Saturday, January 8, 2011

Levy Step 1: Resolution of Necessity

On the agenda for the School Board meeting, to be held at 7pm, Monday January 10, 2011, at Hoffman Trails Elementary, is the Resolution of Necessity representing the first formal step toward putting an operating levy on the May ballot.

The Resolution of Necessity is required by Ohio law (5705.03). Its purpose is to formally ask the County Auditor to certify the total tax valuation of property in the school district as well as the amount of money that would be generated by a specified number of mills (the School Board can also ask the reverse: how many mills are required to generate a certain amount of revenue).

The language of this resolution - presented as item F1 in the agenda - specifies that the County Auditor will be asked to certify the amount of revenue that will be raised by a 6.9 mill levy.

My estimate is that the County Auditor will come back with a number on the order of $15.4 million per year. However this estimate is based on the assumptions used by Treasurer Brian Wilson in developing the current (Oct 2010) Five Year Forecast, where he said that during the 2011 county wide property revaluation, which County Auditors are directed by law to perform every six years, properties will be reduced in taxable value by about 8%. I have not yet heard what our County Auditor, Clarence Mingo, has decided in this regard.

Section 4 of the Resolution language states: "This Board finds and determines that all formal actions of this Board and of any of its committees concerning and relating to the adoption of this resolution were taken, and that all deliberations of this Board and of any of its committees that resulted in such formal actions were held, in meetings open to the public, in compliance with the law."

This is a certification that the School Board has complied with the provisions of Ohio's Sunshine Laws, which require the governing bodies of public entities to conduct their business (with few exceptions) in open meetings which may be observed by any member of the public.

My concern at this point is that there has simply been no meaningful discussion about this levy. I was certainly not part of any discussion that caused 6.9 mills to be written into this resolution. Therefore, I take this number to be a placeholder, and expect that we as a School Board will have substantive discussion about this levy before a final amount is chosen, and written into the final Resolution of Necessity.

I am fully prepared to vote in favor of a resolution that specifies a levy amount that is arrived at as the result of analysis of the financial data (more than just three bar charts showing estimates regarding how long it will be until we're out of cash again), meaningful debate, and reasonable compromise.

I am not, however, prepared to vote in favor of any resolution for any levy amount unless much more due diligence is carried out. At 6.9 mills, we would be asking our community to permanently increase the collective tax burden by approximately $15.4 million per year (again, to be determined by the County Auditor), which will be a 8% increase in our property tax bills, and a 13% increase on just the school tax portion.

For those familiar with Present Value calculations, a perpetual cash stream of $15.4 million/yr is equivalent to asking the people and businesses of our community to collectively write a check tomorrow for $350 million, using the latest yield on the 30-year US Treasury bond of 4.4% as the discount factor.

It seems to me that before the School Board asks the community for that kind of money, we should have some pretty serious discussions about how the money is going to be used, what has to change in terms of programs and services, how much money we want to keep in our cash reserves to deal with unexpected events (i.e. if the State of Ohio really cuts back on our funding), how long it is projected to be until we need another levy, and how large that levy might need to be.

My modeling suggests that if a 6.9 mill levy is passed now, and spending is kept at the levels portrayed in the current version of the Five Year Forecast, then a 12.5 mill levy will be needed in 2013 in order not to run out of cash is FY14.

And we need to talk strategically about compensation and benefits, which is rapidly approaching 90% of our annual budget. Quoting from the June 2010 report of the District's Audit & Accountability Committee: "The District... cannot make a significant impact on the budget without addressing the salary and benefits portion of the expenses... While it is important that the Administration continually watch all costs, compensation expense for Administrators, teachers and support staff is the only expenditure that "moves the needle."

By law (ORC 5705.21, as cited in the resolution), this resolution must be passed "by a vote of two-thirds of all its members."  Since our Board has five members, and two-thirds of five is 3.33..., this resolution must receive four votes in order to pass and be submitted to the County Auditor.

Unless and until the substantive discussions I describe above take place, my vote will be NO on this resolution.

Note:  Although there is little change in the numbers, I found something else that needed to be corrected in the chart I developed to illustrate the impact of various levy amounts and intervals between levies. I failed to take into account that after the property revaluations in 2011, the dollar amount collected by any particular millage will diminish. Note that the so-called "HB920" protections will prevent the dollar amount of property tax we all pay now from being adjusted downward with the reduced value of our properties - it is only the incremental rate which will decrease.


  1. Paul - just one clarification. Clarence Mingo doesn't decide the property valuations, it's a year-long process supposedly based on market factors.

    In 2005, the preliminary valuations were released around the end of May (after the primary election) with final numbers around the beginning of December (after the general election).

  2. Thanks for the info. One question though, if the revaluation is supposed to be based on some kind of market analysis, how was it that for the last Triennial, Joe Testa declared that property values had not changed? I can't imagine that conclusion being supported by evidence.

  3. It appears that Joe Testa used the same logic in his evaluations that the Board is now going to use in setting the levy millage - whatever figure is going to result in the least opposition from those affected. I remember when Mr Testa made the announcement that evaluations would stay flat, and many thought that was a pretty good deal since they had no idea at that time that their property values were probably tanking. No way will Mr. Mingo get away with that this time around - pretty sure he will be dealing with a ton of appeals even after lowering evaluations if he uses a fixed figure across the entire county. And I for one will not let the Board get away with setting their own arbitrary figure unless I hear something tonight that indicates there is some basis for their number - which we already know is probably not going to happen. Should be an interesting meeting....

  4. If I recall, Testa said that the county wouldn't perform a general mid-cycle re-evaluation and that they'd keep assessed values the same, which isn't quite the same thing as property values not having changed.

    Technically they could have done the re-evaluation, and since they are based on Jan 1st values, we'd have seen values assessed quite a bit higher, but by the time people got those re-evaluations, they'd have seen challenges every which way to Sunday. Not to mention we'd be looking at 20%+ drops in valuation in 2011.

    This turned out to be a shrewed move by Testa who I guess suspected things were going to be down for a while...