The District released its latest five year forecast this week at the school board meeting. There was much discussion about what the numbers meant but there was not much discussion about the meat that mattered.
The "meat that matters" in this discussion is both what is left in the forecast and what is left out.
What is in the forecast are the following:
1. Earned Income Taxes are calculated as increasing at 3% a year going forward. That will happen only if the overall economy significantly improves.
2. Investment Earnings are calculated as significantly increasing in the coming years. However, the District only invests in the safest of investments that are typically relatively short term. Federal Reserve Chairman Ben Bernanke today predictably announced that he expects the Federal Reserve to keep interest rates between 0 and .25% until at least the middle of 2013. This makes a large increase in investment earning hard to believe.
3. State subsidies are calculated to increase at 2% per year. This is something that cannot conceivably happen and, in fact, did not happen. Again, unless we have a remarkable economic recovery we can expect our funding to, at best, stay the same and perhaps get reduced if things do not improve.
4. ALL EXPENSES except for salaries, fringe benefits, and debt service are held at ZERO PERCENT increases for the foreseeable future.
Each of the points above are not hard for the common person to understand. It is unlikely that EIT will grow at 3% a year. It is very unlikely that investment earnings will grow significantly. State subsidy increases are certainly at risk until the national economy show significant improvement. The likelihood that all expenses will not increase one bit over the next five years is just plain silly.
What is missing from the forecast are the following points:
1. Buried toward the bottom of the forecast is the fact that there are no Program Change Proposals. This means that we are not currently budgeting for ANY type of improvement to the education of our children. In the past, the Board has used Capital Project money to fund a few small changes. However, the Capital Project fund is extremely limited going forward especially since it is the District's intent to use much of those funds for the high school project. Additionally, those funds are supposed to be used to fund more typical annual maintenance and improvements to EVERY SCHOOL IN THE DISTRICT. This is not a fund that is set aside to fund program changes. That was never its intent.
2. The forecast curiously does not include a simple calcuation for the millage increase needed to fund the next bond issuance for the high school project. However, it is quite simple to get close to this number. Simply look at the the Real Estate Tax line and see where it starts and 2010 and where it ends in 2016-2017. The increase in real estate taxes can only come from a change in assessed values or from a tax increase. Given that we have had no change in assessed values (save for some individual property value changes) the District should assume that the assessed value number will not change, just as it has not changed for the last decade. The simple calculation shows a 33% increase in taxes to cover the growing expenses.
3. The forecast also does not show the increased cost to taxpayers of phasing in bonds over multiple years. This "phasing" can only be done at additional cost to taxpayers in the form of additional interest payments or additional bond costs. This "phasing" of the bonds is being done for one reason and one reason only. This summer, the PA Legislature and Governor signed into law strengthened Act 1 paramenters so that school districts could no longer skirt Act 1 millage increase limits by floating bonds that avoided the reach of Act 1. What the District is doing here flies directly in the face of the intent of Act 1- to give the voters of the District a voice in tax increases that are in excess of inflation. By phasing in the bonds over multiple years, the District will attempt to keep the tax increases for the second (or third or fourth) bond issuance away from the ballot box. Additionally, this attempt to phase in these bonds will necessarily put pressure on the entire rest of the District budget. For instance, if the District wants to spend $2 million on a change in programs for our English curriculum, it will not have the ability to easily fund this while staying under Act 1. In fact, the District may go for a referendum at the ballot box to fund these PCPs and not even mention that this vote is due to the fact that they are using the Act 1 exception limits to pay off a bond for the high school project. This type of action of absolutely repulsive.
The budget is not pretty. A 33% increase in taxes is not pretty-especially given some of the rosy assumptions mentioned above (state subsidy increases, EIT increases, expenses held to 0% increases).
What is even more suspect is that way the District continues to spend taxpayer money like it is water running through a sieve. The Board is able to consistently find the most expensive way to fund this high school project. First they floated bonds two years too early (September/October 2009) at rates that are higher than they are today- and we still don't need the money given that we have yet to put a shovel in the ground. Second, they chose a traditional municipal bond even though very simple calculations given to us by our bond advisor showed that floating Build America Bonds (non-tax exempt bonds where the federal government rebated a percentage of the bond interest) would have provided over $2 million in taxpayer savings. And now they have decided to phase in the second float of bonds at additional taxpayer expense all to avoid an Act 1 referendum on this project.
I know fiscal responsibility has not been a strong point of this board for some time. But the degree to which this has gone absolutely astonishes me. If I didn't know better I would suggest that the Board is actually trying to find the most expensive way to build this high school. But I do know better. And the truth of the matter is the Board is simply exhausting every conceivable option to keep this project from a referendum that they know would fail.
7 comments:
This Board president failed to appoint a Finance Committee to oversee the antics of the Finance Officer after Mr. Fraasch caught Jan Klein stuffing an extra $1,000,000 in the budget salary line over and above what was required. Where do you think the extra $8,000,000 came from in the Capital Projects Fund? That was deceit on the part of Ms. Klein and it was supported by Mrs. Posti when she did not fulfill her obligation to the community to appoint a Finance Committee to over see Mrs. Klein. Apparently, plagiarism is not Mrs. Posti's only form of dishonesty.
The Board has been promising to exceed the $113,000,000 limit by asking our staff to construct some alternates, deleted or not added, at a later date and at additional cost to the Community. The School Code has a very low dollar limit on the size of a project the staff can be asked to do. It would be to the staff's advantage to get a copy of the School Code from the Superintendent's office and find out what this limit really is. I think the staff will be surprised how low the dollar limit is. The union should help you find this Section of the School Code.
As for the projected millage amount we need to remember this is an election year so we can hold all the projected line items to whatever we want until after the November election - then we can change anything we want and add it to your tax millage before we pass next year's budget.
One last comment about the economy. The jobs picture won't improve until the economy shows stronger growth so the ability of ML to support tax increases won't grow until folks are put back to work. The real problem here is the Board passed a Teachers' Contract that loaded larger percentage salary increases the back end of the Contract. The last year of the Contract has a 4.4% increase in teachers' salaries. Considering we had Act 1 Millage increase limits of 1.4% last year and 1.7% this year how does the Board expect to pay a 4.4% increase in the last year of the Contract unless a lot of employees are let go because of program eliminations and class sizes increase significantly? The other option is we build a $113,000,000 building and don't do any maintenance.
John Ewing
To add a bit to the "Max Tax" comment, the following are the 5 yr. % increases in key forecast expenditures :
1) Salaries 12.6% or 2.4% CAGR
2) Benefits 68% or 11% CAGR
3) Debt Service 29% or 5.4% CAGR
The following are % increases in key revenue categories over the 5-yr. forecast period :
1) R. E. Taxes 19.3% or 3.7% CAGR
2) E.I.T. 16% or 3% CAGR
3) State 42.6% or 7.5% CAGR
(CAGR= compound annual growth rate)
Bill Lewis
Mr Ewing's comment is right on.
The other part of the problem with those projects that are pushed out of the budget to be done later is that we automatically pay an 8 percent premium. Remember only costs associated with and built into the HS budget are eligible for state reimbursement.
In its effort to avoid a referendum the board is finding new ways to hit the taxpayers.
Max Tax
I published Max's comment for him.
North Huntingdon voters made better choices at the polls than the residents of Mt. Lebanon:
www.post-gazette.com/pg/11265/1176742-100.STM
-Tom Taxedtodeath
Tom Taxtodeath, why would we be envious of N. Huntington.
Our elected municipal officals bought two parcels of land both of which are not convenient or easily accessible. Then to add insult to injury they want to spend millions of dollars in a recession to develop them for discretionary activities like sports while they raise taxes for critical infrastructure they should've been updating all along.
Meanwhile over at the school district they are proposing tearing up nice existing athletic facilities and spending like drunken sailors! Not one of these elected officials will ever give any of us a chance to approve of any of this at the ballot box.
Aren't you glad we're not screwed up like N. Huntington!
Remember come November, suddenly mute Mrs. Cappucci and now clueless Mr. Kubit assured us all the high school project would be around $93 million total!
Dick Saunders
Information from District Bond Prospectus, recent Budget Forum, and Municipal Meeting comments:
$75,000,000 was borrowed by District in October 2009
$36,640,000 is going to be borrowed in a later year
$ 1,700,000 is in a Fund dedicated to removing Asbestos from the HS
$113, 340,000 Total is above the Act 34 spending total.
So tell me why we have:
$9,125,000 extra District dollars consisting of
$8,000,000 in the Capital Projects Fund, and
$ 600,000 in the Food Service Fund Balance, and
$ 615,000 in the Elementary School Bond Account?
Why wasn’t the $615,000 spent on Capital Projects since the Elementary Schools were finished?
Where did the $600,000 Fund Balance come from in the Food Service Fund Balance?
Where did the $8,000,000 come from in the District Capital Projects Fund?
How is the Total $9,125,000 going to be spent?
Why did the District need to negotiate a Building Inspection Fee reduction with the Municipality, behind closed doors, with $9,125,000 over the Act 34 amount?
Why does the District need a 20% discount on the Storm Water Fees with $9,125,000 extra in the bank?
Why would the District want the Municipality to finance turf on Mellon Field or a Baseball Field at McNeilly when the Municipality has a Structural Deficit and the District has $9,125,000 extra?
Why would the District ask for a discount High School Building Inspection Fees when the Municipality has a Structural Deficit and the District has $9,125,000 extra?
Why don’t the Commissioners suggest the District use the $9,125,000 to pay for the recreational needs of the Municipality with the $9,125,000 of extra District Funds instead of considering another Municipal bond issue?
John Ewing
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