Monday, April 29, 2013

Another Look at the Sale of the Grener Property

The few comments which have been posted to this blog about the decision to sell the 124 acres the School Board owns near Homestead Park have been mostly negative, criticizing us for putting this parcel in the hands of a home builder, Rockford Homes.

I understand those feelings, and perhaps should be somewhat gratified that this criticism has to some degree been fueled by my many years of trying to inform folks about the burden placed on all of us when residential development outpaces commercial development. Without that effort, I suspect few would have been concerned. I certainly wouldn't have been ten years ago, before beginning this journey.

So I recognize that my agreeing to this sale (by voting yes on the resolution) seems incongruent with my long-held position.

I'd like to tell you that I did a substantive financial analysis before making my decision. I obviously didn't, because I would have included that analysis with with my prior comments. Rather my reasoning was this: we didn't go out soliciting offers on the land, but a couple of them came to us anyway. One was from some folks who wanted to build athletic fields on the property, one was from a homebuilder.

Hands down, our preference was for the athletic fields, but it would have required the School Board to act as the lender, and none of us were comfortable with that. Had that group been able to secure private financing, I'm fairly confident that this use would have been the preference of the Board.

Meanwhile, we also had an unsolicited offer presented to us by Rockford, and we have the fiduciary responsibility to give such offers consideration. There was some back and forth about price and terms, but eventually a reasonable position was reached, and we accepted the deal, albeit with significant contingencies reserved by Rockford. Notably, Rockford retains the right to back out of the deal if the City of Hilliard does not grant the necessary zoning and permits to support a development plan Rockford would find economically viable.

I just couldn't see us passing up the opportunity to recoup 80% of the money spent to buy the Grener property and to put that money to use, rather than continuing to own the most expensive cornfield in the area.

This weekend, I spent some time looking at a couple of scenarios from the economic perspective. Here's the results:

Disclaimer: the following calculations are mine alone, and do not represent any official work or opinions of the other members of the school board or the administration

Scenario 1: The school district buys the land for $6.2 million, financed by 20 year bonds, and holds it forever. Our debt structure is a little complex, so I'm going to use a cost of capital of 4.8% based on the weighted average coupon rate on our outstanding bonds. This results in annual debt service of $486,000 - about 0.2 mills. That's $6/year per $100,000 of home value.

Then in 2013, the School Board authorizes the spending of $4.8 million on capital items. The debt service on this amount would be 0.16 mills, or $4.75/yr per $100,000 in value.

The total debt service would be $11/yr for 20 years per $100,000 of value. Then the investments would be paid off, and there would be no additional cost.

Scenario 2: Had the school district never purchased that land, I think we could be pretty confident that some homebuilder would have purchased it anyway. The real estate market in our school district was still healthy in 2003 when this land was purchased (much of Ballantrae was built out during this period), and this parcel was particularly valuable because there was access to the water/sewer network.

So let's say that the Grener property was bought by a developer who built on the parcel about 375 houses which sold at an average price of $250,000. From those parcels, we could expect 300 kids entering our schools, using the long-standing ratio of 0.8 kids/new dwelling.

At $11,398 spending per student in our district, this would generate a fully-loaded incremental cost of about $3.4 million. The incremental school taxes generated by the new homes would be about $1.6 million. If we assume zero incremental funding from the state or federal government, then this would put a $1.75 million burden on the rest of us to subsidize these new kids.

That's the equivalent to 0.7 mills, or about $22/year per $100,000 of home value.

Then as in the first scenario, the Board authorizes $4.8 million in capital spending in 2013, again resulting in a cost of $4.75/yr per $100,000 home value.

This results in a tax burden of $27/yr per $100,000 of home value. Of course in this case, the $4.50/yr goes away after 20 years, but the $22/yr is forever, and increases with the rate of General Fund spending growth.

Scenario 3 - Reality: The school district buys the land for $6.2 million, then sells it to a homebuilder ten years later for $4.8 million net. The debt service on the $6.2 million is as above, $6/yr for for 20 years for each $100,000 of home value.

Also as above, the cost to subsidize the additional kids in the school district would be $22/yr, forever.

However, the $4.8 million capital investment will be funded with the cash received from the sale of the property. This means that cost of this scenario is about $28/yr per $100,000 of home value, pretty close to the second scenario.

I know this is a tortuous analysis, and I'll confess again that it is after the fact. But the point is that the next most likely scenario to what actually happened is for a homebuilder to have bought the Grener property anyway, putting us in substantially the same position. The notion that it would have remained as a farm field had the school district not purchased the land is not realistic in my opinion.

You might also argue that the $4.8 million capital investment might never be made had this amount of cash not been freed up with the sale of the property. Again, I would point out that there is a list of routine, periodic maintenance items which will exist as long as the school district continues to own buildings and property. We will also need to make strategic technology purchases, such as the replacement of rediculously expensive paper textbooks with e-readers. Now is not quite the time to do that, but it will be coming soon.

If it is your opinion that it is a good use of taxpayer money to buy and hold land to keep it out of development (which I'm not sure a school board is authorized by law to do), then you would also advocate for and support additional bond levies to purchase, for example, the several thousand acres on the west side of Alton-Darby Rd, nearly all of which is currently owned by developers who are eagerly awaiting the right time to harvest a nice new crop of houses.

Otherwise continuing to hold the 124 acre Grener parcel is a futile gesture to arrest development, as I said in the earlier article.

The control of the direction, pace and mixture of development in our community is the responsibility of the municipal governments - ie the Cities of Hilliard, Columbus and Dublin - not the school district.


  1. Paul,
    I guess it is my fault that I did not see this item as I have stoped going to board meetings. One reason is the lack of open conversation. It is always seems that Dale recommends and the board approves.

    I have a hard time dealing with the decision to buy in the first place. Was that process also Dale recommends and board approves the purchase and now the sale at a loss?

    This brings me to accountability. We talk so much accountability. I would like to place this on the table for open review. Dale and the board had either the arrogance of not caring what the community wanted or they failed to know how the community felt.

    Either way they made a decision then that now will become a loss. I hate to beat the drum but who is accountable now? The board or Dale, it is hard to look at comments talking what a leader he is! In the real world this would have cost the CEO his job.

    Who is going to stand up and said we made a error that will cost X dollars for not doing our job!!!


  2. Again, one has to put ones self back in that period ten years ago to evaluate the wisdom of buying the Grener property.

    Remember that our two high school buildings were packed. Temporary classroom modules were parked in front of the schools, and classes were being held under the bleachers in the gyms. My youngest was at Darby during this period, and the kids were told to not wear backpacks in the hallways between classes because there just wasn't enough room.

    So it was with that sense of urgency that land was being scouted out. Remember the requirements: a) a parcel of at least 100 acres; b) a willing seller; and, c) access to the water/sewer system. Few options were available which met those criteria, which is probably why the seller could demand a premium price.

    The real mystery is why the 'anti-traffic' campaign arose, supported by Mayor Schonhardt.

    Was it really about traffic concerns, or was that simply an issue which could be used to rally opposition among enough swing voters to sway sentiment against the bond issue to build the high school there (which already had opposition from those who wanted the two existing high school expanded rather than build a third).

    Was the real motive to force the school district to do the political work of getting the City of Columbus to relax the development restrictions on the land west of Alton-Darby Rd, which at that time had been placed in an "Environmentally Sensitive Conservation District" - the precursor of the Big Darby Accord?

    The folks of our community may have forgotten that before the Emmelhainz property was purchased, Mayor Schonhardt was championing for the school district to buy a hunk of Dan O'Brien's land, which was also tied up in this ESCD. If the school district could build there, why not a home builder as well?

    One of the options we might consider for the $4.8 million which the District will net with the sale of the Grener property is to put it aside for future land acquisition. There are still thousands of acres of farmland available for development in our school district, meaning there is a decent chance that our district will keep growing, and more school buildings will be needed.

    Of course, I recognize that there will again be debate as to whether we should add on to the three high schools before building a fourth.

    If there is a fourth high school in our future, one could argue that it is smarter to buy a hunk of land now, when prices might be closer to the $25,000/acre we paid for the Bradley site than the $50,000/acre that was paid for the Grener site. The difference was that the Grener land was ready for immediate development, while the Emmelhainz land was not.

    Or we could just bank away $2-3 million until the need for more land is clearer.

    We could even see if we could take out purchase options on a couple of parcels, paying a little to some landowners now to give us time to make a decision down the road.

    The drama of the Grener property was acted out by more than just the folks who sat on the school board ten years ago. Mayor Schonhardt had a starring role, as did the folks who were on City Council.

    Your accountability question is a good one. I think it has to happen in real time, while those who make decisions are still in office. And the Board needs to do a better job of engaging the community in the process, in my opinion.

    A sign I used to have in my office:

    "There are three kinds of people: those who make things happen; those who watch things happen; and those who just complain."

    We have to ask ourselves which of those we want to be.

  3. You might be interested in this letter from Mayor Schonhardt to the school district, trying to convince the school district to consider buying land in the conservation zone. The language of the Mayor's letter suggests that this deal with the City of Columbus was brokered without the participation of the School Board.

    Notice also the paragraph which reads: "... we believe should construction of a school in the Watershed occur, it creates a development option that represents no threat to the sensitive environment of the Darby Creek..."

    Development option for who?

  4. Paul,

    Some real good points, however remember the tax payer ends up with the loss. How many current boards members were on the board then?

    The city vs district is a sad one made even worse since the service areas do not match.

    I suggest all future pay increases for teachers come from the profit from the sale. OH yea there is none. We must link accountability. How about we tell union no increase because bond levy you backed cost us X?

    1. None of the current board members were in office when the Grener property was purchased (it was during Doug's two year absence from the board).

      The taxpayers took a loss of this property whether or not it was sold. Maybe it would have gone up in value had we held it longer, or maybe not. It's not really our place to be land speculators. Rockford put a cash money deal on the table for a reasonable price. Otherwise it was just stranded capital - not desirable for any business.

      So the teachers should be held accountable for this buy/sell transaction? That's wrong on many levels, including the technical angle: the land deals involve capital funds while teacher compensation is paid from general operating funds, and the former can't be mixed with the latter.

      The community will have the opportunity in 2014 to decide how much, if any more to add to the comp/benefits spending for our team of teachers, staff and administrators. The teachers and staff with negotiate later this year to determine what the average cost per employee will be.

      The mixture of those two events will determine how many folks the district employs in the near future, which in turn dictates what programs and services the district can offer.

      It will be a critical time for our community. We can't let ignorance, apathy and emotion control the process...

    2. Paul, you knows as well as the rest of us that the city will have no such say because the contract will have been renegotiated prior to the next levy.

      We will simply be faced with "pay up or else".

      As usual.

    3. Indeed, the two union contracts will be negotiated later this year, by the school board the people elected to represent them. The outcome of that negotiation will be to set the unit cost for teachers and staff.

      The size of the levy the 2014 edition of the school board puts on the ballot will dictate how many teachers and staff can be employed at our new labor rate - one number if the levy passes, a smaller number if it doesn't. That will in turn dictate what programs and services can be offered.

      If the voters want the process to change somehow, we need to hear that. Make it an issue for the November elections, when the voters will decide who sits in three of the five school board seats for the next four years.

  5. It has been a critical time for a long time going back to the decision to build a third high school complex. I understand wanting to look back and why it was made. The decision like so many others were the wrong move. We have had the wrong leader with the wrong board for a long time. When is someone going to tell me we are sorry?

    1. You are welcome to your opinion. But I would point out that when the question was put to the voters, the majority supported the levy to build the third high school.

      Of course, rarely is 'the majority' actually more than half of those eligible to vote. It's just the majority of those who showed up. Many issues in our community, and our nation, are decided by a motivated minority.

      That's the real shame...

    2. It failed twice by a small margin, then passed the third time with a small margin.

      The problem with this system is that the district only needs one YES vote.

      It is maybe time we look at rolling back levies...

    3. That's the way it goes with popular votes these days. (N/2)+1 votes is enough for the victors to carry the day, while the losers complain that the system isn't fair - except when they win.

      I had a chance to speak to the EducateUA folks when they were campaigning against their levy last fall. I cautioned them that defeating a levy (or recalling a levy as you mention) is a crude way to affect the economics of a school district, because restraining funding will certainly cause the school board and administration to react, but not necessarily in the manner expected.

      The right way to go about it, in my opinion, is to have a community dialog about what programs and services we want to offer, and how much we're willing to compensate the teachers and staff to deliver those programs and services - which is arrived at via the collective bargaining process.

      That, along with whatever the State of Ohio decides to contribute toward our funding, will determine how much we have to collect in local taxes. Presumably we would be willing to iterate the model a few times until we get an acceptable balance between programs/services and the local funding required. With that, one would expect any levy necessary to pass - maybe even by an extraordinary margin.

      Such an approach wouldn't be easy or quick, and even with the best of processes, there's virtually no way we'll get 100% agreement in our community.

      Some will want things cut to the bone, and some will want our already extensive offerings expanded even more. Some will want their taxes cut, some will be willing to pay more to get more.

      Democracy isn't pretty. One of your more revered Prime Ministers purportedly said something like "democracy is the worst form of government, except for everything else."

      How true...

    4. Forcing a levy to fail is the only tool left when a school district refuses to have that very conversation...

    5. I admit to having taken that exact position in the past. I'm hoping we won't let it come to that though. I think that the best compromise will be a levy of some size in 2014, but with a reduction in our spending trajectory. It will take a lot of information sharing, analysis and compromise to make this happen. And it will take a fair amount of time as well, so we had better get started.

      I don't think the EducateUA group is getting the outcome they envisioned since they led the charge to defeat their levy, because they didn't have a plan for what they wanted the UA school board to change if the levy was in fact defeated. So now others are deciding.

      It's okay for a school board to work with the community to have Plan A if the levy passes and Plan B if it doesn't. Then instead of the vote being a pass/fail event, it becomes a positive choice between two viable alternatives.

      EducateUA didn't offer a Plan B.

      As a young parent, I used to say that toddlers are the hardest to deal with because they know how to say "NO" but they don't know how to negotiate a compromise. Things become a battle of wills, and someone ends up angry.

      It may be passe, but I still like the philosophy of the 1960s book "I'm OK, You're OK" by Harris. In that vernacular, EducateUA and the school district made it a child-child dialog, with neither side trying to find a compromise.

      Let's see if we can have an adult-adult dialog about this stuff in Hilliard...

  6. Having been critical of the board and Dale McVey one must give credit on what they have accomplished. It is the little things that add up.

    - Our ratings are know around the state.
    - Dale and the board have a desire to provide our children with a good education.
    - We have good teachers!
    - We have a great total community for what we are.

    - The board completed the first and only formal written evaluation of Dale is all his years as out leader.
    - The board approved the learning center without a dollar budget.
    - The school/city relationship is a mess and both are a fault.
    - While Dale is responsible for a great deal of success for our district, at what cost in dollars and relationships?
    - Who takes the credit for the loss of the sale of property?
    - If it is about the children, why do we make resolutions to not allow the dollars to follow the children we base everything on.

    In summary I pray for our new leader. He needs to work out a contract and plan for a levy. Will we give him a chance, I hope. However how does he overcome the failings and lack of being accountable of Dale and past boards.


  7. I'm wondering how close the Rockford development plan will look like the one Mayor Schonhardt presentedto the community back in 2006...

  8. Regarding a previous commenter, I think the ratings are overrated. I count 18 school districts in Central Ohio ALONE with "Excellent" ratings, and ten with "Excellent with Distinction". Come on, is that really believable? How "distinct" are we? Much of the rating is predetermined anyway by the quality of the student coming into the school (i.e. having an intact family supportive of education and discipline.)

    The quality of U.S. secondary education continues to decline but because the decline is country-wide we think we're doing better just because we're declining at a slower rate. As long as there's a monopoly in education we'll have business as usual.

    1. A friend of mine calls it "trophies for everyone," and one has to admit that the current report card system does have some of that. It's going to be interesting too see how folks react to the new state report cards, which will have A-F ratings. The last simulation I saw had no Franklin County district getting an A. That's gonna cause some angst.

      The report cards serve many purposes. One of those is as a political tool. With the State of Ohio continuing to soften the funding to the more affluent districts - which we are considered to be - the cost of funding affluent local school districts is falling more and more on the local taxpayers (while more and more of the state income taxes we pay go to fund other district). One can imagine a conversation going on in Statehouse where the education lobbyists - and there are tons of them representing a myriad of education special interest groups - let the legislators know that if they're going to cut funding, they had better give the local districts some tools to help sell local levies to the voters.

      A high rating on the state report card is one of those. It's hard enough to get a levy passed if a district is rated Excellent or Excellent with Distinction. Can you imagine how hard it would be if a district like ours were rated only Effective?

      Interesting correlation: the less per-student funding a district get from the state, the higher the report card rating:

      Excellent with Distinction: $3,697/student
      Excellent: $4,223/student
      Effective: $5,092/student
      Continuous Improvement: $5,905/student
      Academic Watch: $8,309/student

  9. This deal is once again dead. We've received a letter from Pat Shively saying he couldn't raise the financing, even after we gave him a 30 day extension to do so. Back to the drawing board.