School District Economics - One more time

Each year, the Ohio Department of Education publishes a spreadsheet of enrollment and financial data gathered from every public school district in the state. The latest version has just come out.

I pulled a subset of central Ohio suburban school districts from this spreadsheet to gather comparative numbers. Those districts are: Dublin, Grandview Heights, Hilliard, New Albany, South Western, Upper Arlington, Westerville, Worthington, and Olentangy.

Given the frequency of this conversation in our community, let's get this number on the table right away - the property tax rates (all taken from sample properties within the suburban city limits):

Effective Property Tax Rate:
Hilliard: 97.93 mills
New Albany: 96.07
Westerville: 95.42*
Dublin: 90.74
Worthington: 83.20
South Western: 82.31
Olentangy (Powell): 79.99
Grandview Heights: 77.90*
Upper Arlington: 75.04*

So yes, Hilliard has the highest property tax rates of this set.  But note that in three of these communities - Westerville, Grandview Heights, and Upper Arlington - the local Fire/EMS services are funded from sources other than property taxes.

What about just the school property tax:
Hilliard: $1,942 per $100,000 of market value
New Albany: $1,891
Olentangy: $1,850
Westerville: $1,812**
Dublin: $1,778
Worthington: $1,543**
Upper Arlington: $1,500**
South Western: $1,433**
Grandview Heights: $1,429**

Hilliard tops the list again. In this case, note that five of the six lowest** on this list don't participate in a Joint Vocational School district like Tolles, whose tax collection I've included in the list above.

How about spending?
Grandview Heights: $15,818/student
Upper Arlington: $14,957
Worthington: $12,863
Dublin: $12,620
New Albany: $11,900
Hilliard: $11,338
Westerville: $10,741
South Western: $10,274
Olentangy: $10,102

Whoa -- what's going on here?  Why does Hilliard have the highest property tax rates, while being 6th on this list of spending? How does Grandview Heights and Upper Arlington have the lowest school tax rates, yet spend significantly more per student than the rest of us?

The answer is in this equation:

.......Revenue = Tax Rate x Total Property Value

In particular, the Total Property Value per Student. Here's how that list stacks up:

Upper Arlington: $297,696
Grandview Heights: $284,657
Dublin: $204,201
New Albany: $192,329
Worthington: $187,984
Olentangy: $182,277
Hilliard: $154,930
Westerville: $154,829
South Western: $103,924

On this list, we're near the bottom. And that's not good. What should we do?

From the spending side of the equation, the operating costs of a school district are 85% compensation and benefits. That's what we should expect - our "product" is delivered by teachers and staff in the classroom. Our cost is a function of how many folks we employ and how much we pay them.

Here's the average classroom teacher salaries:
Upper Arlington: $78,954  (66%)
Hilliard: $73,858 (68%)
Grandview Heights: $73,128 (57%)
New Albany: $72,477 (73%)
Dublin: $72,088 (46%)
Worthington: $71,183 (54%)
Olentangy: $65,959 (52%)
Westerville: $63,422 (38%)
South Western: $62,229 (53%)

Again, we're near the top of the list. But it's not because our teacher pay scale is higher than the others. Every district has a pay scale which increases compensation based on years of service and degree obtained. While each is unique as a result of years of negotiations with the individual teachers' unions, all fall within a small range of each other.

The difference in average salary from district to district is mostly because of the seniority of the teachers. Fast-growing districts like Olentangy hire large batches of new, young teachers each year, bringing down their average. That was Hilliard 15-20 years ago.

Districts with stable or declining enrollment tend to have higher average salaries, as their teachers move up on the seniority steps and few new teachers are being hired. That's the case for UA and Grandview. The number in parentheses in the average salary list is the percentage of their faculty with 10+ years of experience. Note the strong correlation between average salary and this number.

And when districts have a big spurt of hiring, there tends to be a "bulge" in the pay distribution, with a cadre of teachers moving up and up until they retire and are replaced with a batch of new teachers. We saw a little of that a few years ago when changes to the State Teacher Retirement System (STRS) rules gave many of our more senior teachers reason to retire then rather than wait.

Those STRS rule changes will also cause current teachers to stay on the job longer, which will in turn cause the average tenure of teachers to increase across the state. In our case, many are in that "bulge" of teachers we recruited 15-20 years ago.

On the revenue side, it's back to that Assessed Valuation per Student.  We need to drive that number higher as fast as we can.

One way is to increase the average value of a parcel. If all that's getting built in our community is apartments, condos and houses, then they need to be priced pretty high - on the order of $350,000 for a single family home, because those housing units also bring more students.

Apartment developments that attract families with kids aren't helpful as they drive down the Assessed Value per Student, essentially causing the rest of us to subsidize that housing with our higher property taxes.

The better solution is to recruit much more commercial development to our community, and restrict new residential development until that happens. We certainly shouldn't be annexing more land to build more houses.

And that new commercial development has to generate property tax revenue for the school district and the township, not just income tax revenue for the City.

TIFs and abatements which redirect school and township property tax millage to the City are not helpful. This is the reason many of us fought so hard for Issue 9 - which prohibits the use of TIFs on residential development. It doesn't prohibit residential development, but requires that all the school tax generated by a new development actually goes to the school district.

I look forward to your comments and questions.

Supplemental Materials for the January 13, 2014 School Board Meeting

Here are the supplemental materials provided in preparation for the regular meeting of the School Board, to be held Monday January 13, 2014 at 7pm at Ridgewood Elementary School. Note that this meeting will be preceded at 6:45pm by our annual organization meeting, during which officers will be elected, committee assignments made, and various annual resolution passed. Andy, Lisa and I will be sworn in for the new term.

Item C3 is the acceptance of the Treasurer's Monthly Report for November.

Item F1 is a resolution to authorize the President and Treasurer to sign a contract for the sale of 100 acres of the parcel on Cosgray. The buyer is Help All Kid's Play, Inc. (HAKP), and the price is $3.5 million, or $35,000/acre. These are the folks who want to build soccer fields there, and are who we hoped to sell the property to in the first place. Unfortunately, the first time around, they wanted the school district to provide the financing, and we could not accept their offer on that basis. This is a simple cash offer.

We've decided to retain title to 24 acres of this parcel just in case it makes sense to build a school there at some point in the future. In the meantime, it will be leased to HAKP for use as part of their athletic facility. This is an annual lease with automatic renewal unless either party gives 90 days notice.

The agreement includes a rider which states: "No portion of the Property shall be sold, leased, licensed, authorized or otherwise used for residential or multi-family housing or any related uses (the “Use Restriction”). The Use Restriction shall run with the land. No residential or multi-family housing building or structure shall be erected or constructed on the Property."   Besides the obvious desire to limit new residential development, this also keeps the buyer from just "flipping" the property to a developer at a tidy profit. We accepted a price lower than the $40,000/acre that Rockford Homes thought it was worth only because HAKP agreed to this condition.

A new set of Policy updates are getting their first reading. I've not reviewed them yet, but will be doing so before the next Board meeting. I encourage you to read these as well, and let one of us know if you have any feedback.

Synthesis

In the course of seven years, I've published 438 articles to this blog. That's a little more than one per week, which has been my goal, believing that I should publish often enough to keep folks interested, but not so much to become just white noise.

I'm not sure there's that much more for me to say - at least not on the fundamental stuff:

• The cost of running our school district is, and will always be, a function of the number of folks we employ and how much we pay them. I believe that the time has come when we must have an earnest conversation about whether we can continue to afford the expansive programming we offer, especially at the high school level, in both the academic and extracurricular dimensions.
  
  The regular appearance on the ballot of the property tax levies necessary to fund the rising cost of this level of programming will meet increasing resistance from voters, and our high tax rate will jeopardize our property values. But cutting our programming to the bone and becoming a less-desirable school district will hurt our property values as well. We'll have to make our choices very carefully, and with a lot of dialog.
  
  And it can't be done successfully with the abysmal community engagement we saw in the November election, with only 13% turnout.  Of the 56,488 registered voters in the Hilliard City School District, only 7,348 bothered to show up. That's fewer than half the number of students we have enrolled in the district - for an election in which three of the five School Board members would be determined. There's probably more folks at one of our intra-district football games.
  
  Granted, we, the leaders of our school district, should do a better job of creating opportunities for you to be engaged in these necessary conversations. I hope we take on that challenge in the coming year.
  
• Our revenue will always be a mixture of local property taxes and funding from the State of Ohio. As long as our state and national politics remain so polarized, the state funding component will continue to be volatile. That means we need to keep a reasonable cash reserve on hand to give us time to make good decisions when state funding drops, rather than having to react to an immediate fiscal crisis.
  
  And until our local city leaders - Hilliard, Columbus and Dublin - decide that it's more important to protect the current residents of our community than it is to provide profit opportunities to residential real estate developers, we need to understand that when a new housing development goes up, the rest of us are likely going to end up subsidizing the cost of educating the kids who will come with it.
  
  By the way, I say that with the understanding that it may well be thought to be hypocritical for the School Board to enter into an agreement to sell 100+ acres to a home developer. This is a unique and unfortunate situation, and I've explained how I came to support this decision. Since the deal fell through because of the unexpected demands put on the developer by the City of Hilliard, we have one more chance to explore options. Who knows?
  
  Regardless, the general economic health of our public institutions - both the School District and municipalities - depends on bringing in businesses at a rate comparable to residential development. Or rather, the rate of residential development should be managed so as not to exceed the rate of new commercial development. It can be done as simply as refusing new annexation requests for residential development until a good more commercial development takes place.
  
  An expanding school district doesn't count as commercial development, even though Hilliard City Schools is the largest employer in the City of Hilliard. The income taxes paid by the teachers and staff of the School District may help fund the City of Hilliard, but that money starts out as property taxes paid by the residents and businesses already here in our community. What we need are more employers who get their revenue from outside the school district, like BMW Financial and Verizon.

I'm sure that every once in a while, some issue will come up which merits some explanation, analysis or comment, but otherwise I'll not be trying to keep to a one-article-per-week pace going forward. I also hope that soon all the supplemental materials for our School Board meetings will be provided directly on the district website, along with the meeting agenda.

Meanwhile, if you have a question or issue you want me to address, please send an email, and I'll be happy to do so.

The Math of Development

The very first article I posted to this blog, in December 2006, was about the impact of ongoing residential development on our school district. The crash of the housing market in 2007 - and its impact on our economy - has made this fall from the top issue in our community, but the threat has been smoldering all the while.

With the first glimpses of recovery, the developers and home builders are again eyeing our community as a good place to make a profit. And they have little concern about whether their profit opportunities are simultaneously beneficial to our community. Nor should we expect them to be concerned. They're in business to make money, and they do that by buying up farmland, building new homes, and selling them to folks who want to live in our community.

It's the officials we elect to public office who have the responsibility to represent our interests versus those of the developers. In particular it is the duty of the Mayors and City Council members who govern our cities. In our case, that means Hilliard, Columbus and Dublin. They must weigh the one-time profit desires of a developer against the long-term health of the community.

The challenge is that our community is made up of several overlapping governments, or "political subdivisions" to use the language of the Ohio Revised Code. I used this diagram back in March for the story titled "Patchwork Community" to help explain the relationships:

click to enlarge

While this chart tries to show how the jurisdictions of these various entities overlap, it doesn't say anything about the flow of money, and as some wise person said a long time ago, if you want to really understand things, follow the money. Maybe this diagram will help:

click to enlarge

I've left out a few relationships to simplify the diagram (e.g. the City of Dublin), but the main themes are captured:

• The school district is mostly funded by local property taxes, paid by both the home owners and the business owners within the boundaries of the school district. In other words, the school district is funded by the people who own property in the school district. If you live in the school district, you pay property taxes to the school district.
• The cities are funded by income taxes paid by the employees of businesses and other entities (like the school district), within the boundaries of the school district. If you work in a city, you pay income taxes to the city.
• Each city provides certain services - such as police protection, water/sewer, street maintenance, trash collection - to the entities within their municipal boundaries, including home owners, businesses, and the school districts.
• The school district provides educational services to all children whose legal residences are within the school district boundary.

When a new home is built within in a city - Hilliard for example:

• Hilliard City Schools will collect property taxes from the owner of that home, and will provide education services to any school age children living there. The amount of property taxes collected may or may not be sufficient to fund the cost of educating the kids who live in the new house, depending on how many kids live there, and the value of the house. By my calculations, a home must be valued in excess of $250,000* in order to fund the local cost of educating the 0.8 school age kids who will come with a new home, on average.
• The City of Hilliard will provide to the home owner police protection, water/sewer service, street maintenance, trash collection, etc, but will collect revenue from the home owner for only some of those services (water/sewer, trash). The home owner will pay little to offset the cost of police protection, street maintenance, and for park operations.

When a new business is built within a city:

• Hilliard City Schools will collect property taxes from the owner of that business, but will be providing the business no services. Therefore, the property tax revenue collected from businesses reduces the amount of property taxes needed from home owners.
• The City of Hilliard will collect income taxes from the employees of the business, and will provide police protection, water/sewer service, street maintenance, and so on. Additionally, this revenue will fund the cost of providing these city services to home owners as well.

So the story is the same for both the school district and the city:

The more businesses that there are in relation to homes, the less the home owners will need to pay in taxes to run both the school district and the city. 

Conversely, the more residences which are built in the city, the higher the cost of providing services, both via the schools and the municipal government.

But how do we go about recruiting new businesses to the area?

Some businesses, such as retailers, don't have to be recruited. They naturally want to have storefronts where there are consumers. As more homes are built, more supermarkets, gas stations and pizza shops will follow. We're glad to have these new businesses in our community, but only a few of them will generate significant tax revenue for the schools or the municipality.

Big manufacturing operations are great for the economy, but not always welcomed if they bring with them significant environmental concerns. The extreme example would be a nuclear power plant. I'm a big fan of nuclear power, and believe that as long as our country has an insatiable appetite for electrical power (e.g. for our new electric cars), we're going to need nuclear power to provide a significant portion of the base load.

Nuclear power plants also produce an incredible amount of tax revenue for their host communities. A former superintendent of Perry Local Schools up on Lake Erie once told us about the enormous amount of money that flowed into their school district in an otherwise low-income community because of the taxes paid by the Perry Nuclear Power Station. They built a beautiful new $100+ million central school campus without the need of a local levy, just using the revenue from the nuclear plant. I think nuclear power plants are cool, and can be made very safe. Nonetheless, I don't think I'd want to see one built on Darby Creek.

Some manufacturing operations can be great neighbors, and we're blessed to have one in Boeringer Ingelheim Roxanne Labs.

So what is the ideal kind of commercial development?

I think Dublin has gotten this right for a lot of years: it's professional office space. Take a look at the Franz Rd corridor - large office buildings all around. Dublin is a place a where affluent people want to both live and work. I won't claim that the economic structure of Dublin is the perfect model - they still have the challenges of residential development outpacing their commercial development, but at least they have high-value residential real estate and a healthy amount of the right kind of commercial development to help.

I know that Mayor Schonhardt and the City Council would like Hilliard to become much like Dublin in this regard, and I applaud this vision. The redevelopment of the former Dana Manufacturing site is a good move in that direction, with a mixture of retail, residential, and professional office space.

But meanwhile, we have the huge Heritage Preserve development underway on Alton-Darby Rd. This sits on 400 acres of land newly annexed into the City of Hilliard. On it, the Planned Development company will build 687 dwellings consisting of 387 single-family homes and 300 apartments.

There was no compelling public need for the City of Hilliard to annex this land. Had they chosen to not annex this land, no one would have been harmed except the developer, Dan O'Brien. I'm not insensitive to the economic motivations of Mr. O'Brien. He was gracious to sit with us on the committee to rewrite the Brown Township Comprehensive Plan, even though he was uncomfortable doing so - knowing the objective of the Plan was to restrict his options. I'm also a commercial real estate investor, and know how hard the market has been for the better part of a decade. It's quite painful to have a big hunk of money tied up in a piece of real estate that's generating no revenue.

But it's not the City of Hilliard's job to protect the interests of Mr. O'Brien or any other real estate developer. They're supposed to protect our interests - those of the residents and businesses already in the community. And right now, I believe that means holding off on the annexation of any additional land for residential development. Let's get more of the commercial tracts along I-270 developed with professional office space first.

And if we need to use TIFs to make that happen, I can support that. Let's not leave money on the table if we don't have to, but I'd rather waive some or all of the property taxes for a few years and set up a future revenue stream than have no revenue stream at all.

But let's not use TIFs to facilitate residential development, as the City of Hilliard chose to use for the apartment complex on the corner of Alton-Darby and Roberts Rds.

* If the State of Ohio continues to provide incremental funding with incremental growth, the local share of the cost of funding the education of 0.8 kids is equal to the property taxes generated by a $250,000 home. As the amount of state funding decreases, as it did in recent years, the amount of money we must generate locally increases, which also raises the value of the home required to fund the cost of 0.8 kids.

Attracting a Data Center to Hilliard

A story was recently in This Week Hilliard about a parcel of land being declared a "qualified data center site."  This was of particular interest to me as my last assignment before retirement was to lead the web hosting business for MCI Worldcom, which included the construction and operation of very large data centers around the world. It was a return to my roots, as I spent many years in data center and network operations for CompuServe.

I believe the land referred to in this article is a parcel owned by the family of former State Representative Larry Wolpert, which is located just north of Davidson Rd, at the place where Trueman Blvd ends. I expect that the reason this Wolpert parcel could so easily be declared a qualified data center site is that CompuServe put in all the legwork in the 1990s to build our large campus and data center on Britton Rd. We required redundant power sources (from more than one substation) and substantial data communications capability, leading both AEP and AT&T to install lots of capacity to the Davidson/Britton area.

Since much of my attention these days is focused on our school district and the community economics related to the schools, one must ask the question - is it a good thing to attract a data center operator to this site?

Let's examine the former CompuServe property, now owned and operated by Verizon. The County Auditor's tax page for this parcel shows that it is valued at $37 million, and generates $1.26 million of property taxes, of which $834,249 is paid each year to the schools.  That's the equivalent of the taxes paid on 185 homes valued at $200,000 each - a whole subdivision. And no kids to educate. Revenue, but no expense (at least for the schools). All good.

That makes it sound like having a new large data center in Hilliard could be a gold mine. Currently the Wolpert parcel is a farm field, and because of a state program called Constant Agricultural Use Valuation (CAUV), this 47 acre parcel is valued at only $63,920, and generates annual school property taxes of just $1,157, or $25 per acre.

I have no problem with giving farmers a break on their property taxes, but let's recognize that CAUV distorts the school funding algorithm, which is the reason many agricultural school districts are deemed to be "poor." Our state income tax dollars flow from us to become state school funding to agricultural districts because of the artificially low valuation of farmland.

In other words, our combined property and state income taxes pay fully for the cost of running our own Hilliard Schools, and also subsidize the cost of running the schools in the rural districts. CAUV is a farm subsidy program funded by redirecting state taxes from suburban school districts to agricultural districts.

Back to a new data center in Hilliard...

A data center won't likely be valued at the kind of money the Verizon campus is. CompuServe built this campus primarily to house professional staff, and so it has lots of expensive office space, which isn't needed for a standalone data center. Most of the money spent on a data center is for the electrical systems, including large backup generators, and the air conditioning. Once they're filled with computers, they consume vast amount of electricity and generate incredible amounts of heat. That's the reason folks like Google and Microsoft have built some of their most massive data centers near hydroelectric dams on the Columbia River in the Pacific Northwest, such as the Google Complex at The Dalles, OR.

Very large data centers can be staffed by very few people, meaning not much income tax revenue for the city. The Google complex I mentioned houses hundreds of thousands of computer servers, but according to the Google website needs only 80 people on the local staff (most of whom seemed to be windsurfing on the Columbia River when I was last out there). I think the City of Hilliard might be underwhelmed by the amount of payroll tax generated by such a facility.

How about the school district?  I don't know anything about Oregon property tax laws, or what kind of deal Google might have struck with the local governments. Google says they invested $600 million in the facility, and I'm sure much of it was for the computers/servers and network equipment. If that facility were built in Ohio, there would be no school tax at all generated by all that stuff, because Personal Property Taxes (PPT) - the tax levied on capital equipment and inventory - has been eliminated in Ohio.

By the way, I favor the elimination of PPT as a tool to attract industrial development back to Ohio, but it pulled the rug out from under many school districts, including ours. The consequence is to have transferred more of the burden of funding local schools from the industrial concerns to the homeowners and other businesses - another reason our local school taxes have climbed over the years.

So if this $600 million facility of Google's had been built in Hilliard, the City of Hilliard would get the income taxes from 80 jobs, and Hilliard City Schools would get property tax revenue on the land, the shell of the building, and probably the power/cooling equipment. It would be a nice chunk of change to be sure, but most of the $600 million would not be subject to taxation.

The point is that data centers might sound like a glamorous kind of thing to have in a community, but in reality they don't generate anywhere near the amount of tax revenue as does a professional office building.

Dublin has this figured out. Drive up Franz Rd sometime, and see what kind of commercial developments they've attracted: lots of office buildings with thousands of professional workers. Not only does that kind of development generate a good chunk of income tax revenue for the City of Dublin and property tax revenue for Dublin Schools, those workers spend a lots of money in nearby restaurants and other retail establishments, who in turn pay more income and property taxes.

Don't get me wrong - I absolutely applaud the efforts of the City of Hilliard leaders to attract more commercial development to our district. But not all commercial development is created equal. With the end of Personal Property Taxes, industrial operations - which is what a data center really is - don't generate all that much income for either the City or the schools. Big box retailers aren't all that helpful either as they employ lots of people, but the average paycheck isn't typically that much. Nor is there any tax generated by their inventory on hand - also eliminated with PPT.

By far, the best kind of development is professional office space, which we now see going up as part of the Continental development on the former Dana site at Cemetery and Britton Pkwy.

More of that please.

One Person - One Dot

I'm a map lover. I'm not sure why exactly, but maps fascinate me.  Google Earth is the coolest app ever, in my opinion.

There are many kinds of maps, of course. Some show roads, and I still have a bunch of road maps in our car even though we use a GPS device almost exclusively these days. Others maps show terrain features, like the topographic maps available online from the US Geological Survey. On my motorcycle I have a map of Ohio that is overlaid with all the major railroad routes, because I'm also a railfan. Bet you didn't know the State of Ohio publishes such a map.

Dustin Cable of the University of Virginia recently published a map of the US that shows one dot for every person recorded in the 2010 Census. That's a lot of dots - around 300 million. Each dot is coded with a color depicting the race of the individual - Whites in blue, Blacks in green, Asians in red, Hispanics in orange, and all others in brown. It comes out looking like this:

click to enlarge

I expected this map to be shaded mostly with the grey-brown hue that Play-Doh turns into when you inevitably squish all the colors into one lump, but on this map the primary colors are still distinguishable. It's hard to miss the swath of green across the coastal South, indicating that a significant majority of the population there is African-American. Or the shift to orange, red and brown in the Southwest where Native American and Hispanic populations are prominent.

One also notices the high density in the eastern half of the country, and very low numbers of folks in the western half. Having ridden across the continent a couple of times on my Harley, I have experienced these wide open spaces firsthand. It's a beautiful thing.

So what happens when you zoom in a little closer?  Here's Ohio. 

Click to Enlarge

It's easy to pick out the big cities because of the density of dots. But also notice that each city seems to have a blue section and a green section. Let's zoom in more:

Click to Enlarge

Here's central Ohio. The red line is I-71, which seems to have become a dividing wall between the White and Black community. There are those who say that I-71 was built where it was and how it was - on top of an man-made embankment - for exactly that purpose.

How about our community?

Click to Enlarge

The blue-green line represents the approximate boundary of our school district (sorry West Point!). The yellow lines are Hilliard-Rome/Main St/Avery Rd and Roberts, purple is Cemetery Rd, and Green is Alton Darby Rd.

Perhaps the most obvious thing is that nearly all our people live in the eastern half of the school district. I suspect that a lot of people don't know that the school district stretches all the way to Darby Creek, and that Alton-Darby Rd is the midline of the district, not the western frontier. There is nearly as much land left to develop in our school district as there is land that has already been developed. This is why we need to continue to pay attention to the development policies of the leaders of the cities that fall within our district: Hilliard, Columbus and Dublin.  

Because of the stranglehold Columbus has on the regional water/sewer system, as well as the terms of the Win-Win Agreement, the way in which most of that western half develops will be controlled by the City of Columbus, and we have very little political power in that dialog. The big question mark is what will become of the Big Darby Accord - an entity whose creation was driven by the City of Columbus and joined by all the municipalities and townships that make up the Big Darby watershed in Franklin County.

What about the racial distribution in our community?  There seems to be a couple of neighborhoods with non-White concentrations?  Is something going on here?

Here is the map of Greater New York City, with Manhattan at the center:

Click to Enlarge

The clustering of racial groups in that area is striking. But is it a matter of segregation or choice?  Historically, it was the former of course, but today it's mostly a matter of choice. New York remains a city of immigrants. I still chuckle thinking of a billboard I once saw on the FDR expressway on the way to LaGuardia Airport which read: "Come to Hong Kong, where ALL the cab drivers speak English!"  But one of the cool things about going to NYC is that one can get a taste of many cultures just by riding the subway a few stops and emerging to a different neighborhood.

It's true all over the world that immigrant groups often cluster together, mostly to enjoy the company and comfort of people from a familiar culture and language. There are communities of American ex-pats all over the world. We do it too.

So I'm not especially alarmed that we have some racial clustering going on in our community. Central Ohio is also a magnet for immigrants, perhaps not on the scale of New York, Miami, LA or Seattle, but still we are a place where immigrants come, and always have been. And when they first arrive, many will seek the familiarity of neighbors from their homeland, just as did the waves of immigrants over a hundred years ago. It's usually the second and third generations that assimilate into the new country, largely because they end up in public schools, the real melting pot of American society.

There was a time when racial segregation was explicit, but thankfully those days are over. We still have challenges with economic segregation, here and everywhere in America, and we perpetuate this largely through our public school district boundaries. It may at some point call into question whether our way of organizing public schools is still good for America.

I'm glad our three high schools have similar demographics - this is not the case with all school districts in our area (the strips below are extracted from the 2011-2012 State Report Cards). 

BRADLEY - click to enlarge

DARBY - click to enlarge

DAVIDSON - click to enlarge

I hope our community remains one that enjoys cultural diversity, because that too is a learning experience for our kids - something that will serve them well as our world continues to shrink.

Cancellation of the Grener Deal

After discussions with the City of Hilliard, the management of Rockford Homes has decided that this land development opportunity no longer makes economic sense, and has therefore chosen to terminate the deal, as is its prerogative. 

To my knowledge, there is no one else interested in purchasing the property at this time.

More on the Grener Sale

This Week Hilliard has just published online an additional story about the sale of the Grener property. Some points need to be corrected in my opinion:

• "Patrick Shivley, a Columbus developer who is founder and managing director of Help All Kids Play, said he presented his proposal to Hilliard board members during a closed executive session July 5, 2012."
  
  There was no 'closed executive session' on July 5, 2012. The Board did hold an executive session at the end of the regular Board meeting held on July 9, 2012 to discuss the sale of property, as recorded in the official minutes. I was present for this session.
  
  However, I have never met Mr. Shivley.
  
• The headline "Hilliard board received higher offer for 124 acres" fails to consider the time-value-of-money. Paying the Board $50,000/acre over 30 years is not the same thing as getting $50,000/acre - $6.2 million - in cash at closing.
  
  Assuming 30 annual payments of $206,667 ($6.2 million divided by 30) and an interest rate of 2.83% (this week's yield on the 30 year Treasury Bill) the Present Value is $4,141,240.
  
  In other words, on a Present Value basis, this offer is more like $33,400/acre, substantially less than the Rockford offer.
  
  For the Shively offer to have the equivalent Present Value as the Rockford offer - which netted to $38,800/acre after the 3% brokerage fee - the Shively offer would need to have been to pay $240,000 per year for 30 years, totaling $7.2 million or $58,089/acre.

You are welcome to examine my calculations.

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.

Patchwork Community

As we help Dr. Marschhausen prepare to join the Hilliard Schools team, it occurs to me that there are some pretty obscure yet highly-impactful political and economic arrangements which we need to help him understand. I don't think any other region in Ohio is quite like ours in this regard.

I've been writing about many of these political forces for years, and have always struggled with trying to condense all the information to an 'elevator pitch' (ie - what do you say when you find yourself alone in an elevator for 30 seconds with someone who can have a big impact on your life?). Dr. Marschhauser has many things to absorb about our school district and community, and we owe it to him to make the process as concise as possible.

I'm one of those who grasps information more quickly from images than I do words. So why not try to describe these relationships in an image?  Here goes:

click to enlarge

In words, it would go like this:

• All of the City of Hilliard is in the Hilliard City School District, but not all of the Hilliard City School District is in the City of Hilliard
• Parts of the City of Columbus and Other Suburbs and Townships are in the Hilliard City School District
• Parts of the City of Columbus and Other Suburbs and Townships are in the Columbus City School district
• Parts of the City of Columbus and Other Suburbs and Townships are in Other School Districts
• The Big Darby Accord encompasses an area which is part of Hilliard City Schools, part of the City of Hilliard, part of Other School Districts (South Western), and all or part of several Other Suburbs and Townships
• Other Suburbs and Townships are served by Other School Districts

While the key contractual relationships are:

• The Water/Sewer Services agreements with the City of Columbus, which control which Township parcels a Suburb can annex and be provided water/sewer services. The City of Columbus has long used their control of the regional water/sewer system to limit how the suburbs expand, and to preserve "annexation corridors" between the suburbs.
• The Win-Win Agreement with the Columbus City Schools, which controls how school district assignments are made following an annexation. Although the Win-Win Agreement is between Columbus City Schools and most - but not all - of the suburban school district, this agreement was in reality forged to put an end to the battle between Columbus City Schools, which was trying to preserve its student population and revenue sources, and the developers who were trying to profit from the "White Flight" generated by the busing program ordered by the Federal court to eliminate racial discrimination in Columbus City Schools.

The connection between those two agreements are:

• When a parcel currently in a suburban school district is annexed into a suburb, which can happen only if the water/sewer agreement allows it, that parcel will continue to be served by the suburban school district.
• When a parcel currently in a suburban school district is annexed into the City of Columbus, it will be transferred to Columbus City Schools.

So where does the Big Darby Accord fit into this?

In my opinion, the most significant element of the Big Darby Accord is a radical policy change on the part of the City of Columbus - that it will allow water/sewer services to be extended into unincorporated townships, ending their ironclad policy of providing water/sewer service only to parcels annexed into a city.

This opens the tens of thousands of acres of undeveloped farmland along the Big Darby Creek to residential development, and will allow it to stay in the two suburban school districts - Hilliard City Schools and South Western City Schools - exactly what the developers want.

We haven't had to deal with the economic effects of rapid residential growth for about a decade. The primary effect is that new houses don't generate enough new property tax revenue to fund the cost of the additional kids they'll bring to the school district. 

For example, it is my estimate (ie - not an official estimate by the Treasurer), that the new Hilliard Preserve development just approved by the Hilliard City Council will create the need for the rest of us to allocate at least 1 mill of property taxes to subsidize the cost of the new students coming from that development.

That means either voting to tax ourselves additional millage, or reduce spending on other programs and services.

Remember, the School District doesn't control development policy - the cities do. I've never understood why they're so eager to annex land to enable more houses to be built when it's not a beneficial thing for either entity. Who is reaping the benefits, other than the developers?

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?

Faceoff

It's been a while since I've written anything in depth about residential development in our community, mostly because there hasn't been much of that for a while. But we're starting to see the developers test the waters, and I'm encouraged that it may mean that the economy - the local economy at least - may be starting to recover.

One real estate trend that's emerging is the interest young families have in nice apartments in great school districts. It makes sense. Even with mortgage interest rates at an all-time low, there's more the potential buyer of a new home has to think about: Have home prices have pretty much bottomed out; is your income secure enough to take on the mortgage payments; do you feel confident that the local school district is in good shape, and will stay that way at least until you decide to sell your house?

If you can't check off all those requirements, it can make a lot of sense to rent a nice apartment for a while. We've seen two such apartment developments in the last year, both by Schottenstein: Hilliard Grand, near the intersection of Hayden Run Rd and Wilcox Rd, and Hilliard Summit, at the corner of Roberts Rd and Alton-Darby Rd. The target market for these apartments includes young families, and they make sure to point out in their advertising that these apartments are in the Hilliard City school district.

Planned Development, the outfit which developed Heritage Lakes, has been working on a project to develop another 400 acres they own on the west side of Alton Darby Rd, just south of Davis Rd. This is significant not only because it is the first sizable single-home development in our community proposed in quite a while, it is also the first one in our school district that is within the boundaries of the Big Darby Accord.

First a little history...

The City of Columbus and the Regional Water/Sewer System

When the construction of a regional water/sewer system was being contemplated many decades ago, it was decided that the City of Columbus would be given exclusive control of the system. This power was subsequently used by every Columbus mayor starting with Jim Rhodes to significantly influence the pattern of development in Central Ohio.

A key component of their strategy was to execute water/sewer services contracts with the suburbs that gave the suburbs the ability to expand, yet preserve 'annexation corridors' between the suburbs which would allow the City of Columbus to continue to grow.

And the City of Columbus made it their policy that they would not extend water/sewer services to any parcel of land which had not been annexed into the City of Columbus or into a suburb, and then only into areas within the suburb's water/sewer expansion areas, as defined in the contract.

School Districts and their Boundaries

School district boundaries are set by the State Board of Education, and for many years it was the policy of the State BoE to move school district boundaries with municipal annexations. As the City of Columbus grew, so did the Columbus City School District. The names can create some confusion, but a school district is a wholly separate political entity from a city, and they don't necessarily share the same borders. But for many years, it was a common practice to keep them aligned.

Then came the 1977 decision by the Federal court in Penick vs. Columbus Board of Education, which declared Columbus schools to be illegally segregated, and ordered the implementation of a busing program to correct it. It turned out to be a disaster.

Rather than leading to better racial integration in Columbus Schools, this decision started a stampede to the suburban school districts - the so-called "White Flight."  Hilliard was one of the destinations. The demand for suburban homes exploded, as did the population of our school district. Meanwhile, the result of the busing order was to make Columbus City Schools less integrated and poorer.

Remember the water contracts?  In many cases, the parcels of land in suburban school districts which were most ready to be developed at the beginning of this migration were those right at the edge of the then-current Columbus City limits, where the water/sewer infrastructure ended. But they were often outside the suburban city's water/sewer service territory. So to keep with Columbus' policy of no-water-without-annexation, these parcels were annexed into the City of Columbus, but remained in the suburban school district. Win for the developers, and win for the homebuyers.

The members of the Columbus School Board were understandably alarmed at this phenomenon. So they petitioned the State School Board to realign the school district boundary with the city boundary, and made some pretty good arguments as to why the State Board should grant their petition, including the fact that Columbus school buildings were emptying out (e.g. Central High School, now COSI) while the taxpayers were being simultaneously burdened with building new suburban schools.

The effect was to immediately dry up the demand for new houses in the suburbs. Those wanting to escape the busing program in Columbus Schools were understandably fearful that they could spend a lot of money on a new house in a suburban school district, and then get shifted back into Columbus Schools anyway.

The developers were outraged with this interference with their booming market. They have great political power in central Ohio - always have. Something had to be worked out, and after a few years of arguing and negotiating, the so-called Win-Win Agreement was finally signed between Columbus City Schools and many, but not all, of the central Ohio suburban school districts. Hilliard City Schools was one of them.

The Win-Win Agreement said, in a nutshell: a) existing homes in the City of Columbus, but a suburban school district would get to remain in the suburban school district; b) any undeveloped land in a suburban school district which is covered by the water/sewer agreement with the suburb would be allowed to stay in the suburban school district as well; but, c) any undeveloped land which is subsequently annexed into the City of Hilliard Columbus would automatically shift to Columbus City Schools.

There are a few developments in our area which fell under that last clause, notably the large parcel north of Hayden Run Rd, between Cosgray Rd and Avery Rd. That land is outside the water/sewer agreement with the City of Hilliard, and so was annexed into Columbus. Simultaneously it ceased being part of Hilliard City Schools, and became part of Columbus City Schools.

A Radical Change: The Big Darby Accord

Then around 2005, the City of Columbus had a dramatic change in policy. They said they were no longer interested in aggressively pushing out their boundaries, mostly because they said it was no longer economically viable for the City to extend police, fire, street maintenance, etc farther and farther out. In particular, they said they would be willing to extend water/sewer services into the townships of the western part of Franklin County, as long as development was done in a manner that preserved the unique ecosystem of the Big Darby watershed.

Whether the City of Columbus is really interested in conservation, or they have another political agenda, we don't know. But this policy drove the development of the Big Darby Accord.

The Big Darby Accord was intended to be a legally binding agreement between the ten jurisdictions which had responsibility for the western part of the county: Columbus, Hilliard, Grove City, Harrisburg, Brown Twp, Norwich Twp, Washington Twp, Pleasant Twp, Prairie Twp, and Franklin County. The agreement would specify not only land use restrictions and development requirements, but would set up a method for making the control of development density economically viable, using what are called Transfer of Development Rights (TDRs).

The idea is that if the overall density of development for the Big Darby Accord area is set to one dwelling for every five acres (which is the current rural residential zoning in Franklin County), and there are 50,000 acres in the Accord territory, then a total of 250,000 dwellings would be the limit. But some parcels of ground could support much higher density, and some much less - and there are some which should be left undeveloped forever.

It's not fair to tell a landowner that suddenly the rules have changed, and that their land can no longer be developed just because there is a wetlands on it, when in years past it has been okay to just fill in those wetlands and build like crazy. A great number of us live on land where exactly that happened.

So the idea of TDRs is that folks who have land which is ecologically acceptable for higher densities - like the 2-4 homes/acre we see in most developments - would have to buy 'development rights' from some other landowner, who in the process would be giving up their development rights. If 100 acres comes with the right to build 20 homes (5 acres/home), then to get the right to build 200 homes, the landowner would have to buy the development rights of another 100 acres. The buyer gets the right to build his 200 homes on 100 acres, but the seller can never develop his land thereafter.

However, the City of Hilliard never really bought into this concept. They said they were on board with the Big Darby Accord, but refused to yield 'home rule' of the land within their water/sewer service territory. I think the issue was that the developers who owned large parcels of land in the Hilliard water/sewer service area were distrustful of the whole TDR concept, and motivated the Mayor to fight against it.

Mayor Schonhardt has seemingly won that battle on behalf of the developers, and the Big Darby Accord never became a binding contract which would control development for the Big Darby Watershed. The Big Darby Accord Advisory Panel became just what its name implies - a body which can advise the City of Hilliard on development applications, but has no power to enforce its recommendations.

... and now Back to Today

This week, the Big Darby Accord Advisory Panel held a hearing on the first big application for development in the Hilliard part of the Big Darby Accord territory, the one called Heritage Preserve.

The application was prepared by John Talentino, the City Planner for the City of Hilliard, and was presented by him to the Advisory Panel. I take this to mean that the City has tacitly approved this plan. Next was a presentation by a representative of the developer.

The primary concern of the Advisory Panel was the development density. Every land use plan that covers that parcel of ground specifies a density of 1 dwelling unit per acre with 50% open space. This means a total of 418 dwellings could be built, but that they would have to be sited on 209 acres or less, leaving at least 209 acres as open space. This open space could be a golf course, a horse pasture, wetlands, woods, etc. The basic plan proposed by the developer is within these parameters, with 387 single family homes.

But there is a problem. The developer proposes 300 apartments be built on the site as well, for a total of 687 dwelling units, or a density of 1.68 dwelling units per acre - way above the density limits.

Why?

Simple - for aesthetic reasons, the City of Hilliard wants the developer to incorporate certain expensive features in the plan, such as an entry street bordering a wooded area along which no homes would be allowed, which will also serve to connect Davis Rd to Scioto-Darby Rd. They also want to realign Alton-Darby Rd so that it can serve as a southern entrance into the development. For these things to be economically feasible to the developer, they need to be able to sell more units, and since apartments are in demand these days, they likely already have someone in the wings ready to buy and operate the apartment buildings when the project is complete.

Advisory Panel Chairman Joe Martin, a respected long time member of our community, and a leader in the land use planning effort for Brown Township, wisely and appropriately cautioned his fellow panel members to recognize that this is not an isolated application, but rather one that will set a precedent for all future applications that will come before them.

As reported in the Dispatch, the Advisory Panel voted 9-0 to reject this application.

Now what?

The City of Hilliard may decide to simply ignore the vote of the advisory panel. The City might even decide that this is the last straw, and withdraw from the Big Darby Accord altogether.

Then the question will be what the City of Columbus will do. After all, they have the ultimate power via their control of the water/sewer system. If they come to the conclusion that there is no capacity to serve this development, that's it. Of course, the developer or the City of Hilliard could take Columbus to court and seek an order for Columbus to provide the water/sewer service. My understanding is that Columbus has typically prevailed in such lawsuits in the past.

I worry that this decision by the Accord Panel - and I absolutely support them in this case - puts the very existence of the Big Darby Accord in jeopardy. It likely depends on how much power the developers and the Hilliard elected officials feel they have relative to the Mayor Coleman and the Columbus City Council.

The City of Hilliard has the next move.

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.

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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.

Five Year Forecast: May 2012 Update

A routine update to the Five Year Forecast will be presented to the School Board by Treasurer Brian Wilson at Monday's meeting as well. Here is a copy for your inspection - I encourage you to read the several pages of assumptions which are included. In graphical form, the forecast looks like this:

Click to Enlarge

This forecast is not radically different than one presented last December, after passage of the levy, but there are a couple of things worth mentioning:

• This forecast assumes $400,000 of new revenue from casino taxes in FY13, and $1 million of casino revenue each year thereafter. As I said in a prior article, I'll believe that when we see it. Mr. Wilson is wisely using numbers that are about a third less than estimated by The Dispatch.
• Comp/Benefit costs for the years FY13-FY16 are about $1 million higher each year than was forecasted in December. I suspect this is because not quite as many teachers took the early retirement package as we had anticipated, as the other assumption are the same from the last forecast, but will ask Mr. Wilson. (update: Yes, Mr. Wilson confirms that this is the reason).
• The student enrollment (ADM) is projected to grow very slowly, from 15,605 this year to 15,919 in FY16, a net increase of 314 students, which is 240 less than the December forecast. This will depend on what happens with the housing market. Currently, apartment housing seems to be all the rage, such as the new mixed commercial/retail/apartment development being proposed for the site at the corner of Cemetery Rd and Britton Parkway.
  
  Many of us are concerned about the way apartments housing school age kids distort the funding model for our schools, because the school tax revenue generated per dwelling unit in an apartment complex is much less than that generated by the typical new single family home. We're watching closely the number of students which come from new apartment complexes, as it would have to be much lower than 0.8 students/dwelling, which has been our average for a long time, in order to make the economics work out. It doesn't help when the City of Hilliard uses a TIF to redirect money from the schools to infrastructure projects, as they did with the new Roberts Rd connector.
  
  Of course, the loss of revenue from a TIF can be offset with new commercial revenue. However, the practice has been to apply a TIF to new commercial property as well, as is likely to be the case with the commercial/retail portion of the Cemetery/Britton development.
  
  The point is that when we get new kids without new revenue, the rest of us have to bear the cost, which is one of the drivers for additional levies. If you live in the City of Hilliard, please tell your City Council members and the Mayor that you're not interested in subsidizing developers and new residents.
• Net of all the increases and decreases in various line items between the last forecast and this one, our projected net cash position at the end of FY16 is about $1 million less than was projected in December, which tells me that we should still be able to stay off the ballot with another levy request until 2014.

The need for serious, soul-searching conversations has not diminished. I don't assume that we can just continue spending money at this rate, and have the taxpayers of our district continue to cover it by increasing our taxes every 3 years or so. But to change the trajectory of our spending means changing things many of us hold very dear, and we aren't going to easily agree on what those things should be.

But we need to get started, and not leave it for the levy issue. I look forward to your respectful comments.