Thursday, January 31, 2008

In Support of the Levy

The formal campaign in support of the 9.5 mill Permanent Operating Levy is now underway, with the website up and the official campaign brochure posted online.

While I'm happy that the theme of the campaign is not the typical "if you love your kids, vote for the levy" approach, the information given still lacks any real depth. It does not say, for example, that 90% of the operating costs of the district are the salaries and benefits of the teachers, staff and administration, or that it is the rate in which salaries and benefits increase which is driving the need for this additional levy. This is not a criticism of teacher salaries, but rather disappointment that such vital information is withheld.

There is one misrepresentation in the brochure that warrants mentioning: the gap between projected revenue and projected expenses is $4 million in 2008-09, $18.2 million in 2009-10, and $3 million in 2010-11, but the total impact is $51 million, not $25 million (go here for further discussion).

I will once more cringe at the characterization that "State law does not allow a public school district’s property tax revenues to rise with inflation or increased costs." What state law (HB920) does not allow is for your tax bill to increase just because your home is reappraised at a higher value. Most would believe that's a good thing, but not our school leadership.

I wish the campaign team would explain out why in the past 10 years, the number of employees in the district (including teachers, administrators and staff) has grown at 1.8 times the rate of student growth. Note that this disproportionate growth is in job categories other than regular classroom teachers, which has remained at a 20:1 student/teacher ratio for the last decade. It's not just the raise and benefits packages that are generating increased costs, it's the total number of employees on the payroll.

The campaign committee is asking community members to host in-home neighborhood meetings - inviting officials from the school district or the campaign committee to speak.

If you would like to hold a home meeting, I volunteer to be the speaker. I have developed a presentation that tells the Big Picture story in a way few hear in our community. Those who have heard it so far seem to agree.

Contact me at if you are interested.

Tuesday, January 29, 2008

More Kinds of Taxes

Ohio law allows for the formation an entity called a Community Development Authority, which can levy property taxes to help pay for the burden a community bears as a result of new homebuilding. Such a tax applies only to new developments, and therefore has some of the same characteristics as Impact Fees. New Albany has used a 5 mill levy by its Community Development Authority to help pay for a new high school, a fire station and roads.

Some are suggesting that a Community Development Authority be established in the Big Darby Accord zone, and that a 10 mill levy be collected on new development. It is proposed that this money be used to buy open space and to build roads and sewers. Of course the developers say it will hurt their business.

Buying open space can be a good thing. The more acreage that is taken out of development, the better for the whole community. I haven't done the math, but I suspect that it may be true that it's cheaper to buy up 1,000 acres of open land than it is to scale up the school system to handle 4,000 more kids. You pay for the land only once, but you have to pay for the school staff necessary for those kids forever. For 4,000 kids, we would need at least 200 teachers which cost the district perhaps $75,000/yr each. That's $1.5 million/yr.

If land sells for $25,000/acre, then 1,000 acres would cost $25 million. That's a 16 year break-even. If you take into account the escalating salary and benefit costs, it's probably closer to 10 years.

Makes sense to me.

State Budget Woes - What about Schools?

Governor Strickland has put out the warning that the State's budget forecast looks pretty gloomy. We have to assume that this means Hilliard City Schools will see no relief from the funding freeze we've been living with for the last couple of years. In fact, we need to be concerned that our State funding might be further cut if that's what it takes to balance the State budget. Remember that the State cannot run at a deficit (although it can dip into reserves), and that certain programs - notably Medicaid - are seen to have a somewhat higher priority than funding so-called affluent school districts such as Hilliard.

This is part of the Perfect Storm I've been writing about for months: a) renegotiation of the employee union contracts; b) competition for state funding when the so-called affluent suburbans are in the minority in the General Assembly; and, c) the exhaustion of District's cash reserves.

Dimon McPherson, a member of the School Board for Olentangy Schools, was quoted as saying in regard to their funding situation: "the March 4 issue has to pass or it will bring about permanent and staggering changes that we might not recover from." Mr. McPherson is the former CEO of Nationwide Insurance, and knows his way around finances. His observation about their funding situation is sobering.

And I think it applies to us as well - the situation is quite serious...

Monday, January 21, 2008

Superintendent Mistaken About Inflation

Superintendent Dale McVey very appropriately devoted his column in the January 16, 2008 edition of Hilliard Northwest News to writing about the 9.5 mill Permanent Operating Levy which will appear on the ballot on March 4, 2008.

I agree with nearly everything Mr. McVey wrote, except for one sentence in which he said: "State law does not allow a school district's property tax revenues to increase with inflation."

Mr. McVey is talking about a law commonly referred to as HB920. This legislation was passed in 1972, and its purpose is simply to keep a homeowner's property taxes from changing just because the county auditor changes the appraised value of your home. The passage of HB920 was motivated by the rapidly rising home prices in some areas in Cleveland, and its consequence of having folk taxed out of their homes.

I think its a good law, and I suspect most Ohioans feel the same.

Inflation is a technical term with specific meaning in economics. It occurs when a government creates money faster than the economy is growing. Think how a game of Monopoly would change if - halfway through the game - the Bank simply doubled the amount of money everyone had. At first the folks with the least money would feel richer, and be willing to spend more money buying property and houses. The rent one pays when landing on another property would not seem so much. But in the end, there are still the same number of properties, houses and hotels in the game, and the only thing more money does is increase the price of all those things (when it comes time to horsetrade).

In other words, it is not inflation just because the price of a few commodities goes up. While oil prices have skyrocketed in the last year, and things made with oil have gone up as well, look at what has happened with the price of electronics - more better stuff and rapidly declining prices. When real inflation is going on, interest rates go way up. Some of us remember the prime rate around 20% in the late 1970s. We're certainly not seeing that now.

I've made this point many times before: Nearly 90% of the cost of running our school district is the salaries and benefits of the teachers, administrators and staff. It is because many of those employees are getting 7.95% annual increases under the current union contracts that our operating costs increase every year, not inflation. The cost of their health insurance has grown significantly as well.

The change in value of my home is not a reflection of either inflation or what school employees should be paid. The very best proof of that is that our county auditor has indicated that in the upcoming property value reassessment, there many be little change - yet the amount paid out in salaries and benefits to the employees of our school district continues to climb.

So if Mr. McVey really wants to tie the rate of budget growth in the school district to the rate of growth of property taxes, it means zero growth for the next several years - which is substantially the same thing as saying no growth in salaries and benefits.

I don't think he really means that.

If he really wants a revenue source that will tend to increase automatically, he should be proposing that we add an income tax levy to our funding mix. Ohio law allows for two kinds of income tax levies. One is simply a percentage of what the taxpayer reports on Line 5 of the IT1040 Ohio Tax Return, which is the same as the Federal Adjusted Gross Income (1040 line 37). It means the tax is based on almost every form of income, prior to deductions.

With the passage of HB66 by the 126th General Assy, school districts also have the option of proposing an income tax levy which is applied to earned income only, meaning wages, salaries, tips, long-term disability benefits, and net earnings from self-employment. Excluded is income from interest and dividends, pensions, social security, unemployment, alimony and child support. This form of income tax is designed to protect senior citizens, who typically have no earned income at all.*

An income tax, especially one based on earned income, is a much better analog of the cost structure of a school district precisely because - one more time - 90% of the cost of running a school district is salaries and benefits.

However there is an important way in which school income taxes are different from school property taxes: while the businesses in our community pay property taxes, they would not pay income taxes to the schools. The more that we would shift our funding to income taxes, the more complete would be the transfer of the funding burden to homeowners.

The real problem is that our school leadership has done an abysmal job of educating the public on the reality of school funding, so few people understand that this is even a choice. A great deal of time and many pages of publications have been expended talking everything other than the mechanics of funding.

They have complained about the growth in students yet have never done anything to mobilize the public to bring pressure on the municipal governments which allow houses to be built by the thousands.

They have complained that the State of Ohio has frozen our funding when the truth is that the intent of our state government is not to give us more money, but rather to take more from us to fund urban and rural districts. They support a proposed amendment to the Ohio Constitution which would amplify that policy.

I have no doubt that convincing our community to accept a earned income tax to fund the schools would be a tough sell. Many of us - me included - want our school leaders to have to come to us on a regular basis and explain why more money is needed. It's about the only tax left where we voters still have that kind of power.

Ultimately, all of us in our community have to answer these questions:
  1. Do we accept that the size and configuration of the workforce employed by our school district is necessary to run the kind of school district we expect?
  2. Do we accept that the compensation structure for that workforce is appropriate?
  3. Are we willing to pay the taxes necessary to support that compensation structure?
Unless the answer to all three of those questions is "YES!" - there is still a lot of work to be done.

* Disclosure: I am myself a retired person whose income is almost entirely generated from investments. Therefore the Earned Income Only form of income tax would benefit me personally - indeed, it might cost me nothing.

Thursday, January 10, 2008

Done Deal - Revisited

Update to the post below: Much to my surprise, it was not Mr. Hammond who was selected to fill the open seat on the Hilliard City Council, but rather Kelly McGivern. Ms. McGivern is CEO of a lobbyist group representing health insurance providers such as Aetna, Anthem Blue Cross/Blue Shield, CIGNA, Nationwide, and United Healthcare -- in other words, the big boys of the industry. She clearly knows her way around the political arena, and undoubtedly has many contacts in the Statehouse. It should be a good thing for Hilliard to have such a person on City Council - if her intentions are to do what is good for the community as a whole. If her motives are less noble (e.g. to continue to facilitate the interests of homebuilders to the detriment of the citizens), then her connections at the Statehouse are a conduit to enable that too. I'll hope for the former and be on the lookout for the latter.

When Hilliard City Council member Mike Cope won a seat as a Trustee for Norwich Township, he resigned his seat on the City Council. This opening gives the City Council the opportunity to select a replacement to fill the remainder of Mr. Cope's term.

We have known since December that Michelle Weadock, an active community volunteer (I served with Michelle on the Board of the Hilliard Education Foundation) was interested in the seat and made the formal application to the City Council.

Today it was announced that Dick Hammond, Kelly McGivern, and Robert Stepp have also applied for the seat.

Game over.

Mr. Hammond is of course the former member of the Hilliard School Board who lost his seat to Dave Lundregan in the last election. According to the reports filed with the Board of Elections, Mr. Hammond received contributions from Mayor Don Schonhardt, City Councilman Brett Sciotto, State Senator Steve Stivers, State Representative Larry Wolpert, and Municipal Court Judge Charles Schneider. In other words, he is very well connected politically. In a story in This Week Hilliard, Mr. Hammond was quoted as saying that he was encouraged to apply for the seat. By these politicans I expect. I have little doubt that he will be selected to fill the City Council seat at their special meeting on January 17.

This could be a good thing if Mr. Hammond becomes a strong advocate for the School District on City Council. The best way to reverse the trend of school funding costs being transferred to homeowners is to recruit businesses to Hilliard which will contribute to the cost of operations of our schools.

We have an odd system in Ohio in that a municipality can abate, or waive, most of the property taxes a business would otherwise have to pay, even though those property taxes are an income source for the schools and other government agencies, but not the municipality, which receives its revenue from income taxes on the employees of businesses in the city limits. The City of Hilliard is aggressive in the use of property tax abatements to recruit businesses, as are other central Ohio municipalities, but it has also been pretty good about finding ways to preserve some, if not all, of the school funding that would have come from those property taxes.

It would also be a good thing if Mr. Hammond can convince the Mayor and the other City Council members that unfettered residential construction is the single greatest threat to the fiscal viability of our school district. We can be quite sure that if we were not in the one of the weakest housing markets in memory, there would at this moment be hundreds if not thousands of houses under construction in the huge parcels of land near the site of our newest high school.

So we'll see. Will Mr. Hammond be the voice of the School District in the Hilliard City government, or will he be the puppet of Mayor Schonhardt?

Time will tell.