Thursday, December 20, 2012

State Auditor's Annual Review

Our school district is examined each year by the Auditor of State, and this year's audit report has just been released.

As shown on the "Schedule of Findings" section of the report, the State Auditor's Office found no problems, and our District was once again declared to be a "low risk auditee."  I'm not sure what exactly that means in the context of a public entity, but when a business is audited, a declaration like this means that the auditors feel no need to look in every nook and cranny every year, and that they will generally gauge the accuracy of the financial reports, and the effectiveness of management and accounting controls, by looking in detail at only the accounts through which large amounts of money pass, plus a few others chosen at random.

There was a comment in the Management Letter recommending that the School Board put in place a policy "requiring the approval of the Treasurer and the Board of Education prior to the establishment of any outside checking accounts in the District's name or for District sponsored activities. The policy should include oversight procedures to be performed by the Treasurer’s Office of Board of Education to ensure all District employees responsible for handling cash collections are adhering to the policy."

This will require some thought. If you look at the Monthly Treasurer's Reports, you'll notice that many pages are taken up by the "Financial Report by Fund/SCC" section. This lists the 300+ fund accounts managed by the Treasurer's Office. Some of these are the big primary funds through which most of our funding and spending flows, such as the General Fund. It also includes scores of little funds, like one set up for the Bradley German Club, which has a balance of $25.67. These are the 'official' funds, meaning the money is deposited into the bank by the Treasurer's office, and disbursements from these funds are made according to standard procedures, via official checks.

But there are other occasions when fairly significant amounts of money are collected on behalf of a school activity, held in the hands of an individual - maybe a school employee, maybe a community member - and disbursed without controls, often in cash. This might be a school-sponsored club running a car wash to raise money for uniforms, selling trinkets to help fund a trip, and other similar situations.

The School Board's Policy Review Committee will take the Auditor of State's recommendation, consult with folks such as the policy experts at the Ohio School Boards Association, and report back to the School Board.

The audit reports for prior years can be found via the website of the Auditor of State. Just go to this search page, enter "Hilliard City Schools" and select "Franklin County."

Friday, December 7, 2012

Supplemental Materials for the Dec 10, 2012 School Board Meeting

The supplemental materials are available here.

Item F4 approves an increase in the hourly rate for substitute bus drivers (from $14.25/hr to $16.25 $15.75/hr)*, substitute bus aides, and substitute mechanics. We've been having a hard time filling absences in these roles because the neighboring districts are paying more than our current rate, and those qualified to serve as subs are filling those spots first, often leaving us without enough subs. This pay rate change will bring us back into range and, if I remember the numbers correctly, will cost an extra $100,000 $50,000 per year, but I'm double checking that(confirmed by the Treasurer).

There will be no second Board meeting in December. The next meeting will be the annual organization meeting, which will most likely be held on January 14, 2013 at 6:30pm (this is an agenda item for Monday's meeting). The organizational meeting is when the School Board's officers for the year are elected, committee appointments are made, and various annual resolutions are voted on. Normally, the organizational meeting is followed at 7pm by a regular Board meeting. However, this schedule will not be official until after voted on Monday.

* This amount was reported incorrectly in the agenda as $16.25/hr. The actual rate will be $15.75

Sunday, December 2, 2012

Other People's Money

When an Operating Levy for the Hilliard City Schools is passed by the voters of the School District, one would expect that the revenue generated would indeed be used to operate the schools.

But Ohio law provides for a mechanism called "Tax Increment Financing" (or TIF) which allows a municipality to redirect some of that school revenue stream to redevelopment projects that are the responsibility of the municipality. In other words, the City of Hilliard can - and does - grab some of the money that would otherwise go to Hilliard City Schools, and uses it to build roads, sewers, sidewalks, etc. As long as it limits its grab to no more than 75% of the additional revenue stream created by the redevelopment of a piece of property, a City doesn't even have to seek the permission of the School District, and the City of Hilliard doesn't.

TIFs aren't always a bad thing. Every dollar of property tax paid by a commercial entity in our community is a dollar of property tax that doesn't have to be paid by homeowners. The School District has shown that it is willing to work with a City to grant TIFs to commercial entities, knowing that this is part of what is necessary to recruit businesses to come to our community, as we are competing with several other municipalities in the region for the same companies. It's better to grant a TIF and get x% of something than to lose the opportunity, and get 100% of nothing.

Residential development is another matter. When a new residence is built, we get some additional property tax revenue, but we also, on average, get 0.8 more kids enrolled in our school district. It takes a home valued at about a half-million dollars to generate enough school property tax revenue to underwrite the cost of that 0.8 kids. Not too many new homes fall into that category.

If the only new development in our school district is residential properties, then those of us already living here end up subsidizing the cost to educate the kids that arrive with those new homes. A new development of 500 homes valued at $250,000 will create the need for 1 mill of new property taxes on all of us to fund the difference.

The best way to mitigate that is to encourage new commercial development. Why?  Because we get new property tax revenue, but no new kids to educate.

There have been times when the City of Hilliard and Hilliard City Schools have worked together to bring new commercial development into the City.

By the way, the City of Hilliard does NOT own the Hilliard City Schools. These are two separate governmental entities, each with its own body of elected officials: the Mayor and City Council for the City, and the Board of Education (School Board) for the school district.

Two good examples of a City and School District working together are the TIFs for BMW Financial and Boeringer Ingelheim Roxanne Labs.

In the case of BMW Financial, a 100% TIF was granted by the City of Hilliard, with the support of the School District (ie 100% of the property tax revenue was redirected to the City for infrastructure improvements), but an arrangement was made so that the School District receives payments from BMW that are equivalent to we would have received had there been no TIF.

For Boeringer Ingelheim, which is in the City of Columbus, the request was for a TIF on a major expansion to their already-substantial operation, which would in turn allow BI to compete within their firm for new business. Without this, BI might have moved some of its current operations out of the community. In time, the TIF will expire and the school district will receive its full share of the tax revenue.

The thing that doesn't make sense is for a city to use a TIF to facilitate residential development. After all, applying a TIF to a residential development means the school district will get more kids to educate, but not much incremental revenue for doing so. Meanwhile, the city and the developer get to avoid the cost of building infrastructure with their funds.

The Hilliard Mayor and some City Council members make the argument that apartments are 'commercial' rather than 'residential,' and therefore it is consistent with our shared interest in fostering commercial development to grant a TIF to an apartment complex.

But in these economic times, more families are choosing to live in nice apartments in good school districts, rather than buying a house. They are unsure about their income, and concerned that property values might not hold up, especially if the school district runs into fiscal problems.

The typical school property tax revenue for an apartment is about $1,000/yr. This means that for an apartment complex to be self-funding from a school perspective, there can be no more than one school-age kid for every 90 units. I haven't seen confirmed statistics yet, but I believe the new Hilliard Grand apartment complex (on Wilcox Rd near Hayden Run) has substantially more kids than that.

The same is likely true for the Hilliard Summit apartments at the corner of Roberts Rd and Alton-Darby Rd. The City of Hilliard did grant a TIF for that apartment complex, and used the money to help fund the new intersection and connector.

The Hilliard City Council will soon be deciding whether to grant a TIF to the new development being proposed for the site around the Starliner Diner. Part of this development will be retail space on the first floor, including a relocated Starliner Diner, but the rest will be 183 apartments or so. The design includes a realignment of Luxaire and Franklin Streets so as to create a new shortcut between Cemetery and Main Sts (bypassing the roundabouts!).

Typically, the City demands that the developer pay for infrastructure upgrades, such as water/sewer lines, sidewalks, and street improvements. With a TIF like the one proposed, the developer still pays to for all this infrastructure work, but instead of eating that cost, the developer gets reimbursed by having what should have been taxes paid to the schools and the township (for fire/safety services) directed back to the developer, who may no longer own the property by the time the tax stream begins.

So the City gets new infrastructure for free. The developer gets reimbursed for the cost of building that infrastructure. Meanwhile the School District gets only 25% of the revenue it should on the improved value of the property, but 100% of the cost of educating any of the school age kids who might live there.

When the people of our community pass a school operating revenue levy, the expectation is that all property owners will be contributing an equal share of their property value to the operations of our schools. A TIF means the revenue from a particular piece of property gets redirected instead to building roads and sewers.

The very real political game being played here is that the elected officials in the City of Hilliard have figured out that a TIF gives them a cut of the school district's revenue stream, meaning they'll get to avoid the painful task of asking the people of their city to pay more taxes to fund these developments. Instead it becomes the burden of the School Board to put school levies on the ballot to replace the money redirected by the TIF. I made this very point before the City Council when they were considering the TIF for the Hilliard Summit and Anderson Meadows developments (which the City did implement, using the money to construct the new Roberts/Alton-Darby intersection and connector).

But the reality is that most of us who live in the school district don't get to vote for the Hilliard Mayor, or for members of the Hilliard City Council. My wife and I have lived in the Hilliard School Community for 33 years, yet have never lived within the borders of the City of Columbus. When I addressed the City Council about this, they knew they weren't listening to one of their constituents.

The Hilliard officials understand that dynamic, and clearly feel that they can use TIFs on residential developments with impunity, essentially pulling in money from everyone in the school district to fund infrastructure development in the City. I'm sure their argument is that the whole Hilliard Schools community benefits when these kinds of developments take place.

It seems to me that the only entity which benefits from this economic arrangement is the developer. So why are the city leaders so eager to facilitate that?