra costs the immigrant kids bring to our district. But still we need to report how those kids are doing compared to their American-born classmates.

In the meantime, the district leadership must clearly communicate to the community how the evaluation system works so that no one becomes unduly alarmed. As much as I criticize the district leadership about their lack of effective communications, they have attacked this issue aggressively and reasonable

The Ohio Legislature is making fiscal and educational policy with little direct input from school districts. What do I see as my role in working with the legislators in representing HCSD, students, and community?

If the legislators are not listening adequately to school districts, who are they listening to when they make fiscal and educational policy?

I suspect that they are listening to the lobbyists from the education community, such as the Ohio Education Association, just as they listen to the lobbyists from every other special interest group in the state, but just don't have enough money to satisfy the desires of all.

The Ohio Legislature and the Governor are in a tough situation. As entitlement programs such as Medicaid eat up more and more of the state budget, the portion available for everything else, including education, continues to shrink. The answer is not a new amendment that attempts to force the Governor and the Legislature into making education the first among all the priorities. Nor is it necessarily to raise tax rates at the state level. The health of our state in general is determined by our ability to bring new businesses and new jobs to Ohio. Higher tax rates force corporations to leave the state, lowering both corporate tax collections as well as individual income tax revenue.

It is far more efficient for Hilliard to fund our schools with local taxes than depend on the state to fund us. At the state level, affluent suburbs like ours are the cash cows that provide the funding to support all kinds of activities, especially school districts, in urban and rural areas. That's why the Governor froze the State Aid to the HCSD – he believes our district is affluent enough to solve our own funding problems.

I firmly believe that the more control of school funding we turn over to the state, the less Hilliard will get, and the more we will have to tax the people and businesses of our community to make up the shortfall.

If no operating levy is passed between now and the fall of 2009, what would my position be in regards to the opening of Bradley High School?

First of all, it is a tragedy that this question is even being asked. The school board and administration failed to adequately educate the community prior to the decision to build the third high school, and many will be surprised to learn that the levy they approved did not provide for operating the high school as well. How can that fundamental misunderstanding be allowed to exist?

Now we are headed for a funding crisis – one which could have been avoided. The only way out is to embark on an intense community communications program, and hope they will forgive the district leadership for putting us in this situation.

The direct answer to this question is that Bradley can be opened only if we can afford it. The school district cannot spend cash it doesn't have, and if no levy is passed, a drastic amount of spending cuts will need to be made. The current HCSD budget documents show a cash deficit of $20 million in 2010 if no new levy is passed. What that really means is that the district would have to cut $20 million in expenses if no levy is passed by 2009.

Some of these cuts might be to eliminate some or all optional programming and services. We might have to drop some or all extracurricular activities.

Eventually we must face the fact that nearly 90% of the cost of running our district is the salaries and benefits of the faculty, staff and administration. We would certainly eliminate all "nice-to-have" administrative roles. Some staff positions would have to go as well, probably leading to short-term neglect of the facilities and reduced services to students and faculty.

And there would need to be some cutbacks in faculty – where most of the money is spent. I would hope that there could be a meaningful and productive discussion with the HEA about how to work through this situation. All possibilities have to be on the table, including layoffs, salary/benefit rollbacks, and reassignments. There a doubtless many more options that could be explored if all sides work together in an atmosphere of trust and respect.

But I'll say it again – we can avoid all this if we begin immediately to educate our community about the situation. If we help them understand the problem, they'll help find the solution.

Again, thank you for the opportunity to answer your questions. If you wish to interview me in person, let me know and I will meet at your convenience.


Some Additional Question asked during the interview (paraphrased from memory):

The relationship between the Board, the Administration and the Teachers is friendly and cooperative. How do I see that working if I am elected?

I believe it is possible to be friendly without being friends. The Board represents the community in its relationship with the teachers and staff, and in that role, sits on the opposite site of the bargaining table from the union members.

note: the following comments extend beyond what I recall answering in the actual interview. However, I believe it is important for you to understand the whole of my thinking on this matter...

The relationship with the Administration is more complex. The administrators are part of the same benefit system as the teachers, so when union contracts are being negotiated, do the administrators play the part of 'management' with the Board, or are they 'labor' along with the union members? Aren't the administrators conflicted in either role?

It is the duty of the Board to hold the administrators accountable for their performance, and that of the school district. There may well be times when the Board and the Administration don't agree, and sometimes that disagreement might be quite vigorous. When that happens, the Board has final authority, and must be willing to exercise it – uncompromised by feelings of friendship.

I have served as a member of the Board of Directors of public companies (i.e. ones that have sold shares of stock to the public), and understand the tendency of Board members to become buddies with the management. I believe the excesses of Enron, Worldcom, et al, happened to a large extent because the Board members got too close to the management, forsaking their responsibility to the shareholders.

School board members must behave the same way. They represent the tens of thousands of people in the school community, acting as stewards of our most important community institution – the school system. Their loyalty has to be to the community first, and the employees of the district second.

Who is on my campaign committee? What endorsements have I already garnered?

No one. No endorsements.


So what was my feeling about the interview and this endorsement process?

I spent some time beforehand questioning whether I actually wanted to be endorsed by the teachers' union. What would an endorsement by them signal to the community? That I had somehow subordinated my agenda to theirs in return for the promise of the votes of their members and the potential votes of others in the community who pay attention to what the teachers' union thinks? That would not be a good thing – my first thought. If my intention is to bring radical change to the School Board, why would I want an endorsement of any of the current players?

In the end, I decided that an endorsement by the teachers' union would be a positive thing, and chose to participate in this process. I sincerely thank them for the time they spent with me, as it is valuable to learn the perspectives of all the stakeholders.

The union is a political entity which exists to create bargaining power on behalf of the individual teachers. The teachers want their union officials to represent them in negotiating their collective bargaining agreement. They also want the officials to skillfully analyze situations, like the selection of School Board members, to tell the membership the results of that analysis, and to recommend action (e.g. "vote for X and Y for School Board in the upcoming election").

But I've seen what happens when the union leadership gets off track and begins to exercise its power to the detriment of the employer. My hometown was a major manufacturing center until the 1970s, when labor costs drove employers to move operations to Texas and overseas. The kind of thing happened all over the Rust Belt.

As employers, the School Board is in a difficult position. The Board cannot threaten to move operations elsewhere (a fact taken advantage of by Mayor Schonhardt as well). Nor will the community easily tolerate a labor action which causes the operations of the school system to be significantly impacted. A full-blown strike by the teachers would create havoc. Therefore the tendency is to be pretty generous when negotiating a new contract.

I don't think the union leaders liked my answer about what would happen if the next levy doesn't pass, but I believe I told them the truth. If the next levy doesn't pass, the magnitude of cutbacks required in our school system will certainly result in teacher layoffs, and perhaps even the closing of buildings (or the indefinite delay in opening Bradley High School). Regardless of who gets elected to the Board, this is what must happen if the levy fails. This is the reason it is critical to radically step up the community education effort now.

The Board is already many months, in fact years, late in this effort.

Sunday, October 7, 2007

Finish the Sentence

The Dispatch headline reads "Builders warn against Darby housing levy" ...

The rest of that sentence should read "... because their business has always been subsidized by the rest of the unsuspecting community, and this Big Darby Accord levy jeopardizes that subsidy."

As described in this newsletter by the Buckeye Association of School Administrators, the construction of new homes is not helpful in solving the funding problem in growing Ohio school districts, such as Hilliard City Schools. In fact, it is the primary cause of funding problems in districts like ours.

Don't get me wrong - I applaud businesses which can manufacture a product or deliver a service which has value in the free market. Such businesses employ workers and pay taxes, both of which are essential to a healthy local economy. In fact, I am part of a team of investors and management who are trying to get a small business , headquartered here in our school district, off the ground right now.

My objection is to the decades of developer-friendly politics in central Ohio, and in particular the way in which our taxing mechanisms cause new homeowners to be subsidized by the rest of the community. This effect is like a modified Ponzi scheme in that the apparent cost of ownership a new homebuyer perceives is lowered because of this subsidization. Soon enough, however - in fact the next time a school levy passes - the once-new homeowner becomes part of the group subsidizing yet newer homeowners. You want to be the last person to build a house in a community because everyone else subsidizes you.

An study published by The Ohio State University says it this way: "residential development often brings costs to the community that are not fully borne by the new residents, but instead are distributed throughout the community"

A very powerful way to have new homeowners pay for the costs they bring to the community is impact fees. Indeed, the City of Hilliard charges impact fees already. Mayor Don Schonhardt said in January 2007: "We were the first central Ohio community to impose an impact fee and that fee went up last year to $1,500 per single family dwelling unit."

Unfortunately, both the Mayor and the school district leadership were silent when State Rep. Larry Wolpert introduced HB299 (126th General Assy) which would have given school districts the authority to levy impact fees as well.

Some opponents to impact fees say they serve to bar lower income folks from a community by placing the cost of a new home out of reach. The way many impact fee systems are designed, this is true. And that's not a good thing in my opinion.

However, I have proposed an impact fee approach which neutralizes this objection. The first stage would be to deal with the cost of facilities. If a new high school costs $50 million and houses 2,000 students, then the cost per student is about $25,000. I would propose that when a new house is built, this $25,000 is tacked onto the mortgage and paid out to the school district. The school district would add it to their building fund, and in theory when the time comes to build a new high school, the money would already be in the bank - no new capital levy required!

But how is this fair to the homeowner carrying the $25,000 in their mortgage? The answer is that the homeowner would be credited their cost of the impact fee through property tax credits.

The cost of $25,000 added to a 30 year, 6% fixed interest rate mortgage is $150 per month, or $1,800 per year. I propose that this amount would be credited against the homeowner's school tax bill.

For someone who builds a home appraised at $150,000, the current annual school tax would be approximately $1,934 per year. Subtract the $1,800 credit, and this homeowner would owe an additional $134 per year in school tax.

However, if a homeowner builds a $500,000 house, the same $25,000 impact fee would be assessed, and the same $1,800 credit applied to their school tax bill. Since the full school tax on a $500,000 home would be about $6,448, this homeowner would be charged an additional $4,648 per year.

Can the district use the impact fee money for anything they want? How can we be sure they won't spend it as fast as they get it? I would propose that impact fee money can only be used for school construction and capital improvements, and then only with the approval of the voters of the school district. But note that the question before the voters will not be whether or not to raise taxes, but rather to spend money we have already collected.

How does a homeowner recoup their impact fee if they sell their house? Easy - the buyer must pay the impact fee to the seller, and the buyer will assume the same property tax credit the seller enjoyed. Again, a wash.

What would lenders think of adding an impact fee to the mortgage? Because net cash flow of the borrower would remain the same as it would be under the current system (i.e. the higher principal and interest payment would be offet by a lower property tax payment), the impact fee would cause no change to the borrower's ability to make payments. However, in these days when mortgage foreclosures are an increasingly common reality, the lender must have confidence it their ability to recoup their money if they foreclose. Presuming that the next buyer would assume the impact fee, like any other buyer, the risk to the lender should be acceptable.

What if mortgage interest rates go up? I proposed that the property tax credit the homeowner would receive would be calculated based on prevailing rates on 30 year fixed mortgages, set once per year. The presumption is that as long as the $25,000 fee remains constant, the school district will have the opportunity to purchase income producing instruments (e.g. Treasury bonds) at a fairly constant spread to the mortgage rate. In other words, the income lost due to larger tax credits to the homeowner would be offset by higher earnings on the capital fund.

Wouldn't this make it harder to sell a house which had been imposed an impact fee if the one next door had not? This would be a rare scenario in that impact fees would almost always be assessed in areas where a cluster of new homes are being built. But when it does occur, the tax credit offsets the difference in cost.

What about those of us who already live here? No change. We continue to pay our property taxes as today. But we should not see any significant new bond levies for school construction - the impact fee collections would pay for that. However, we have to start building the impact fee fund soon. It's too late if we wait until the next school is needed.

How is this fair to someone who moves into the district, but doesn't have any kids. Isn't the Mayor emphasizing retirement housing these days? This is an fascinating question, only because so many people ask it. Isn't it interesting that people think they shouldn't have to contribute to school funding if they don't have kids. I wish I didn't have to pay for government services I never use. In the past 28 years, I've paid a ton of Hilliard City income taxes and have never lived within the city limits.

What if the school district needs more money in the future? Then we would have to pass additional levies, same as today. We might increase the impact fee, but presumably this would require approval of some state agency which ensures that the fee is reflective of our actual costs.

So how is this different that our current system?

The impact fee is automatic: if you build a house in our school district, you get charged the fee. The school district gets the money as soon as the homeowner moves in rather than only after the passage of another levy which we all must pay. There is no option for a new homeowner to move into our community then vote against levies to support the very schools they moved here to enjoy. The impact fee is a commitment to pay, in advance, the cost a new homeowner creates.

There are doubtless many details that would need to be worked out, such as the extent in which owners of multi-family housing pay into the impact fee system. But impact fees have been used all over the country in growing bedroom communities, so they must be effective.

If they work to better fund municipalities like the City of Hilliard, then they would work to better fund our school systems as well. I would hope Mayor Schonhardt agrees.