Saturday, July 21, 2012

Back from the Brink

The Cincinnati Enquirer recently ran a story about the Little Miami Local School District down in Warren County, describing how that school district seems to have hit bottom, and is now on the path to recovery.

The Little Miami school district almost ceased to exist. It has been in Fiscal Emergency for two years, meaning that a panel appointed by the State is running their school district, not the local School Board. They had closed down buildings, eliminated arts, music, physical education, AP classes, and busing. Parents were pulling kids from the district and enrolling them elsewhere. There was talk of dissolving the district and parceling out the territory to the surrounding school districts.

It's a tale we should learn from.  Little Miami isn't a school district in an impoverished rural area. Rather it's an affluent bedroom community of the Cincinnati/Dayton metro area. Like Hilliard, it had been mostly farmland until the last twenty years, when it was rapidly developed and covered with upscale houses. According to the Ohio Dept of Education's Cupp Report, the average property valuation per student in Little Miami is $178,000, which is 15% more than ours here in Hilliard. Average income is almost identical to ours.

Their schools perform very well, achieving an Excellent rating on their State Report Card, with a Performance Index of 102.9.

So how did they get into so much trouble?

One problem seems to be that they didn't pay attention to the balance between residential and commercial development. The Little Miami local property tax base is 94% residential/agricultural, compared to 75% for Hilliard. And because their per-pupil property valuations are high, they don't get much state funding - $2,900 per pupil in FY11, and that has gone down slightly in recent years (our state funding was $3,600/pupil in the same year).

That means the burden of funding their school district falls substantially on the back of their local homeowners. While their cost of operations rose due to both growth in the number of students, as well as growth in the compensation of their teachers, staff and administrators, they had no other place to go for additional funding than the homeowners, and the voters refused - repeatedly.

The effective operating millage (ie not including bond levies) paid by Little Miami homeowners was 24.39 in FY11, compared to 42.03 for those of us in the Hilliard school district. At their millage rate, the average Little Miami homeowner was paying $4,300/yr $1,336 to fund operations. Had they been paying our operating millage rate (effective), it would have  been $7,500 $4,785.

As a district in Fiscal Emergency, what solutions did the state-appointed oversight Board come up with?  They said an operating levy issue had to be put on the ballot - a whopper this time - and it had to pass. They didn't say what would happen if it didn't pass, but the implication was that the district would be dissolved. I'm not sure that would be an easy, or politically acceptable solution either.

After all, why would the surrounding districts want to take on that mess? Absorbing Little Miami would just screw up the residential/commercial funding mix of the 'acquiring districts,' forcing them to raise their taxes (or cut programs/services) to underwrite the cost of the new kids from Little Miami, who would not be bringing enough funding with them - even after being lifted to the tax rate of the acquiring district.

That scenario was avoided. The Little Miami district put a whopping 13.95 mill operating levy on the ballot, and it passed, raising the property taxes of the average homeowner by $2,500 $765 per year.

The Little Miami situation was entirely predictable, and avoidable. But the general ignorance of the public in regard to school economics allowed them to be led like lambs to the slaughter.

Who was doing the leading?  The land owners, land developers and home builders of course - same as always. I have confidence that during the housing boom, potential buyers were being enticed to come to the bucolic setting of Maineville OH, where their kids could attend the high-performing and safe Little Miami Schools, which by the way also has the lowest property tax rate in Warren County.

The problem is that with every house built, the school economics got more screwed up: the incremental taxes generated by a new home do not cover the fully-loaded costs of the school age kids who will live there. If there is not commensurate commercial development to help pay the bill, the cost of new kids has to be underwritten by the rest of the community.

Meanwhile the land owners, land developers and home builders ride off into the sunset with their pockets stuffed with all the money the new homeowners borrowed to get into a great school district (see also "How Should Our Public School System Be Organized").

Why should we in Hilliard care about what happened in Little Miami?

Because those same dangers lie ahead for us. The Hilliard City School District grew from a little village operation into one of the ten largest school districts in Ohio in the span of twenty years. The student population exploded, we constructed new school buildings at the rate of one per year, and our taxes took off.
click to enlarge
The recession slammed the brakes on residential growth in our district, but it's showing signs of picking up again. The City of Hilliard has for a couple of years been accepting annexation requests from the various developers who own the thousands of acres of land on the west side of Alton-Darby Rd. One of them, Planned Development, the developer of Heritage Lakes, has submitted a plan to the Big Darby Accord Advisory Panel - with the support of the City of Hilliard - for a large new single-family and multi-family development near the corner of Alton-Darby and Davis Rds. In March, the Hilliard City Council, at the request of Dominion Homes, rezoned 57 acres north of Homestead Park for development.

We' re in a kind of quiet time right now. No levy on the ballot, and another year to run on the teachers' contract. We have some room to grow in our school buildings, and enrollment has been stable for several years.

I think this makes it an excellent time to embark on a community education program with the goal of equipping folks to engage in the dialog about where we should go next. In a way, we're fortunate that the recession came along and stopped what could easily have become a runaway train - putting us in the situation of Little Miami.

We have the opportunity to go forward in a well-managed manner if we use this interlude to get our strategic plan together, taking input from all the stakeholder groups. I hope we will begin this process at the annual Board Retreat, coming up in September.

Your thoughts are appreciated.


  1. Paul,given my experience over my adult life, I believe that authority only listens to authority. The fake concern of listening to constituents or the "little people" is a sham.

    If the city of Hilliard is allowing this development to continue, the Hilliard school board and district representatives are the strongest voice to end this.

    Don't say it's our individual responsibility to make our voices be heard. You know they don't listen. Going to the ballot box is too late. The damage will have already been done---allowing more housing than our tax base can sustain, as far as the school district is concerned.

    As a concerned taxpayer, I am pleading with you and the rest of the board to be the strong authoritative voice to the City council. You have the data, experience and credibility to make them listen.

    As an individual, I will do what you ask of us to help sustain and support your message. But please, make the message to City council be from the board, and make it be a strong, cohesive voice representing YOUR constituency..the children and school district taxpayers.

    As always, thank you, Paul for your insight and for doing so much to keep us all informed, and educated. I appreciate your effort and dedication. We, as a school district, are so fortunate to have you!! --Old Hilliard

    1. I beg to differ. The Mayor and the members of the City Council will listen to those who get them elected.

      When the TIF for Anderson Meadows was on the Council agenda, members of both the Board of Education and the Norwich Twp Trustees stood up during that meeting and objected to the City using TIFs for residential development. In both cases, our objection was that the TIF redirected revenue streams designated for the schools and fire department to the construction of roads, which the city should be paying for from their own revenue steams.

      The TIFs were granted anyway. More TIFs were granted for the Continental development to be built at the corner of Cemetery and Britton Parkway. There will almost certainly be TIFs offered to Planned Development to fund municipal infrastructure for Heritage Preserve as well.

      It's a slick trick - the Mayor has figured out how to use the entire school district as a revenue base for the City. And if I were him, I'd see no reason to change since he was allowed to run essentially unopposed in the last two elections.

      And why wouldn't the voters in the City of Hilliard support the Mayor? Without a full understanding of the economics - it would seem like a good thing to get the entire tax base of the school district paying for roads and infrastructure for the City.

      Except there's more to the story. All those new residences also drive demand for city services like the police, plowing the snow, etc. So if the City allows residences to be built without commensurate commercial development creating new jobs to pay the income taxes that fund those services, the City residents will see their income taxes increase, services decrease, or both.

      The community can't let the municipal leaders get away with residential development that's not balanced with commercial development, yet at the same time demand that the school board stop raising property taxes. One leads very directly to the other.

      And only the voters can hold them accountable for doing so.

  2. I whole heartedly agree, the board is in the strongest position to convince the city council to act. Unfortunately, it's not simply the Hilliard city council that needs convincing, it's also Columbus and Dublin and, to a lesser extent, the townships.

    The questions are 1 - Does the board, as a whole, have the conviction to speak authoritatively? and 2 - will the various governing bodies listen?

    I believe you've spoken about this in the past (and your opinion wasn't good), but what would you say the state of cooperation between government and the board is today?

    1. The City of Dublin unquestionably has a policy of trying to push new residential development, especially multi-family development, into the Hilliard school district. Fortunately, they have little developable land in our school district.

      As for the City of Columbus, they've actually done a pretty good job of balancing the commercial development. That whole stretch of retail development from the Wal-Mart north is in the City of Columbus, and it provides a large amount of property tax revenue to the schools. I'm not sure this happened with any concern as to the benefits for Hilliard Schools. Clearly their primary motivation is the income tax revenue from all the jobs.

      The City of Hilliard is unique in that it has no 'split loyalty' here: every single parcel in the City of Hilliard is also in the school district, and every single voter in the City of Hilliard is a voter in the Hilliard City School District.

      And there is by far more developable land in the City of Hilliard and the parcels it can annex (according to its water/sewer deal with Columbus) than in any other municipality.

      Of course, there is the tens of thousands of acres of Big Darby Accord territory out there, at what will happen with that remains a big unknown. I believe one of the unspoken goals of the Big Darby Accord is to allow township land to be served with Columbus water/sewer without triggering the Win-Win provisions that would shift such land to Columbus City Schools.

      Another win for the developers, another poke in the eye for the school districts.

    2. As to whether the School Board will take a stronger stand - I can't speak for the Board. We are certainly getting increasingly engaged in this, and appreciate the willingness of some Council members to discuss these matters.

      But I think that until we get the community better educated on these economic fundamentals, and the community makes their wishes known - perhaps by voting different folks into office - nothing will change.

  3. Great post Paul. I appreciate someone getting to the nub of the issue, the real driver of chaos in the Hilliard school district. I can only hope that people will become educated and start voting the bums out. I don't trust the city council and mayor to have yet grasped what we're running into despite the experience of school districts like Little Miami.

  4. Hi, Paul,
    My name is Melinda Briggs. I'm communications director at Little Miami and came across your blog's mention of our district during my morning scan of the web.

    You've done a great job capturing in a nutshell what our district has been through during the past three years, but what's tough to capture is the day-to-day toll that our financial crisis has enacted on our community.

    We lost more than 250 students to open enrollment and another 162 to online schools, taking with them more than $2.1 million in state funding when we could least afford it. Because of school closings and consolidation, our 7th and 8th grade class sizes are hovering around the 35:1 mark. The state oversight commission ordered us to operate at "state minimum standards," which, in the case of graduation requirements, means an LM student can graduate with as few as 20 credit hours. (Universities like Ohio State want to see at least 24 to 26 to even consider you).

    In an attempt to hold on to our athletics program, we went full pay-to-participate in 2009-2012, charging $651 per athlete, per sport, with no cap. This made the athletics program self-sustaining, but made playing sports too expensive for many of our families, including for some kids who could have really used the chance to be involved. I don't think it's surprising to find out that our participation numbers are down 40% from when we first instituted full P2P. Academics comes first in our district, but our Board understands that athletics also plays a part in a student's education.

    Everything you said about Little Miami is true: We are bedroom community, with little business tax base, and the burden does fall heavily upon our land owners. Our district is 98 square miles, roughly balanced between suburban and rural land use. Our most supportive voters are in those suburban areas. Our strongest "no's" are those who own the big farms and would see the largest tax increase. Because of our eight previous losses at the ballot box, we had to borrow $11 million from the state to operate. That money must be paid back by 2014.

    If there's anything I can impart from our experience it would be to get out in front of every civic group, every coffee klatch, every board, commission and council and be open about the facts. Tax levies are the way Ohio funds its schools, and although we know the model is broken and has been declared unconstitutional, it's all we have at the moment.

    The good news is that our voters did support our levy in November, and we have begun slowly and judicially putting back some services. Our first responsibility, though, is to repay our loans to the state. We expect to be released from the "fiscal emergency" designation by December.

    Thanks for a great post!
    Melinda Briggs
    Communication Director
    Little Miami Schools

    1. Hi Melinda:

      Thanks very much for your comment. You are the first administrator from any school district to have commented on any of the nearly 400 articles I've written on this blog over the past six years. I hope it's the beginning of a trend.

      I agree that educating the public is one of the most strategically important activities for the leadership of a public school district. I wish our district would do more, and I have been quite vocal about it over the years.

      You might be interested that the Vandalia/Butler school district is putting on a community education program this Thursday evening. The Vandalia/Butler leadership has structured this program to qualify as continuing education credit for their teachers, which is something the Olentangy leadership did a couple of years ago. I think this is a brilliant approach, as the teachers typically have no more understanding of school funding that the general public.

      I'm planning on attending the Vandalia/Butler session. It might be interesting for you as well.

      By the way, our current funding system is not unconstitutional. That was the judgement of the Supreme Court in regard to the system that was in place prior to Gov Strickland's Evidence Based Model. Neither the EBM or the temporary funding solution in place now has been brought before the Supreme Court, so they are constitutional until found to be otherwise in another proceeding.

      Again, thanks for your comment. Hope you stop by often.

  5. Paul, you're quite welcome!

    And of course, you are correct: the 2012 model of funding schools has not been before the Supreme Court. What I should have said: Until a more equitable means of funding schools is put into place (which I think EBM would have done had it not been scrapped), the current model of districts appealing to the voters every 3 to 5 years is here to stay.

    Thanks again!
    Melinda Briggs

    1. The EBM had the same issue as the funding system before it (empirical funding) - it demanded more money from the State budget than was every going to happen. I tell folks that both the empirical system and the EBM system required green. It's just that the empirical system said you get green by mixing blue and yellow, while the EBM said no you get green by mixing yellow and blue.

      The "Getting It Right for Ohio's Future" amendment would been a much greater nightmare - allowing the State Board of Education to dictate school funding.

      My position for a long time is that we should organize K-12 education the way we do food distribution. Everyone gets choose where to buy their food, what kind of food to buy, where to buy it, and how much to pay for it. For those who can't afford sufficient food, we render assistance through the food stamp program.

      I believe this would work for education as well.

  6. So, to recap Melinda's first message:

    o Parents using the services voted yes
    o Those footing the bill voted no

    And there seems to be some puzzlement as to why their levies repeatedly failed?

    As to the loss of state funding when they could least afford it, perhaps if they'd made the necessary changes sooner rather than repeatedly demanding more money from the voters, they might have not lost as many students.

    Amazing what the (almost) free market can do...

    1. I doubt that the distribution of YES/NO votes on their levy was exactly along those lines. It takes lots of folks who don't partake of those services to vote YES to get a levy passed.

      The folks of a community have to decide which stuff will be provided via the school district, and which via private organizations. I and many others believe that the trend will be to shift more stuff to private organizations, starting with extracurriculars.

      Chances are that the next time an operating levy is on the ballot in our district, the discussion about extracurriculars will be framed a little differently.

      Rather than the traditional "Vote for the levy or your extracurriculars will be taken away," which has a threatening tone, it might instead be "Vote for the levy if you want extracurriculars to continue to be a public school program, or vote against the levy it you want extracurriculars to be funded and operated outside the auspices of the public school district."

  7. Hello, Paul,

    Quick you know, or can you tell me how to find out, if it's true that City of Hilliard turned down the chance to have the outdoor retailer Cabela locate within city limits? I heard they are opening at Polaris instead. Appreciate any information you have to help me obtain the facts. Thanks! ----Old Hillard

    1. I don't remember hearing anything about the City of Hilliard opposing a Cabela's store in Hilliard. I suspect they would be pretty eager to have a Cabela's built in the city limits, perhaps on Trueman Dr along with Target and Home Depot.

      If there was any official interaction with the City by Cabela's (or a developer working with Cabela's, as in the case of Continental working with Giant Eagle on the old Dana site), you should be able to request copies of such correspondence from the City. The City Clerk is Cindy Garnett, and your request can be made via the process described here

  8. Thank you so much, Paul. I appreciate your effort and time!

  9. I sincerely doubt that Cabela's would locate a store on Trueman Blvd - simply not enough traffic on that stretch to warrant a "one of a kind" store. Nor anywhere else in the City of Hilliard for that matter. But speaking of the Dana property, do you believe that the plans are a good mix of commercial vs. residential? I realize we would all appreciate all commercial but wonder if that is even realistic in today's economy?

    1. A "good mix" would generate enough property and income taxes such that the net impact on the rest of the community is zero. In other words, it would be self-funding. This development has a chance of being that if: a) there are few school age kids; and, b) there are lots of high-paying jobs in the professional buildings.

      It's a renter's market in the commercial real estate world right now. There's a fair amount of high quality space on the market, and building owners are accepting rents that are half what they were getting 5 years ago.

      The only thing that's saving them (the property owners) is that their financing costs are generally tied to LIBOR, which has been essentially zero for a good while. That may be about to change...

  10. Paul - sorry to inform you, but I believe you miscalculated the value of the levies in your story.

    Property tax rates are applied to an assessed taxable value of property, not the appraised value. The taxable value is 35% of the appraised value. For senior citizens and those disabled, you also get to knock $25,000 off the appraised value.

    Disregarding that extra credit here, if you based your calculations off of the full appraised value, a 13.95 mil levy raising taxes $2500 would equate to an average value of $179,211. I don't know if this is correct for Little Miami (I live nearby, but thankfully not in that district), but I'll assume that you have the average value correct.

    However, if you properly apply the 35% rate to get the taxable value, a 13.95 mil tax on a $179,211 home produces $846.77 per year in tax. That's still a lot, but a far cry from $2500.

    To get to $2500, you have to have an average value of $512,033, as $512,033 * .35 * .01395 = $2500.

    As I said, I'm not familiar with the average home in Little Miami, but I'd wager a fair sum that it is more on the $179,211 scale than the $512,033 scale, in which case the tax increase was actually about $847.

    1. Not sure where my head was when I was doing those calculations. I've corrected the numbers in the article. Thanks for the catch.

  11. Is it *really* good to be tied to LIBOR, Paul? Low rates are good, but low rates that are being cooked by criminals? :)

    1. As a commercial real estate investor, yes it has been good to have our financing rates tied to LIBOR for the past several years.

      I'm sure some would say that the low rates on T-Bills is being cooked by folks up to no good as well. They just happen to work for the government. ;-)