Monday, September 22, 2008

Zero Sum Game

Readers of know that I am a critic of Mayor Schonhardt's homebuilder-friendly actions (e.g. the proposed annexation of the land near Bradley High School owned by Homewood Homes and other residential developers).

But I read with joy the recent Columbus Dispatch article about the potential of landing a significant Verizon operation in Hilliard, creating perhaps 500 jobs and a valuable piece of real estate. I especially like that the deal would include a 'keep-whole' provision for the school district, even though the City has agreed to abate the property taxes for 15 years (note that the City gets its revenue via income taxes paid by the Verizon employees). If this deal comes to fruition, the Mayor and especially Development Director David Meeks are to be congratulated.

But we have to remember that when jobs are moved from one municipality to another, rather than new jobs being created, our win is someone else's loss. In this case, 200 of the jobs are supposed to be moved from Dublin. But those jobs are supposed to be replaced by jobs that move to Dublin from other places. Someone is going to come up short. We've been on the losing end too, such as when the City of Columbus lured Gates-McDonald downtown, or when Dana moved its manufacturing operation to Knox County.

It's a tough game, but it's the only one we've got. The trick is for the municipal government and the school board to see themselves as partners in serving the same community. The municipal government cannot allow new homes to be built faster than commercial development, or the existing residents of this community will not be able to keep up with the every-rising cost of running the school district. The Master Plan says the City of Hilliard needs 1.7 jobs paying $40,000/yr to fund for the services demanded by each new house.

So the breakeven for the City is 295 new houses as long as each Verizon job averages $40,000/yr. Since this is a call center, the jobs will pay less and the number of jobs required will be higher - 2.7 jobs per house if the average pay is $25,000/yr. That equates to more like 180 houses.

But what does that do to the school district?

Assuming each new house has 0.8 kids, it costs $10,000/kid/yr to run the district, and we need about 1/3rd of that money to come from commercial real estate taxes (another third to be generated by the residential real estate taxes on the house where the 0.8 kid lives, and the final third from the State of Ohio), this means that to keep these school revenue proportions, developers should be allowed to build 1 house for each $2,000 in new school tax paid by commercial entities.

It takes a property value of $155,000 to generate $2,000 in school taxes (pre-levy), so to build 180 houses, the new Verizon building would need to be valued at $28 million to keep the school whole. That's possible as the new BMW Financial building was valued at $23 million.

So I think that's the deal. If we're successful in recruiting Verizon, then Homewood (et al) can build 180 more houses - but that's it until another big corporate citizen moves in. If we keep to this pattern, then our community can continue to grow, and our property taxes will need to increase only to fund increases in pay and benefits (another conversation), and not also growth.

That's still a challenge of course. The even better solution would be to build no new houses, and using all of the Verizon revenue to fund all the increasing costs of running our district, keeping the student population the same, and getting out of the routine of passing new property tax levies every 2-3 years.

This goes back to my primary question - why annex the Homewood (et al) land at all?

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