Friday, September 16, 2011

The 1.7 Mill Levy

Conventional wisdom concerning school levy issues is that about 40-45% of the voters will always vote against any tax increase, and 40-45% of the voters will always vote to support our schools, regardless of the levy size.

I don't know if those numbers are real, but I suspect that they're not that far off. If so, it means that any school levy election is decided by two things: a) who decides to show up from the Always-Yes and Always-No groups; and, b) the 10-20% of the voters who are undecided.

I suspect that the reason the levy issue didn't pass in May was that the Always-Yes folks didn't show up in sufficient numbers. But then, hardly anyone showed up at all - fewer voters than we have students in the District.

I wish there weren't these huge sets of Always-Yes and Always-No voters. Neither represents healthy democracy in my opinion. It's the reason Congress has become so polarized, making it difficult and frustrating to work anything out. Consequently, the legislation they develop swings from one extreme to the other, passed in one term and reversed in the next. That's got to stop before it tears our country apart.

My consistent position over the years I've been writing this blog has been that we need to first educate the community about the basics of school economics and then collectively debate and negotiate until we arrive at a compromise position which an overwhelming majority of the voters - on the order of 80% - will support on Election Day.

Instead, we allow ourselves to come to Election Day without having had that period of debate and compromise, and consequently have to live with the unpredictability of an election of voters who make decisions based on ignorance and emotion.

So my goal for these many years has been help folks understand the key elements of school economics in the hope that more folks would engage in the debate, and in doing so, provide direction to the School Board as to what they want their School District to be, and how much they're willing to invest to make it so.

We still have a way to go, but I feel progress has been made - through the efforts of many folks. Today most people understand that we spend nearly 90% of our operating budget on the salaries and benefits of our team of teachers, staff and administrators. There's nothing wrong with that. In fact, we should want most of the money spent on the people who have the most direct contact with the kids.

More of us now understand that when we have discussions about the need for more funding, it's really about how many people we want to employ, and how much they will get paid. It's not about paper clips and stadium lights. It's about people. The purpose of levies is to expand the staff and/or to pay them more.

But this time around, there's something different is going on, and it's significant: A radical decrease in State funding.

It didn't matter who was elected Governor or who controls the Statehouse, the Governor and the General Assembly were going to have to deal with a budget shortfall in the biennial budget on the order of $8 billion. That shortfall wasn't so much due to excessive spending growth as it was that the US economy tanked, reducing significantly and rapidly the personal and corporate incomes which are the primary basis of tax revenue for the State of Ohio.

Education represents one of the three primary spending categories for the State of Ohio; the other two being Medicaid and the operation of our prison system. So there was no question that the State would need to consider making cuts in these three categories to have any shot of closing this huge deficit.

That's the reason the Governor is seeking to sell some of the prisons and turn them over to private contractors. I'm not saying that it's the smart move - only that it had to be an option on the table. Likewise, some tough choices might still have to be made in regard to Medicaid.

Education took its share of cuts and more. Every school district in Ohio receives some amount of funding from the State of Ohio, inversely proportional to the affluence of the school district, as measured by its collective property values. By that standard, Hilliard City Schools comes out on the more-affluent end of the spectrum, and consequently receives a smaller portion of its funding from the State - about 34% in 2010 (according to the CUPP Report published by the Ohio Dept of Ed).

Still, we shouldn't complain - Olentangy spends only 80% of what we do per pupil (because they have lower personnel costs, because their teachers are younger), and still gets only 16% of their funding from the State. Compare that to Hamilton Local Schools which receives 66% of its funding from the State, equal to 1.5x the per-pupil State funding (in dollars) that we receive.

The Governor and General Assembly did indeed choose to balance their budget in part by cutting State funding to public school districts, taking more money from the affluent districts than it did the poor ones - and I don't disagree with this approach.

Our share of the bill is on the order of $10 million per year, calculated by comparing the amount of State funding we received in FY09 to what we are projected to receive in FY13.

I should note that I included the accelerated phase out of Personal Property Tax reimbursements in this calculation. While Personal Property Taxes are technically a local tax in that the revenue is collected from local businesses and distributed the local school district, the tax rate - indeed the very existence - of PPT is set by the state government rather than by local levy vote. That makes it a state tax in my opinion.

So what's this stuff about a 1.7 mill levy?

It's simply this - at the new valuations of all the properties in our school district, 1 mill of new taxes will collect about $2.375 million/year of revenue. Divide that into $10 million, and you get 4.2 mills.

The levy issue the School Board has put on the November ballot is 5.9 mills. That means only 1.7 mills of that money will be used to fund spending growth. The rest just replaces the State funding that has been lost.

People have asked me why - if 90% of our spending is on compensation and benefits, and the teachers and staff have accepted a salary freeze until 2013 - do we need any new funding at all?  The answer is that our current spending is already greater than our current revenue, to the tune of $3.3 million in FY11, the equivalent of 1.4 mills. So the 1.7 mills is needed to cover that and to preserve a 8% cash reserve, which is still less than our 10% goal.

If the community votes to deny this levy, then there is no choice but to reduce spending by at least $10 million per year. The 'cut list' presented is how that spending reduction would be implemented. We'll also go to a Pay-to-Participate fee schedule that I'm sure will deny opportunities to some kids in our community.

I for one would not like to see that happen. That's the reason I'll be voting in favor of this levy. I hope you will consider doing so as well.

Monday, September 5, 2011

Hilliard Comprehensive Plan

Let me start by apologizing for the length of this article. I'm still learning how to be more concise, but my training is in engineering and business, not journalism. I think this is important stuff, and hope you have the patience to wade through what this 30+ year resident of our community has learned in the past six about community economics. It certainly woke me up, and I hope it motivates you to action as well.

Whether you live within the boundaries of the City of Hilliard or not, as a member of the Hilliard City Schools community, the City's new Comprehensive Plan should be of interest to you.

But the first thing to clear up is that the City of Hilliard and Hilliard City Schools are two distinct and separate government entities. The Hilliard City School District is not 'owned' by the City of Hilliard, nor does the Mayor or the City Council have any more authority over the schools than they do any commercial entity within the City's boundaries. The Board of Education of Hilliard City Schools is an independent, elected legislative body, chartered to operated a public school district under the laws and regulations of the State of Ohio.

The boundaries of the Hilliard City School district were set by the Ohio Board of Education many decades ago, and have not been expanded since. In fact, the area served by our school district has shrunk in the past 20 years under the terms of the Win-Win Agreement which specifies, among other things, that when undeveloped land in a suburban school district is annexed to Columbus, that land automatically transfers to Columbus City Schools. The best example of this is the large tract north of Hayden Run Rd, between Cosgray and Avery, which became part of Columbus City Schools when it was annexed to Columbus a couple of years ago.

City and township boundaries have been shifting more or less continuously since the start of the suburban housing boom in the 1970s, which was triggered by the 'White Flight' that followed implementation of court-ordered busing to achieve racial desegregation in Columbus City Schools.  Although our school district has always been comprised of the entire City of Hilliard and some or all of Brown, Norwich, Franklin, Prairie, and Washington Townships, some of the land that was in the townships has been since annexed into the Cities of Columbus and Dublin.

The whole purpose of the Win-Win Agreement was to keep these parcels in our school district after annexation into the City of Columbus. This was desired by the homeowners who built homes on these annexed parcels (I was one of them!), and also by the real estate developers who knew that if their land was reassigned to Columbus City Schools, its value for home building would be about zero.

I first became involved in local politics when I was invited to participate in the development of the 2005 Comprehensive Plan for Brown Township (warning: 50mb document!). It was then that I came to understand the connection between the development policies of municipalities and the economics of school districts.

This is it in a nutshell: Local school districts are funded by three sources: a) property taxes on farms and residences within the district; b) property taxes on commercial property within the district; and, c) grants from the State of Ohio. Therefore:
If the funding from the State of Ohio, and the taxes generated by new commercial property do not grow at the same rate in which the school district's spending is growing, the incremental funding burden falls fully on the existing homeowners, businesses and farmers in our community.
Before anyone starts yelling at me, let me say that I do acknowledge that raising taxes isn't the only way to align revenue with spending. We have to be willing to dig into the spending side too. But let's address that in a later article  - this one is about the effects of a city's development policies on a public school district.

Because of the current state of our economy, we haven't had to worry about new residential development for the past few years. It wasn't so long ago that we were opening a new school every year. For now the growth pressure is off. Our student census grew from 15,029 kids in 2007 to 15,635 as of last week, an annual growth rate of just 0.6%.

But if we wait until housing demand heats up again to talk about the City's development policies, it will be too late. I think we need to talk about this now - while the Hilliard City Council has this new Comprehensive Plan under consideration.

The largest remaining tract of land suitable for residential development lies west of Alton-Darby Rd, between Hayden Run Rd to the north and Roberts Rd to the south. Much of this land is already owned by large home builders, notably Homewood Homes and Planned Development.

In 2000, the City of Columbus placed this tract in an "Environmentally Sensitive Development Area," and refused to extend water/sewer service into the area until all the municipalities in the Big Darby watershed came together to develop a common agreement for how this area would be developed.

That argreement is the Big Darby Accord, and includes all the land between Alton-Darby Rd and Big Darby Creek. I've never quite figured out all the political maneuvering associated with the crafting of the Big Darby Accord, but I know that it was a time of frustration, especially for the developers who wanted to open this tract to homebuilding while the market was hot. I've always suspected that the abandonment of the Grener Property near Homestead Park as the site for our third high school (the school district still owns this land by the way), and the selection of Emmelhainz property was the result of such maneuvering.

The Brown Township Comprehensive Plan specifies that this land to the west of Alton-Darby Rd is to be developed in a 'conservation' style, meaning that the typical rural development pattern of single family homes on 5+ acre lots would be abandoned, and instead homes would be arranged in to dense clusters surrounded by substantial open space.

The Big Darby Accord repeated this specification, and I'm happy to say so does Hilliard's new Comprehensive Plan (see Chapter 5). It says that the development density will be one home per acre, but with 50% open space. This means 100 houses can be built on a 100 acre tract, but all the homes must be concentrated on 50 acres, and the remaining 50 acres left as open space.

What we don't know is if the economics of this will work out for the developers. After all, they have much experience that tells them that people are willing to buy fairly expensive homes sited at 2-3 to an acre, and entry level homes packed in at 4-6 homes per acre. Why would they ever want to leave 50% of their land undeveloped?

It's going to take developers who are willing to try something new, and a city government willing to stick by its guns, even if the developers start crying that this conservation development isn't working for them.

So why do the rest of us need to care which kind of development approach is used?

Because it is one of the primary drivers of future revenue demands, for both the schools and the municipalities!

The average new dwelling in our school district will add 0.8 new school age kids to our school population. Since we currently spend $11,475/kid to run our school district, the building of a new house adds $9,180 in new expense (yes, I understand the difference between fixed costs and variable costs). If the average new home costs $200,000, then it will generate roughly $5,000 in property taxes.

Who funds the other $6,475 $4,180?

It's not the State of Ohio. Even before the State got into its own budget mess, the incremental funding for new students had been approaching zero. In the current biennial budget, the funding from the State of Ohio has gone down - substantially. It's one of the key reasons that there's a levy on the November ballot.

Nor are we seeing much new revenue from commercial sources. There has been some, notably the construction of the building housing BMW Financial. But we haven't seen much of that lately, and one of the most promising projects, the Hickory Chase retirement community, flamed out before it was ever occupied, and is currently $1m behind on its property taxes.

So the answer is that the $6,475 $4,180 has to be picked up by the rest of us - the current homeowners and business owners in our school district.

The deal the City of Hilliard has with the City of Columbus allows the construction of 2,000 new dwellings in the tracts along Alton-Darby Rd. That means 1,600 new kids times $6,475 $4,180, or $10.4 million that we have to subsidize. This would require 4.4 2.8 mills of new property taxes.

If the developers chicken out on the conservation development approach and convince the Mayor and City Council that they need to go back to their old way of doing things and the City of Columbus is convinced to provide the necessary water/sewer service, then we could potentially see 10,000 homes built on this tract.

That would mean 8,000 new kids, and $52 $33 million in subsidy required, or 22 14 mills!

I'll admit that I'm engaging in a little sensationalism. The housing market isn't going to heat up all that quickly, and the City of Columbus is unlikely to provide additional water/sewer capacity to the area until they are assured that someone else will pay for the necessary new main pipelines, water towers, and sewer pumping stations.

But we - the people of the community - got caught sitting on our hands during the last housing boom. We ended up with crowded schools and rapidly escalating property taxes as a result.

It will happen again during the next rise in housing demand if we don't pay attention to what the Hilliard, Dublin and Columbus city governments intend to let happen within the boundaries of our school district.

Another thing we need to pay attention to is the use of Tax Increment Financing, or TIFs, by the City of Hilliard. This is a mechanism made available by the State of Ohio to municipal governments. It allows the municipality to redirect the property taxes on a new development, whether commercial or residential, to fund infrastructure projects in the municipality.

This would be all well and good if the redirected property tax revenue would otherwise go to the city anyway. But it doesn't - it's not their money!  Rather it's the key revenue source for the local school district and other agencies. In our community, that includes the Norwich Twp Fire Department, which provides fire/safety services for many of us.

So many of us on the School Board were alarmed when the City of Hilliard granted a TIF to Schottenstein Homes for their new residential development at the corner of Alton-Darby Rd and Roberts Rd. That TIF was used to fund the construction of the new realignment of the Roberts/Alton-Darby intersection.

In other words, revenue was taken away from the school district to pay for a road. The last I checked, public roads are the responsibility of the City or the County - not the school district. Several members of the School Board let the Hilliard City Council know that we objected to this use of our revenue. I made comments during the City Council meeting when this TIF was being considered, stating that this was a bald political maneuver - allowing the City to get a new road at the expense of the School District, essentially making the School Board be the bad guys for raising taxes.

The Norwich Township Trustees also spoke at this City Council meeting, making substantially the same point.

In their new Comprehensive Plan, the City of Hilliard makes it clear that they intend to continue using TIFs. TIFs aren't a new thing for the City of Hilliard, but they are being configured in a new way. The law says a municipality may redirect up to 75% of the property taxes without permission of the affected school district. In the past, TIFs have been like the one granted to BMW Financial, in which the School Board gave the City of Hilliard authority to grant a 100% TIF, but the TIF agreement specified that the school district would  receive 100% of the revenue it would have otherwise received.

This one for Schottenstein Homes is different. The City granted a 75% TIF - which it can do without permission of the school district - for the multi-family part of their development, but will not attempt to keep the school district whole. This is why I say that the school district is funding the new Roberts Rd connector. I recall hearing the City leaders state that the multi-family part of this Schottenstein development would be for folks aged 55+, like their Tremont Club development, and therefore would not be bringing new kids to the school district. That made the TIF a little more palatable.

But those plans have apparently changed. Instead, Hilliard Summit is to be an apartment complex without age restrictions. The web site even shows a photo of a couple with young children. So it seems to me that not only is the school district losing out on critical new funding, there is also the potential that a number - maybe a large number - a new kids will come from this development. In today's real estate market, more families are choosing to rent rather than buy a house, and upscale apartment complexes in desirable school district may be in high demand.

So the school district might get double-screwed in this deal:  no new tax revenue and more kids. And that means even more tax burden on the rest of us as we subsidize the cost of educating those kids.

As much as I've complained about the City of Hilliard in this article, the City of Dublin has its own strategy to protect its economics at our expense. At a meeting last year at Bradley High School, a representative from Dublin's planning department told us that Dublin's master plan keeps all new commercial development in the Dublin school district, and puts only residential development in the Hilliard school district. So we get the kids, and they get the commercial revenue. Thanks for being good neighbors.

By the way, their school district's service facility and bus garage is within the boundary of our school district, as is Upper Arlington's. In both cases, they're occupying valuable land zoned for commercial uses, but as government entities, pay no taxes to our school district. Meanwhile, they preserve their own commercial land for revenue-paying businesses.

The City of Columbus is often painted as the bad guys in these matters. But we have to remember that while there has been about the same amount of residential development in the Columbus part of our district as there has been the Hilliard part, the amount of commercial development in the Columbus part has been double that in Hilliard. That whole huge retail zone at the intersection of Hilliard-Rome Rd and Trabue/Renner is in our school district, and it is contributing a substantial amount of funding to our operations.

A couple of new members will be sworn onto the Hilliard City Council this January - Nathan Painter and Joe Erb. Nathan was a member of our school district's Audit and Accountability Committee, and through that process had the same kind of awakening I did to the realities of the school district economics, and the role the municipalities play in helping create economic sustainability for the schools. His voice on the City Council will be vital.

But it is also vital that you understand and speak up about these things. Our school district can't raise new revenue by any means other than asking you to raise your taxes. Only a municipality, like the City of Hilliard, can control how and at what pace our community develops. If they make sure that there is plenty of new commercial development to subsidize the cost of all the kids that come with new residential development, then our school district has a chance.

If however, the City of Hilliard just allows thousands of new residences to be built without corresponding commercial development, the tax burden on all of us will continue to escalate. Or the breadth and quality of programs offered in our school district will continue to diminish. The only winners will be the real estate developers and their friends.

Meanwhile, if the City of Hilliard wants any more new roads or water lines or sewers, let them raise taxes to pay for them and quit using the school district as a piggy bank.