At its meeting last night, the School Board voted 4-1, with me as the sole NO vote, to submit a Resolution of Necessity to the County Auditor, citing the need for a 6.9 mill levy to be placed on the May ballot. I made a subordinate motion that the Board postpone action on this Resolution until further due diligence could be completed. My motion died for the lack of a second.
However, there was agreement to hold a special meeting as soon as possible to further discuss this levy. The presumption is that there is still an opportunity to change the levy structure and/or amount prior to submitting the next required resolution to the Board of Election requesting that the levy issue be placed on the May ballot.
I've asked Treasurer Brian Wilson to check with the County Auditor and/or our Board's legal counsel to confirm that this is true, and to withhold submission of the Resolution of Necessity to the County Auditor until we get that answer. It could be that this is a one-shot process, and that a School Board gets to submit only one Resolution of Necessity each election cycle. We don't want to learn that after the Resolution has already been submitted.
Thank you to the many members of the community who came out to the School Board meeting last night. Your engagement in this process is crucial and appreciated. Please continue to communicate your feelings to the members of the School Board as we continue through this process.
Tuesday, January 11, 2011
Saturday, January 8, 2011
Levy Step 1: Resolution of Necessity
On the agenda for the School Board meeting, to be held at 7pm, Monday January 10, 2011, at Hoffman Trails Elementary, is the Resolution of Necessity representing the first formal step toward putting an operating levy on the May ballot.
The Resolution of Necessity is required by Ohio law (5705.03). Its purpose is to formally ask the County Auditor to certify the total tax valuation of property in the school district as well as the amount of money that would be generated by a specified number of mills (the School Board can also ask the reverse: how many mills are required to generate a certain amount of revenue).
The language of this resolution - presented as item F1 in the agenda - specifies that the County Auditor will be asked to certify the amount of revenue that will be raised by a 6.9 mill levy.
My estimate is that the County Auditor will come back with a number on the order of $15.4 million per year. However this estimate is based on the assumptions used by Treasurer Brian Wilson in developing the current (Oct 2010) Five Year Forecast, where he said that during the 2011 county wide property revaluation, which County Auditors are directed by law to perform every six years, properties will be reduced in taxable value by about 8%. I have not yet heard what our County Auditor, Clarence Mingo, has decided in this regard.
Section 4 of the Resolution language states: "This Board finds and determines that all formal actions of this Board and of any of its committees concerning and relating to the adoption of this resolution were taken, and that all deliberations of this Board and of any of its committees that resulted in such formal actions were held, in meetings open to the public, in compliance with the law."
This is a certification that the School Board has complied with the provisions of Ohio's Sunshine Laws, which require the governing bodies of public entities to conduct their business (with few exceptions) in open meetings which may be observed by any member of the public.
My concern at this point is that there has simply been no meaningful discussion about this levy. I was certainly not part of any discussion that caused 6.9 mills to be written into this resolution. Therefore, I take this number to be a placeholder, and expect that we as a School Board will have substantive discussion about this levy before a final amount is chosen, and written into the final Resolution of Necessity.
I am fully prepared to vote in favor of a resolution that specifies a levy amount that is arrived at as the result of analysis of the financial data (more than just three bar charts showing estimates regarding how long it will be until we're out of cash again), meaningful debate, and reasonable compromise.
I am not, however, prepared to vote in favor of any resolution for any levy amount unless much more due diligence is carried out. At 6.9 mills, we would be asking our community to permanently increase the collective tax burden by approximately $15.4 million per year (again, to be determined by the County Auditor), which will be a 8% increase in our property tax bills, and a 13% increase on just the school tax portion.
For those familiar with Present Value calculations, a perpetual cash stream of $15.4 million/yr is equivalent to asking the people and businesses of our community to collectively write a check tomorrow for $350 million, using the latest yield on the 30-year US Treasury bond of 4.4% as the discount factor.
It seems to me that before the School Board asks the community for that kind of money, we should have some pretty serious discussions about how the money is going to be used, what has to change in terms of programs and services, how much money we want to keep in our cash reserves to deal with unexpected events (i.e. if the State of Ohio really cuts back on our funding), how long it is projected to be until we need another levy, and how large that levy might need to be.
My modeling suggests that if a 6.9 mill levy is passed now, and spending is kept at the levels portrayed in the current version of the Five Year Forecast, then a 12.5 mill levy will be needed in 2013 in order not to run out of cash is FY14.
And we need to talk strategically about compensation and benefits, which is rapidly approaching 90% of our annual budget. Quoting from the June 2010 report of the District's Audit & Accountability Committee: "The District... cannot make a significant impact on the budget without addressing the salary and benefits portion of the expenses... While it is important that the Administration continually watch all costs, compensation expense for Administrators, teachers and support staff is the only expenditure that "moves the needle."
By law (ORC 5705.21, as cited in the resolution), this resolution must be passed "by a vote of two-thirds of all its members." Since our Board has five members, and two-thirds of five is 3.33..., this resolution must receive four votes in order to pass and be submitted to the County Auditor.
Unless and until the substantive discussions I describe above take place, my vote will be NO on this resolution.
Note: Although there is little change in the numbers, I found something else that needed to be corrected in the chart I developed to illustrate the impact of various levy amounts and intervals between levies. I failed to take into account that after the property revaluations in 2011, the dollar amount collected by any particular millage will diminish. Note that the so-called "HB920" protections will prevent the dollar amount of property tax we all pay now from being adjusted downward with the reduced value of our properties - it is only the incremental rate which will decrease.
The Resolution of Necessity is required by Ohio law (5705.03). Its purpose is to formally ask the County Auditor to certify the total tax valuation of property in the school district as well as the amount of money that would be generated by a specified number of mills (the School Board can also ask the reverse: how many mills are required to generate a certain amount of revenue).
The language of this resolution - presented as item F1 in the agenda - specifies that the County Auditor will be asked to certify the amount of revenue that will be raised by a 6.9 mill levy.
My estimate is that the County Auditor will come back with a number on the order of $15.4 million per year. However this estimate is based on the assumptions used by Treasurer Brian Wilson in developing the current (Oct 2010) Five Year Forecast, where he said that during the 2011 county wide property revaluation, which County Auditors are directed by law to perform every six years, properties will be reduced in taxable value by about 8%. I have not yet heard what our County Auditor, Clarence Mingo, has decided in this regard.
Section 4 of the Resolution language states: "This Board finds and determines that all formal actions of this Board and of any of its committees concerning and relating to the adoption of this resolution were taken, and that all deliberations of this Board and of any of its committees that resulted in such formal actions were held, in meetings open to the public, in compliance with the law."
This is a certification that the School Board has complied with the provisions of Ohio's Sunshine Laws, which require the governing bodies of public entities to conduct their business (with few exceptions) in open meetings which may be observed by any member of the public.
My concern at this point is that there has simply been no meaningful discussion about this levy. I was certainly not part of any discussion that caused 6.9 mills to be written into this resolution. Therefore, I take this number to be a placeholder, and expect that we as a School Board will have substantive discussion about this levy before a final amount is chosen, and written into the final Resolution of Necessity.
I am fully prepared to vote in favor of a resolution that specifies a levy amount that is arrived at as the result of analysis of the financial data (more than just three bar charts showing estimates regarding how long it will be until we're out of cash again), meaningful debate, and reasonable compromise.
I am not, however, prepared to vote in favor of any resolution for any levy amount unless much more due diligence is carried out. At 6.9 mills, we would be asking our community to permanently increase the collective tax burden by approximately $15.4 million per year (again, to be determined by the County Auditor), which will be a 8% increase in our property tax bills, and a 13% increase on just the school tax portion.
For those familiar with Present Value calculations, a perpetual cash stream of $15.4 million/yr is equivalent to asking the people and businesses of our community to collectively write a check tomorrow for $350 million, using the latest yield on the 30-year US Treasury bond of 4.4% as the discount factor.
It seems to me that before the School Board asks the community for that kind of money, we should have some pretty serious discussions about how the money is going to be used, what has to change in terms of programs and services, how much money we want to keep in our cash reserves to deal with unexpected events (i.e. if the State of Ohio really cuts back on our funding), how long it is projected to be until we need another levy, and how large that levy might need to be.
My modeling suggests that if a 6.9 mill levy is passed now, and spending is kept at the levels portrayed in the current version of the Five Year Forecast, then a 12.5 mill levy will be needed in 2013 in order not to run out of cash is FY14.
And we need to talk strategically about compensation and benefits, which is rapidly approaching 90% of our annual budget. Quoting from the June 2010 report of the District's Audit & Accountability Committee: "The District... cannot make a significant impact on the budget without addressing the salary and benefits portion of the expenses... While it is important that the Administration continually watch all costs, compensation expense for Administrators, teachers and support staff is the only expenditure that "moves the needle."
By law (ORC 5705.21, as cited in the resolution), this resolution must be passed "by a vote of two-thirds of all its members." Since our Board has five members, and two-thirds of five is 3.33..., this resolution must receive four votes in order to pass and be submitted to the County Auditor.
Unless and until the substantive discussions I describe above take place, my vote will be NO on this resolution.
Note: Although there is little change in the numbers, I found something else that needed to be corrected in the chart I developed to illustrate the impact of various levy amounts and intervals between levies. I failed to take into account that after the property revaluations in 2011, the dollar amount collected by any particular millage will diminish. Note that the so-called "HB920" protections will prevent the dollar amount of property tax we all pay now from being adjusted downward with the reduced value of our properties - it is only the incremental rate which will decrease.
Saturday, January 1, 2011
Emergency Levy - An Idea Worth Consideration
At the last meeting of the School Board, community member Mike Harrold used the Public Participation time to pitch the idea of using an Emergency Levy as the means to fund our school district over the next year or two.
It's an intriguing idea.
The Ohio Revised Code allows school boards to implement, with voter approval, a variety of revenue mechanisms. For quite a few years, the leaders of our school district have chosen to use Continuing Levies, sometimes called Permanent Levies. They are exactly what the name implies- a levy that never expires. A levy of 6 mills would cause a homeowner to pay $184 per year per $100,000 of current home value FOREVER.
In contrast, an Emergency Levy is proposed for a fixed period of time of no more than five years. Then it goes away, unless the School Board and the voters decide to renew it.
We are in a period of great uncertainty right now. Here are some pretty significant things that we just don't know:
But as I said in my previous article, I'm not willing to vote for a permanent levy of any size until we talk through the long-range fiscal strategy.
An Emergency Levy with a duration of 2 years is a viable solution, in my opinion. That way, if we've been overly conservative with our assumptions, and end up needing less than projected, we have a chance to fix it when the emergency levy expires.
So here's the punchline: If we can limit the growth rate of expenses to about 3% per year (it has been 5.2% since 2003), I estimate that an emergency levy would need to raise on the order of $18m/yr, which would fund operations and restore our cash balance back to $10 million by the end of FY13 (we are now large enough that the cost to meet one month's payroll exceeds $12 million). This would be the equivalent to 8 mills.
But it would automatically expire in two years.
During those two years, we'll gain greater knowledge of what the State funding picture looks like, and we'll have the time to have a serious conversation about our long term fiscal strategy, which is the same thing as saying our long-term compensation & benefits strategy.
My analysis suggests that if we continue spending on the trajectory described in our Five Year Forecast, which implies an compound annual growth rate (CAGR) of 4.7%, we'll need to pass 11.5 mill levies every 3 years, or 8.5 mills every two years. That can't makes sense to anyone.
So what if we held our spending growth to a CAGR of 3%? That would lower the levy need to 7.8 mills every 3 years, or 5.6 mills every two years. This is still a chunk of money - either choice would be equivalent to increasing our property taxes approximately 3.5% each year (5%/yr for the just the school tax portion).
Even if we plan for zero spending growth for the next decade, we need a levy of 4 mills (1%) just to cover our current level of spending ($162m/yr), which is greater than our current income ($157m/yr). That would imply at minimum a total freeze on compensation and benefits for the next decade, as well as no new staff. As non-personnel costs might rise, staff (or pay rates) would have to be reduced to compensate.
Others will say that we should just cut $5m/yr from our spending, then we'll be okay with the revenue we stream we already have. That can be done, but not without some tough decisions.
This levy decision has lots of moving parts, and I don't understand how we as a Board can proceed to a resolution asking for a specific amount until we talk it through. Here's what I said to the other Board members, in a message on December 22:
Thanks again to Mike Harrold. I hope this demonstrates that comments made in person at the Board meeting can indeed start the ball rolling.
FYI - check out this cool tool one of the members of the Finance Committee for Olentangy Local Schools put together to help them understand and discuss various scenarios. He has offered to adapt the tool for our use as well.
It's an intriguing idea.
The Ohio Revised Code allows school boards to implement, with voter approval, a variety of revenue mechanisms. For quite a few years, the leaders of our school district have chosen to use Continuing Levies, sometimes called Permanent Levies. They are exactly what the name implies- a levy that never expires. A levy of 6 mills would cause a homeowner to pay $184 per year per $100,000 of current home value FOREVER.
In contrast, an Emergency Levy is proposed for a fixed period of time of no more than five years. Then it goes away, unless the School Board and the voters decide to renew it.
We are in a period of great uncertainty right now. Here are some pretty significant things that we just don't know:
- It is widely believed that there is an $8 billion gap between the revenues the State of Ohio will receive in the next biennium and the projected spending. This week, I heard that some are now saying it is more like $10 billion. Since public education is one of the three primary spending components in the State budget, one has to assume that a significant portion of this $8-10 billion gap will be closed through substantial reductions in funding to public school districts like ours. (Think it will be easy to balance the State budget? Give this tool developed by The Columbus Dispatch a try...)
Our Treasurer, Brian Wilson, built the most recent Five Year Forecast with the assumption that our Foundation Aid would be 10% less in FY12 than in FY11 (the fiscal year we're in right now). It could easily be much worse. Our neighbors in Olentangy Local Schools have just built a new fiscal plan assuming a 30% decrease in State funding.
- Next year, we will be again negotiating with the unions representing the teachers and staff of our District. Meanwhile Governor-elect Kasich has said that he will be championing collective bargaining reform when he takes office, but hasn't given anyone a clue what he's thinking. How can we negotiate a multi-year agreement with the unions with this kind of uncertainty?
- The Franklin County Auditor will be performing a Revaluation of all real estate in the county during 2011. These revaluations occur every six years, as directed by the Ohio Revised Code. We can be pretty confident that the County Auditor will reduce property values across the county, but we can't be sure how much. Mr. Wilson has baked an 8% decrease into the Forecast, but that may be conservative. The Delaware County Auditor decreased property values 10%.
Many folks will be surprised that a reduction in our property valuations won't result in a commensurate reduction in our property taxes. The same mechanism that keeps our property taxes from increasing when real estate valuations are increased also keeps them from decreasing. So an 8% reduction in valuation will affect only the 12% of our property tax bill which is the so-called "inside millage," netting an overall reduction of about 1%.
But going forward, the amount raised by 1 mill of new tax will be 8% less. Currently, 1 mill will raise about $2.4 million per year. If property values are decreased 8%, 1 mill will raise $2.2 million/yr. So it will take more mills to raise a specific amount of money.
But as I said in my previous article, I'm not willing to vote for a permanent levy of any size until we talk through the long-range fiscal strategy.
An Emergency Levy with a duration of 2 years is a viable solution, in my opinion. That way, if we've been overly conservative with our assumptions, and end up needing less than projected, we have a chance to fix it when the emergency levy expires.
So here's the punchline: If we can limit the growth rate of expenses to about 3% per year (it has been 5.2% since 2003), I estimate that an emergency levy would need to raise on the order of $18m/yr, which would fund operations and restore our cash balance back to $10 million by the end of FY13 (we are now large enough that the cost to meet one month's payroll exceeds $12 million). This would be the equivalent to 8 mills.
But it would automatically expire in two years.
During those two years, we'll gain greater knowledge of what the State funding picture looks like, and we'll have the time to have a serious conversation about our long term fiscal strategy, which is the same thing as saying our long-term compensation & benefits strategy.
My analysis suggests that if we continue spending on the trajectory described in our Five Year Forecast, which implies an compound annual growth rate (CAGR) of 4.7%, we'll need to pass 11.5 mill levies every 3 years, or 8.5 mills every two years. That can't makes sense to anyone.
So what if we held our spending growth to a CAGR of 3%? That would lower the levy need to 7.8 mills every 3 years, or 5.6 mills every two years. This is still a chunk of money - either choice would be equivalent to increasing our property taxes approximately 3.5% each year (5%/yr for the just the school tax portion).
Even if we plan for zero spending growth for the next decade, we need a levy of 4 mills (1%) just to cover our current level of spending ($162m/yr), which is greater than our current income ($157m/yr). That would imply at minimum a total freeze on compensation and benefits for the next decade, as well as no new staff. As non-personnel costs might rise, staff (or pay rates) would have to be reduced to compensate.
Others will say that we should just cut $5m/yr from our spending, then we'll be okay with the revenue we stream we already have. That can be done, but not without some tough decisions.
This levy decision has lots of moving parts, and I don't understand how we as a Board can proceed to a resolution asking for a specific amount until we talk it through. Here's what I said to the other Board members, in a message on December 22:
I believe there is merit in discussing the idea Mike Harrold brought forward at the last meeting -- using an emergency levy as an interim step while we learn more what the State is going to do to us. It could be that our community would be willing to stomach a larger levy millage if they know it will expire in say 2 years. Of course, we would need to be very good at educating them about what happens when the levy expires - the next permanent levy would likely have to be large enough to replace the emergency levy and fund the CAGR [Compound Annual Growth Rate] of expenses.If this makes sense to you, please make your feelings known to the other members of the School Board as soon as possible. As always, I encourage and appreciate your comments here, that alone won't sway the other Board members to consider this excellent idea. A letter, an email, or your voice at the next Board meeting works significantly better.
Thanks again to Mike Harrold. I hope this demonstrates that comments made in person at the Board meeting can indeed start the ball rolling.
FYI - check out this cool tool one of the members of the Finance Committee for Olentangy Local Schools put together to help them understand and discuss various scenarios. He has offered to adapt the tool for our use as well.
Friday, December 17, 2010
Coming Soon - The Levy Decision
NOTICE: If you read the article titled "More Millage Math" prior to January 8, 2011, the calculations I had performed showing the effective percentages increases of various levy amounts were incorrect. An updated chart has been posted, and the numbers in that article have been corrected, as shown by strikethroughs. I apologize for my error.
The following is the text of a message I sent on Saturday, Dec 11 to the other members of the School Board, the Superintendent and the Treasurer. I paraphrased this message in my comments at the Dec 13 Board Meeting as well, as reported in the Hilliard Northwest News:
I used the phrase 'what we think the market will bear' in my message because, lacking any evidence to the contrary, I believe this will be the factor the Board uses to determine the levy amount. The Superintendent commissioned a community survey to be performed by Saperstein Associates over the Thanksgiving weekend. Central to this survey was to gauge public sentiment on a hypothetical 6.9 mill levy. As you can read for yourself from the results of this survey, fewer than half of the respondents were supportive of a levy of this size.
Then again, fewer than half of the respondents were opposed to a levy of this size either.
So now the Board needs to figure out whether to put 6.9 mills or more on the ballot and prepare for a very tough campaign, or to reduce the levy millage in hope that this would make passage more likely. This is the reason I believe this will be a 'what the market will bear' decision rather than one based on analysis of the financials.
Of course, reducing the levy millage has consequences. One might be to increase the frequency of levies. The prevailing thinking is that a 6.9 mill levy now would have to be followed by another levy in two years. Is the community willing to just make that an annual levy cycle? I'm sure that's a non-starter.
The preferable solution is to reduce projected spending. There are couple of ways to accomplish that. One is reduce programming and services; the other is to keep all the programming and services but reduce the unit cost (eg cost per participant).
This survey says there isn't much interest in reducing the major programming (Question 17). In spite of the overall levy sentiment being 50-50, the clear majority of respondents (60%+) opposed reductions to gifted services, tutoring for struggling kids, sports, or performing arts.
That leaves us with lowering the unit cost of programming.
Because nearly 90% of our budget is spent for salaries and benefits, reducing the cost of programming means reducing the number of people assigned to a program and/or reducing the future compensation of those people (see current supplemental salaries by program). That doesn't necessarily mean pay cuts, but it would likely mean reducing the size of raises, both base pay and steps (see article on the structure of teacher pay).
Once again, I suggested that we engage the Audit & Accountability Committee to help us think through the numbers. As their charter says, "the purpose and intent of the committee is to assist the Board in a financial advisory role..." I don't know when that role is more important than when the Board is making levy decisions. Nor do I know of another group of citizens who understands the economics of our District better than this Committee. However, the majority of the Board does not share my belief that the A&A Committee should be engaged.
And I wish I knew of a way to involve the unions in this level of strategic planning without putting us into negotiations mode. It just seems kinda nuts to tackle this situation without the benefit of the wisdom of the couple of thousand people who are at the 'tip of the spear.'
At this point, I am not prepared to vote in favor of putting a levy of any amount on the ballot. I simply do not understand the implications for programming and services associated with any levy amount, least of all the 6.9 mills that is being used as the trial balloon. A levy of 6.9 mills in 2011 followed by another 6.9 mills in 2013 will not fund the expenses projected in the Five Year Forecast.
So what has to change in the Forecast assumptions? I haven't a clue. Seems like we should figure that out before we decide on the size of the levy, not after.
The following is the text of a message I sent on Saturday, Dec 11 to the other members of the School Board, the Superintendent and the Treasurer. I paraphrased this message in my comments at the Dec 13 Board Meeting as well, as reported in the Hilliard Northwest News:
Fellow Board Members, Dale, Brian:
I see that we very appropriately have a discussion of the next levy on the agenda for Monday's meeting. I believe this discussion should begin with a presentation by the Administration which details at a minimum:
- The recommend levy size
- The planned interval until the next levy will placed on the ballot
- The cash reserve goal (current policy sets this goal at 10%)
- What adjustments will be made to spending to achieve the parameters above, in particular:
- Projected compensation growth rates (since this is approaching 90% of our budget
- Changes to programming and services
It is not appropriate, in my opinion, to make a decision of this magnitude simply on opinions as to what we think the 'market will bear.' Before we ask the people of our community to increase their annual investment in our school district by millions of dollars, we need to look carefully at the numbers and be sure we understand them. As I recommended at the last meeting, I believe it would be beneficial to do so with the help and counsel of the Audit & Accountability Committee, even if that means we need to schedule a special meeting.
I have attached another set of scenarios which may help us understand the dynamics of levy sizes, levy intervals and expense growth. I'm happy to explain any of these if you have questions.
Respectfully,While all the Board members made comments at the meeting, there was no discussion that led to determination of any of the parameters I listed above.
Paul Lambert
I used the phrase 'what we think the market will bear' in my message because, lacking any evidence to the contrary, I believe this will be the factor the Board uses to determine the levy amount. The Superintendent commissioned a community survey to be performed by Saperstein Associates over the Thanksgiving weekend. Central to this survey was to gauge public sentiment on a hypothetical 6.9 mill levy. As you can read for yourself from the results of this survey, fewer than half of the respondents were supportive of a levy of this size.
Then again, fewer than half of the respondents were opposed to a levy of this size either.
So now the Board needs to figure out whether to put 6.9 mills or more on the ballot and prepare for a very tough campaign, or to reduce the levy millage in hope that this would make passage more likely. This is the reason I believe this will be a 'what the market will bear' decision rather than one based on analysis of the financials.
Of course, reducing the levy millage has consequences. One might be to increase the frequency of levies. The prevailing thinking is that a 6.9 mill levy now would have to be followed by another levy in two years. Is the community willing to just make that an annual levy cycle? I'm sure that's a non-starter.
The preferable solution is to reduce projected spending. There are couple of ways to accomplish that. One is reduce programming and services; the other is to keep all the programming and services but reduce the unit cost (eg cost per participant).
This survey says there isn't much interest in reducing the major programming (Question 17). In spite of the overall levy sentiment being 50-50, the clear majority of respondents (60%+) opposed reductions to gifted services, tutoring for struggling kids, sports, or performing arts.
That leaves us with lowering the unit cost of programming.
Because nearly 90% of our budget is spent for salaries and benefits, reducing the cost of programming means reducing the number of people assigned to a program and/or reducing the future compensation of those people (see current supplemental salaries by program). That doesn't necessarily mean pay cuts, but it would likely mean reducing the size of raises, both base pay and steps (see article on the structure of teacher pay).
Once again, I suggested that we engage the Audit & Accountability Committee to help us think through the numbers. As their charter says, "the purpose and intent of the committee is to assist the Board in a financial advisory role..." I don't know when that role is more important than when the Board is making levy decisions. Nor do I know of another group of citizens who understands the economics of our District better than this Committee. However, the majority of the Board does not share my belief that the A&A Committee should be engaged.
And I wish I knew of a way to involve the unions in this level of strategic planning without putting us into negotiations mode. It just seems kinda nuts to tackle this situation without the benefit of the wisdom of the couple of thousand people who are at the 'tip of the spear.'
At this point, I am not prepared to vote in favor of putting a levy of any amount on the ballot. I simply do not understand the implications for programming and services associated with any levy amount, least of all the 6.9 mills that is being used as the trial balloon. A levy of 6.9 mills in 2011 followed by another 6.9 mills in 2013 will not fund the expenses projected in the Five Year Forecast.
So what has to change in the Forecast assumptions? I haven't a clue. Seems like we should figure that out before we decide on the size of the levy, not after.
Wednesday, November 24, 2010
More Millage Math
NOTICE: If you read this article prior to January 8, 2011, the calculations I had performed showing the effective percentages increases of various levy amounts were incorrect. An updated chart has been posted, and the numbers in this article have been corrected, as shown by strikethroughs. I apologize for my error.
First, allow me to begin by saying "Thank you" to all the members of the community who participated in the Breakfast with the Board last Saturday. There were great questions and lively discussion, lasting well past when the session was formally concluded. Most of the conversations were about the cost of running our school district, what Ohio's budget crisis is going to mean to school funding, and how large the next levy will be.
I hope two things were achieved during this meeting: 1) that folks learned some things about school economics that they didn't know before; and, 2) that the members of the Board heard how much the people of our community love their schools, yet are still concerned about the ever-increasing financial burden of funding its operations.
We are rapidly nearing the time when the School Board will need to vote on the two resolutions required by law to put a levy on May ballot. There is a regular School Board on Dec 13 (@ Horizon), then the next two will be Jan 10 and Jan 24. The first of those resolutions will likely be on the agenda on Jan 10, and the final resolution on Jan 24, in order to meet the deadline for filing with the Board of Elections.
I've recommended to my fellow School Board members that we schedule a working session soon for the sole purpose of having an in-depth examination and discussion of various funding and spending scenarios, leading to the selection of the millage rate that will be on the ballot. I have also recommended that the Audit & Accountability Committee be invited to participate in this discussion, allowing the School Board to benefit from their talent and wisdom, especially since they have spent the last two years working hard to understand the economic underpinnings of public schools.
My last article included a chart that I constructed to help me understand the implications of various levy sizes. I've enhanced that chart a bit, and make it available to you - with the disclaimer that it is accurate to the best of my knowledge, but is NOT an official publication of Hilliard City Schools. Before making your decision about how to vote on the levy - whatever size it may be - read the official ballot language, and ask Treasurer Brian Wilson to clarify any questions you might have.
That being said, you may find the chart here. Directions for use:
First, allow me to begin by saying "Thank you" to all the members of the community who participated in the Breakfast with the Board last Saturday. There were great questions and lively discussion, lasting well past when the session was formally concluded. Most of the conversations were about the cost of running our school district, what Ohio's budget crisis is going to mean to school funding, and how large the next levy will be.
I hope two things were achieved during this meeting: 1) that folks learned some things about school economics that they didn't know before; and, 2) that the members of the Board heard how much the people of our community love their schools, yet are still concerned about the ever-increasing financial burden of funding its operations.
We are rapidly nearing the time when the School Board will need to vote on the two resolutions required by law to put a levy on May ballot. There is a regular School Board on Dec 13 (@ Horizon), then the next two will be Jan 10 and Jan 24. The first of those resolutions will likely be on the agenda on Jan 10, and the final resolution on Jan 24, in order to meet the deadline for filing with the Board of Elections.
I've recommended to my fellow School Board members that we schedule a working session soon for the sole purpose of having an in-depth examination and discussion of various funding and spending scenarios, leading to the selection of the millage rate that will be on the ballot. I have also recommended that the Audit & Accountability Committee be invited to participate in this discussion, allowing the School Board to benefit from their talent and wisdom, especially since they have spent the last two years working hard to understand the economic underpinnings of public schools.
My last article included a chart that I constructed to help me understand the implications of various levy sizes. I've enhanced that chart a bit, and make it available to you - with the disclaimer that it is accurate to the best of my knowledge, but is NOT an official publication of Hilliard City Schools. Before making your decision about how to vote on the levy - whatever size it may be - read the official ballot language, and ask Treasurer Brian Wilson to clarify any questions you might have.
That being said, you may find the chart here. Directions for use:
- Pick a levy amount between 4 and 10 mills from the first column
- The second column shows the amount the annual property tax will increase for each $100,000 of market value (as determined by the Franklin County Auditor). For a 6 mill levy, this number is $184/yr. So if your home is appraised at $250,000, a 6 mill levy would cause your property taxes to increase $460 ($184 x 2.5).
By the way, this calculation would be the same for every school district in the State. In other words, a 6 mill levy would increase the annual property tax by $184/yr per $100,000 regardless of whether the levy is in Hilliard, Dublin, Toledo or Chillicothe. - The third column shows the total amount of new revenue the District would receive should the levy pass. Looking again at the row for 6 mills, this shows that a 6 mill levy would raise approximately $14.6 million per year of new money for the District.
This number does vary from district to district, depending on the aggregate property value. Again, the math isn't mysterious. The total value of all real estate in our District is about $2.4 billion, and 1 mill is a tax equivalent to 1/1000th of the value of a piece of property. So a 1 mill levy raises approximately $2.4 million per year in our District. - The next columns attempt to create a sense as to what various millage amounts equate to in terms of annual rates of increase. In actuality, when a levy passes our tax bill increases in one step, and remains at that level until additional levies are voted in, or existing levies expire.
So if the School Board said to the community, "we recommend that you approve a 6 mill permanent levy, and estimate that, given our assumptions as to funding and spending, we will not need to ask you for another levy for 3 years" - you would scan across to the columns for 3 years, and note that this is equivalent to a2.6%3.6% annual increase in just the school portion of your property tax, and to a1.6%2.6% annual increase in your overall property taxes (The school tax is approximately 64% of your total property tax bill. The actual fraction depends on which city or township you live in).
Of course, if our assumptions are off, and the Board has to come back to your for more money in 2 years instead, it would be like raising the effective annual rate of increase to3.9%5.5% on the school portion of your tax bill, or2.5%3.6% overall.
So how much does the District need, and how many mills will you be asked to pay?
There is simply no mathematically correct answer to that question - it's a matter of opinion. You are welcome to look at the current Five Year Forecast, as well as a bunch of scenarios I've constructed for examining various configurations of levies vs a couple of spending rates.
Very soon, the period of theory, opinion, analysis and discussion will end, and the School Board will reach a decision as to the levy amount.
If you have not expressed your views on this matter, please do so right away. We would love to have you come to the next Board meeting and speak to us directly, but if you cannot, send a letter, or an email and make your voice heard.
Very soon, the period of theory, opinion, analysis and discussion will end, and the School Board will reach a decision as to the levy amount.
If you have not expressed your views on this matter, please do so right away. We would love to have you come to the next Board meeting and speak to us directly, but if you cannot, send a letter, or an email and make your voice heard.
Wednesday, November 17, 2010
Millage Math
At our last School Board meeting, Treasurer Brian Wilson presented a couple of simple charts showing what the district's future cash balance is projected to be given three different levy scenarios: 6.9 mills, 8.9 mills and 9.9 mills. He developed these scenarios by starting with the most recently approved Five Year Forecast and dropping in the revenue stream that would be generated by these various levy amounts.
Of course, this is from the perspective of the school district. What would these various levy amounts and funding periods mean to you, a homeowner or business owner in our district?
Here is a chart that I hope helps answer that question:
You read it this way:
Of course, this is from the perspective of the school district. What would these various levy amounts and funding periods mean to you, a homeowner or business owner in our district?
Here is a chart that I hope helps answer that question:
You read it this way:
- Each row is for a different millage amount, from 4 mills to 10 mills. I'll not insult your intelligence by tacking a ".9" onto the numbers as though you don't know 6.9 mills is pretty much the same thing as 7 mills.
- If you pick the row for say 6 mills, the "$Incr" column shows that this would increase your property taxes by $184 per $100,000 of market value, or 7.9%.
So if the Auditor has said your home is valued at $250,000, you would multiply the $184 by 2.5 and arrive at $460 for the amount your taxes would increase if a 6 mill levy were passed.
- The columns show what the effective annual percentage increase is based on how long the Board tells you it will be until yet another levy is placed on the ballot. If the plan is to wait for three years before asking the community for more money, then a 6 mill levy is equivalent to increasing your taxes at an annual rate of 2.6%.
But if the district spends the money faster than forecasted, or the revenue - notably the state funding - is less than expected, then it might later be decided that another levy is needed in just two years. If that's the case, the effective annual rate of increase rises to 3.9%
You can also 'work backwards' using this chart. For example, if you decide that you're not willing to have your property taxes increase at an effective annual rate greater than say 3%, look for numbers close to 3% on the chart, and see what combinations of levy millage and years yield about 3%.
It looks like something between 4 and 5 mills on a two year cycle would be about a 3% annual growth rate.
Or 7 mills on a three year cycle. Or 10 mills on a four year cycle.
I hope this helps you gauge the impact of various levy sizes on your property taxes. The decision as to the levy amount that will be on the ballot is going to happen in December or January. If you wait around until April, the only choice you'll have is whether or not to vote for the levy.
If you want to influence the Board as to the levy amount, you'll have to speak up now. The Breakfast with the Board this Saturday, November 20, from 9am-10:30am at the Central Office Annex is a great place to make your voice heard. Come any time during the hour-and-half gathering, speak your mind and leave, or stay the whole time if you like.
Just don't be silent and expect things to come out the way you want.
Sunday, November 14, 2010
The Political Language of School Finance
In the Columbus Dispatch story published following our November 10 School Board meeting, the closing line was this:
"The district also shaved $6.5 million in expenses through staff reductions, department budget cuts and efficiency improvements since 2008."
I believe this quote merits further explanation to make sure the folks of our community understand what it means.
It does not mean that spending decreased over this period. In fact, it went up every year. The actual numbers for Total Spending over the past three years are this, as reported in the latest Five Year Forecast:
FY08: $146.4 million
FY09: $149.6 million (+2.2%)
FY10: $157.2 million (+5.1%)
Three year Total: $453.2 million
So what does the use of the word "shaved" as in this Dispatch story mean?
It is an indication of how much actual spending was below an earlier forecast. Specifically, the Five Year Forecast published in December 2008, after the passage of our last operating levy, depicted the following:
FY08: $146.4 million (actual)
FY09: $152.2 million
FY10: $161.0 million
Three year Total: $459.6 million
Therefore $6.4 million less was spent during 2008-2010 than had been forecasted in Decmber 2008. This is where the "shaved $6.5 million in expenses" comes from (please excuse the rounding differences).
So one way to talk about "savings" or "cuts" - the way reflected in the quote reported by The Dispatch - is to compare what was actually spent vs what we had thought we were going to spend, given the assumptions made at that time. From that perspective, spending was indeed around $6.5 million less for this period than what we had planned.
However, in absolute terms, our spending increased at a rate of 3.6% per year even after all of those programming cuts and staff reductions had been made.
Looking forward, the latest Five Year Forecast shows annual spending increasing from $157m in FY2010 to $191m in FY15, a compound annual growth rate of 4.0%. During that period, Compensation & Benefits costs are projected to increase 4.45% per year.
I leave it to you to decide whether there has in fact been a "savings" when spending grows, but at a rate less than forecast. The objective of this article is to point out that the word "savings" is ambiguous, so don't assume that what you read or hear reported is the same thing you are thinking. Ask follow-up questions until you fully understand what is being said.
"The district also shaved $6.5 million in expenses through staff reductions, department budget cuts and efficiency improvements since 2008."
I believe this quote merits further explanation to make sure the folks of our community understand what it means.
It does not mean that spending decreased over this period. In fact, it went up every year. The actual numbers for Total Spending over the past three years are this, as reported in the latest Five Year Forecast:
FY08: $146.4 million
FY09: $149.6 million (+2.2%)
FY10: $157.2 million (+5.1%)
Three year Total: $453.2 million
So what does the use of the word "shaved" as in this Dispatch story mean?
It is an indication of how much actual spending was below an earlier forecast. Specifically, the Five Year Forecast published in December 2008, after the passage of our last operating levy, depicted the following:
FY08: $146.4 million (actual)
FY09: $152.2 million
FY10: $161.0 million
Three year Total: $459.6 million
Therefore $6.4 million less was spent during 2008-2010 than had been forecasted in Decmber 2008. This is where the "shaved $6.5 million in expenses" comes from (please excuse the rounding differences).
So one way to talk about "savings" or "cuts" - the way reflected in the quote reported by The Dispatch - is to compare what was actually spent vs what we had thought we were going to spend, given the assumptions made at that time. From that perspective, spending was indeed around $6.5 million less for this period than what we had planned.
However, in absolute terms, our spending increased at a rate of 3.6% per year even after all of those programming cuts and staff reductions had been made.
Looking forward, the latest Five Year Forecast shows annual spending increasing from $157m in FY2010 to $191m in FY15, a compound annual growth rate of 4.0%. During that period, Compensation & Benefits costs are projected to increase 4.45% per year.
I leave it to you to decide whether there has in fact been a "savings" when spending grows, but at a rate less than forecast. The objective of this article is to point out that the word "savings" is ambiguous, so don't assume that what you read or hear reported is the same thing you are thinking. Ask follow-up questions until you fully understand what is being said.
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