Tuesday, November 20, 2007

Is the Board up to the Challenge?

The first School Board meeting following the election was held November 14, 2007 at the Administrative Annex Building. I attended to hear Treasurer Brian Wilson's presentation of the levy scenarios to the Board.

I had heard the scuttlebutt that some members of the teachers' union (HEA) were going to show up wearing black. I knew I had underestimated how many that would be when I got near the Admin building and saw traffic backed up well down Cemetery Rd trying to get into the parking lot. When I finally got parked, there was a sea of people outside the building, and I could see through the windows that the meeting room was stuffed as well. It was indeed a very large contingent of teachers, dressed in black, accompanied by both TV and print reporters. The teachers stayed through the Pledge of Allegiance, and then silently left. I'm not sure what they were trying to say, other than they're not happy with the way the negotiations on their new contract is going.

Mr. Wilson's presentation was short and anticlimactic. While he prepared scenarios for lesser amounts, it was clear that only the scenario with the largest levy amount, 9.5 mills, was worth discussing.

I do take issue with one sentence in the story about this meeting published in the Hilliard Northwest News. Doug Maggied had asked the question: "Would we be in this situation had we not built the two new schools?" The story recorded Brian Wilson's response as:"The addition of the district's two new academic buildings, Washington Elementary School and Bradley High School, do not impact the need for a new levy, said Wilson." While this statement is factually correct – a levy was going to be needed anyway – the paraphrase reads as though the opening of these new schools has no effect on spending. The size of the levy is most definitely impacted by the opening of these schools. The salary and benefits alone for the staff of Bradley can be expected to be on the order of $8 million of new spending. That by itself requires about 3.5 mills of new taxes.

I fear that this Board's lack of financial acumen is about to amplify our crisis. Even though the 9.5 mill scenario indicated that it might be possible to squeak by to 2011 after about $10 million in spending cuts, it also projected a $22 million deficit for 2012. Here's the point: a 9.5 mill levy has a chance of being sufficient funding until 2011 because we are projected to start 2009 with $11 million in reserve. There's no way that the next levy, in 2011, could be only 9.5 mills when we would be starting out 2012 with a drained bank account. I'm not sure this Board understands this.

It is crucial that the Board look at this with at least a six year forecast horizon. Otherwise they'll be tempted to put an insufficient levy on the ballot this year, and doom the next levy to failure. By my calculations, if the 2008 levy is 9.5 mills, the 2011 levy will need to be 17 mills. These both would be permanent operating levies, meaning that the total increase from today would be 26.5 mills.

We can gripe about the State of Ohio not sending us enough money. The continued indication from the Governor's office is that we shouldn't expect any more, and might be asked to get by on even less.

We can complain that a great deal of money gets wasted in our school district. But 90% of our spending is on the salaries and benefits of the teachers, staff and administrators – nothing else is significant. Sure we could save money with this and that, but it is the salaries and benefits which represents almost all the growth in spending. This isn't a problem – it's a fact of life for an organization that provides professional services (i.e. teaching). Still, we should get answers as to why the number of employees has grown 1.8 times faster than the student population.

The cause of our looming funding crisis is simple – thousands of houses, condos and apartments have been built in our school district over the last decade, bringing with them thousands of kids. The amount of property taxes paid by a homeowner is not enough to pay the cost to house and educate the kids who live there. Don't take my word for it - see what the Buckeye Association of School Administrators has to say.

This has been a freight train roaring down on us for years, but we've never bothered to look over our shoulder. Now it is upon us and there's no one to help.

With the current collapse of the housing market, we might have a chance to stay ahead of the train and maybe put a little distance on it. But only if we buck up and deal with it now.

So how large should this levy really be?

Take a look at this spreadsheet to see what I believe we need to put on the ballot. The top half shows how large the levy should be if we want to pass one levy now and have it last for six years with a reasonable reserve at the end. I think that number is about 19 mills.

The bottom half shows what we need if we plan to start one levy in 2008 and a second in 2011. In that case the 2008 levy would be 14 mills and the 2011 levy about 10.5 mills more. There's no free lunch here, to have a lower rate than 19 mills for the first three years, we need to accept a high rate, 24.5 mills, for the last three.

This decision may be the most important and gut-wrenching decision this Board will have to make. I don't believe they have the skills to analyze this effectively on their own, nor do I believe the Superintendent nor the Treasurer are helpful in pointing out how serious a situation this is. We have a Citizen's Finance Committee, but it doesn't seem to be a part of this discussion (or of anything else for that matter). At a very minimum, this Board needs to bring Member-elect Dave Lundregan into this deliberation, and take advantage of his financial savvy.

As always, I'm ready to help if asked, and told the Board so at the meeting.


  1. The levy amounts required seem much larger than other fast-growing Columbus suburb districts. Do the other districts have the same problem? I'm thinking specifically of Pickerington and Dublin and Delaware and such...

    One of the reasons we moved to Hilliard instead of Dublin was the lower property taxes. Turns out the joke was on us since during the last seven years taxes have gone up above the inflation rate and far exceeding Dublin's.

    But, as you eloquently point out, we ain't seen nothing yet. And meanwhile the school district is hiring teachers at a rate 1.8 times the student influx.You can't make it up...

  2. Every district has its unique circumstances. There are three sources of funding: 1) 'grants' (of our own tax money) from the State of Ohio; b) real estate taxes on residential property; and, c) local businesses, which pay both real estate taxes and personal property taxes.

    The lead story in Hilliard is that our local business base has not grown at the same rate as residential housing. While just a few years ago, the businesses in our community contributed about one-third of our funding, that percentage has been going down. Not so much that they're paying less in the way of dollars, but that their dollars are a smaller slice of a bigger pie, made larger by the cost of student growth.

    Nor does it mean local businesses aren't affected by new levies - they certainly are. So we have to be aware that when the property taxes get too high, businesses might decide to leave. During my campaign I spoke to one well-known local businessman who moved his offices out of Hilliard to escape the property and income taxes.

    Pickerington has a more difficult situation. They have never had much of a commercial tax base, so they've had to fund almost all their growth with money from homeowners. They've had some ugly experiences. At one point they were going to implement a pretty expensive pay-to-play policy for extracurricular activities. Because this was at the height of the homebuilding boom out there, this freaked out the developers who knew it would scare away new homebuyers, and the developers ended up donating $500,000 to the schools to avoid the pay-to-play situation.

    Also, when Pickerington Central High School was built, they were having trouble passing operating levies, and so ended up leaving the school unused and empty for a year. We're in real danger of this happening with Bradley.

    Dublin on the other hand has a very healthy commercial tax base that has continued to grow at a pace similar to homebuilding. Their problem is that their property values are so high that the funding formula used by the State of Ohio caused the state funding to be cut way back.

    Another thing inplemented by the Taft administration was the phase out of personal property taxes on business. This is a tax paid primarily on the value of assets such as manufacturing machinery and inventory.

    This is hitting Hilliard particularly hard because some of our largest businesses have this kind of personal property. Think of all the machinery at Roxanne Labs and Anthony Thomas. Then consider the value of inventory at places like the Nissan and Saturn dealers. There are many such businesses in Dublin, so this is going to whack their school district as well. But it's not so much of a problem in Pickerington because they don't have a lot of revenue from those kinds of businesses.

    Cities like Upper Arlington and Bexley are much less affected by all this for two reasons. First is that they have never had much in the way of a commercial tax base anyway. 80-90% of their funding is residential property taxes, and they're pretty high. But they are landlocked, with very little opportunity for growth. So they need to pass levies only as necessary to keep up with the salary and benefit increases of a fairly constant body of employees.

    Last thing: that 1.8x increase in employees isn't in the regular classroom teacher ranks, which has grown 43% in 10 years, compared to 38% student growth.

    The growth as been in Aides (from 39 in 1997 to 108 in 2006, or 180%), Special Ed teachers (49 to 97, 96%), Tutors (31 to 63, 107%), Planning/Curriculum (3 to 39, 1302%), and 'Other Professional' (9 to 73, 729%). Don't ask me what Other Professional is, neither the head of the HEA nor the Treasurer knew when I asked.

    Some of these increases are no doubt legit. Many of the tutors help with the ELL kids for example. We just didn't have very many ELL kids 10 years ago.

    But there's probably many other positions which are less critical. We're probably going to find out which ones as the leadership tries to figure out how to cut $millions from a budget that's 90% personnel costs.

  3. By the way, one might wander how the Taft administration came to decide that a phase out of personal property taxes for business was a good thing.

    The answer is that every such decision creates winners and losers. In this case, the personal property tax is burdensome to manufacturers and retailers. But it doesn't mean much to other kinds of businesses, such as law firms, insurance companies and banks.

    The Taft administration managed to convert the basis of business taxation from tangible assets to one based on gross revenue. It's called the Commercial Activity Tax (CAT). The kinds of businesses who escaped the personal property tax are going to end up paying the CAT.

    I guess the manufacturers and retailers contributed more to Taft's campaign than the lawyers and bankers.

    So if the State takes away our school district's income from personal property taxes, they're going to replace it with CAT-based revenues, right?

    Nope. It's just gone.

    Meanwhile, the State is going to continue to tinker with the school funding formula to send more money to the urban and rural schools.


    Because the overwhelming majority of state legislators come from urban and rural districts. Our guys get outvoted every time.

    This is why I've said it's naive for our district leadership to get behind the proposed funding amendment. No one is trying to figure out how to give affluent suburbs more money - they want a way to take more.

  4. Thx, that is enlightening. It does appear we're headed for a perfect storm, financially-speaking.

    Re: At one point they were going to implement a pretty expensive pay-to-play policy for extracurricular activities. Because this was at the height of the homebuilding boom out there, this freaked out the developers who knew it would scare away new homebuyers, and the developers ended up donating $500,000 to the schools to avoid the pay-to-play situation.

    It's sad that it has to come to that, but I guess that's the way it has to work.

    The only leverage the taxpayers have is to defeat levies to the point that it gets the attention of not only the school board (in terms of spending decisions) but the city council and developers. It's a crude instrument and punishes the wrong people but...

  5. In my last year on the Board of the Hilliard Education Foundation, it was moved that the HEF Board pass a resolution supporting the upcoming bond levy for the construction of Washington Elementary and Bradley High.

    I told the members of the Board that it had come to the point that folks like me, who live outside the city limits, have only one vote left that counts, and I wasn't ready to give it up yet. Most there were appalled at my statement.

    I can vote for township trustees, but the new annexation laws, written by the developer lobby, which were supposed to give power to the townships in annexation proceeding have in fact rendered them powerless.

    Same thing for the County Commissioners. The annexation laws REQUIRE the commissioners to approve annexations if 100% of the landowners are in agreement, which is always the case since there is usually only one landowner - the developer.

    I can't vote for the Mayor or City Council of Hilliard or Columbus, the officials who vote to accept the annexation requests.

    Even the school board seems to be on developers' side. We can't forget the deal they did with Homewood - including agreeing to request annexation of school property when Homewood does.

    But I can certainly cast my vote on school levies, and for members of the school board. I ultimately voted in favor of the last bond levy, but it took a lot of soul searching.