Lebo needs to demonstrate fiscal responsibility
Mt. Lebanon School District is embarking on the second bond issue for our high school renovation. As currently planned, the financing will cost more than it should for three reasons: 1: The renovation is too big and expensive. 2: The financing plan is to �wrap� the bonds. 3: The plan includes capitalizing interest in the early years.
It will not change anything now to discuss the size and scope of the project; but we should never lose sight of the fact that our board, when they thought there was room in the budget, added amenities not recommended in the space plan prepared by our former superintendent, yet did not delete these upgrades when the initial building bids burst our bubble.
One could see the proposed bond wrapping coming years ago. Nevertheless, its primary purpose is not to soften the millage impact as alluded to by the board. The bonds are being phased in to provide for actual future millage increases up to Act 1 limitations. Between the demands of this financing, and normal operations, we can anticipate experiencing maximum allowable millage increases for the next few years.
The capitalized interest is, however, an opportunity to demonstrate some respect for Mt. Lebanon residents and taxpayers. The plan includes about two million dollars in borrowed money to fill out the interest expense in 2014, 2015 and 2016. The administration has acknowledged it has three million dollars that could be used to reduce the total borrowing, to which the board turned a deaf ear.
Here is a suggestion, in lieu of hoarding these funds the board could demonstrate some fiscal responsibility by at least paying the interest expense with the available reserves. Effectively, it would do two things: lower the overall cost of the borrowing and consequently, lower our go forward tax burden.
Our school board will be discussing the bond issue on Aug. 12, and possibly give direction to our financial advisor to sell the bonds; taxpayers with similar concerns or even better ideas should contact the board, maybe they will listen.
Bill Matthews
Mt. Lebanon
It will not change anything now to discuss the size and scope of the project; but we should never lose sight of the fact that our board, when they thought there was room in the budget, added amenities not recommended in the space plan prepared by our former superintendent, yet did not delete these upgrades when the initial building bids burst our bubble.
One could see the proposed bond wrapping coming years ago. Nevertheless, its primary purpose is not to soften the millage impact as alluded to by the board. The bonds are being phased in to provide for actual future millage increases up to Act 1 limitations. Between the demands of this financing, and normal operations, we can anticipate experiencing maximum allowable millage increases for the next few years.
The capitalized interest is, however, an opportunity to demonstrate some respect for Mt. Lebanon residents and taxpayers. The plan includes about two million dollars in borrowed money to fill out the interest expense in 2014, 2015 and 2016. The administration has acknowledged it has three million dollars that could be used to reduce the total borrowing, to which the board turned a deaf ear.
Here is a suggestion, in lieu of hoarding these funds the board could demonstrate some fiscal responsibility by at least paying the interest expense with the available reserves. Effectively, it would do two things: lower the overall cost of the borrowing and consequently, lower our go forward tax burden.
Our school board will be discussing the bond issue on Aug. 12, and possibly give direction to our financial advisor to sell the bonds; taxpayers with similar concerns or even better ideas should contact the board, maybe they will listen.
Bill Matthews
Mt. Lebanon
Thoroughly researched well written.
ReplyDeleteGod help Mt Lebanon.
The amazing thing is that none of the directors or administrators will step up and explain how Mr. Matthews is wrong.
ReplyDeleteThey won't admit he's right either and act accordingly.
Just like a certain incumbent accusing gov. Corbett of cutting K-12 fundin, then going deaf and dumb when an experienced retired(?) CPA points out it's not true.
I'd prefer to have a school director that stands up and speaks openly and honestly, regardless of party affiliation.
Too bad we can't appoint Mr. Matthews and Mr. Hill!
Don't forget the experienced CPA is running for school board on the same yard signs as the DEAF and DUMB school director.
ReplyDeleteYes, but her team and its followers shunned him real fast when he didn't toe the party line didn't they.
ReplyDeleteSo much for team spirit.
Are you saying our DEAF and DUMB school director is as disloyal to her running mate as Mr. Change Order was to his running mate?
ReplyDeleteLet's just say the directors aren't loyal to their constituents and be done with it.
ReplyDeleteThey're loyal to the system and the teacher's union, everything else appears to take second place.
Wrapping bonds is a horrible practice to get into. It's like eating Pingles.
ReplyDeleteOnce you pop, you can't stop.
The nature of wrapped bonds is such that future bond floats need to be wrapped as well in order to fit future payment profiles. This adds millions of dollars to interest costs which could easily be avoided if the bonds are floated with level payments.
It is extremely disappointing that no school board members have asked for and produced for public inspection a side-by-side comparison of the bond issues proposed by Jan Klein & Financial Advisor, with a level payment or conventional, market or non-premium interest rate issue without capitalized interest.
ReplyDeleteThe comparison should should cover the annual and total debt service payments and bond interest rates over the entire term, with the true interest cost determination for each version and the resultant millage rate requirements for each version over the bond terms.
Would not any of us want to know and evaluate our financing options associated with any major purchase such as a new car, house, etc. ? This is a $30 million + financing decision for heavens sake !
Bill Lewis
We're given more information in the fine print when financing a car, or even opening up a credit card.
ReplyDeleteElaine Cappucci slammed Bill Matthews at the Budget Forum by constantly interrupting him with time checks. She never heard a word he said.
It makes you wonder what kind of a kick back Jan Klein and the school board directors are getting.
Elaine
There is going to be a kick back from the pension mess in Pennsylvania. According to an article in "The Economist," Pennsylvania is number eight on the trouble list of pension obligations. Detroit could be the match that sets off the rollback of pension and benefits because their healthcare benefits are bigger than their pension obligations.
ReplyDeleteWith Pennsylvania in such deep pension trouble, how do you think we will feel about a Federal bailout of Detroit when we have our own problems?
Given the fact that Pennsylvania's pension obligations will reach 30% of payroll by 2020, the ML school directors have left us with the most convoluted debt structure and educational costs possible.
The pension mess makes turfing, fields, paying for back flow valves, climbing walls, and sidewalks more contentious in better economic times. As a matter of fact, paying a neighbor's bill for his convenience will become more contentious as we proceed with unnecessary additions to our infrastructure. Parents are going to have to realize they must step up and pay for field use just like swimming, tennis, golf, swimming, and hockey make their contributions. If they don't recognize their responsibilities parents will find the bills they are accumulating are unsustainable in a town without a growth of tax base.
I just hope the powers that be will focus on what we have rather than what we had.
ReplyDelete7:22, I wrote to the SB three times asking about funding pension obligations. After they stopped laughing I got an arrogant, "there's no problem, the state takes care of it and we made our contribution.."
ReplyDeleteI like what Mr Mazzocco said. It's well put.
Maybe PA will give the teachers the Santorum plan for social security reform? It's simple to understand:
1. You pay into the fund with every paycheck.
2. When you retire, you get shit.
I don't get it.
ReplyDeleteHow do either the school board or commissioners figure they have extra money to spend when they have underfunded pensions that need to be covered?
On the school side they admitted they cut supplies, books, etc., to the bone. I think they called this essential stuff used to educate our kids-- "fat."
That's rich! If anything is "fat", it's handing out $5,000 worth of bonuses to very well paid administrators that just raises well above the CPI. Plus, the bonuses were supposedly for their oversight on a building that is way behind schedule. What would the board consider mediocre oversight?
On the commission same thing. We have infrastructure that definitely upgrading or replacement, but they think they have $800,000 to spend on new stuff.
On top of that we have people that favor new spending behind on their tax obligations. Incredible, simply incredible.
Maybe it is just my Lebo math background, but things are not adding up for me.
ReplyDeleteWe were told that the school board had no control over certain issues, so we recommended to cut back the scope of the project. No can do.
We were told that we had to borrow money two years early because the market was right.
The 2010-11 millage had to be increased 10.5%, yet they ended up with almost $2.5 million in excess for 2011.
We were told that the District learned its lesson and would go with a single prime contract. What do they do? Multiple prime.
We were told that fundraising could offset the second bond issue. We were told by the school board that $30 million could be raised through fundraising. Nope. We were told by the school board that $15 million could be raised through fundraising. Not that either. We were told by the school board that $6 million could be raised through fundraising. The position is still open and posted on the district website.
Now, the public is concerned with wrapping bonds and capitilized interest. Again, something the board has some control of, but again will choose the wrong path.
If there is a bad decision to be made, the school board will choose it. To consistently make the worst decision is hard to do. Odds are, they should be right once in a while. It must be a gift.
Elaine
Here are the subtractions for what doesn't add up:
ReplyDeletestudent trips, extra curricular activities, sports, buildings, food activities, custodial services,
technology,classes, class size, elective courses, text books,tutoring, summer school, fine arts, support staff,
foreign languages, physical education, math and sciences,English, social studies.
These cuts ain't for kids!
"even a broken clock is right twice a day!"
ReplyDeleteHow's Pursuing Ketchup doing with the fund raising anyway ? No progress reports at SB meetings ? Has anyone you know been hit-up for a big donation ?
ReplyDeleteThere are four threats waiting for Mount Lebanon:
ReplyDeleteDetroit is trying to force municipal bondholders to accept less-than-full repayment. That’s never happened in 201 years. But Detroit wants to payoff the union workers at the bondholder’s expense, just like the GM bankruptcy.
Currently, interest income earned on municipal bonds is exempt from federal taxation. But President Obama’s budget proposal in April called for limiting this exemption. If it’s eliminated (even in part), municipal bondholders will receive less after-tax return on their bonds from the school district.
Municipal bond yields have been rising in anticipation of the Federal Reserve tapering its bond purchases. The higher yields rise, the bigger the losses for school bond buyers.
Economic commentators are suggesting the sluggish recovery isn’t impacting municipal finances. Bart Mosley, Co-President of Trident Municipal Research, says that Detroit’s $18.5-billion bankruptcy, and Jefferson County, Alabama’s $4-billion bankruptcy filling are “exceptions that prove the rule that state and local government credits are solid. He forgot to mention three California bankruptcies caused by overly generous payroll and benefits for public sector employees.
The data tells an entirely different story. According to the National League of Cities’ study of finances in American cities, General Fund Revenue fell for the sixth-straight year in 2012. Income tax and property tax collections are down for three straight years.
I'll pass on Mount Lebanon's new bonds - there are too many warnings.
Let's take a close look at the PK fund raising scheme from a common sense approach.
ReplyDeleteA friend approaches you with this business deal. Partner with me and we'll make $30 million dollars. Hey, your interested, who wouldn't be. You ask to hear more about it and get the whole dog and pony show. Sounds good, almost too good, so you ask for a study, evidence that $30 million is easily within your grasp. OK the expert shred, we'll do you study for $43,000.
Some of your friends warn, if this partner is going to a million dollars off your fund raiser, isn't that enough on "a sure thing!"
But, hey $30 million is getting certain people pretty excited with anticipation of big checks rolling in and you pop for the study.
Months go by and maaaaayyyyybeee $30 million wasn't a realistic number, but fifteen is!
A few more months go by and the survey is done. You won't make $30 million, $15 million... You might be lucky to make $6 million over 5 or 6 years. No guarantee that'll even happen.
As a private citizens would you a) sign right up or b) take a hard look and back away? If I went for a, I'd sure as hell be negotiating better terms for myself!
What happens if the district can't sell enough bonds?
ReplyDeleteElaine
Your taxes go up, Elaine or acetone lot of stuff that makes Lebo, gets the ax.
ReplyDeleteCorrection
ReplyDeleteYour taxes go up Elaine, or a lot of stuff that makes Lebo-- Lebo gets the ax.
Do you think the deer got wind of the pending cull plans? Incidents seem to have dropped. Maybe we scared 'em out of Dodge!
ReplyDelete"These bonds will not be an exception for Act 1. The Act 1 Index is getting tighter and tighter." From the presentation.
ReplyDeleteDoes that mean that they can't raise the taxes enough to cover the bond issue and that is really why there is capitalized interest?
If they don't sell enough bonds, they can't raise the taxes too much because of Act 1, right?
Elaine
Mr. Frenz explained that there is a provision in the law for capitalized interest for a project like a parking garage that doesn't have any revenue until it is completed in about two years. If the new school bonds come under the Act 1 limit the District doesn't have any revenue to pay the bonds in the early years so they capitalized the interest and the extra debt service has a very small percentage picked up by the State.
ReplyDeleteElaine:
ReplyDeleteThe bond issue should sell without issue. Mt Lebanon is still a good debtor.
Both the bond wrapping and capitalized interest are strategies to "phase in" millage increases related to debt service - - - - while still leaving room under the Act 1 limits for millage increases related to other operating expense increases in the coming years.
All this convenience and consideration for the low cost of just over $4,000,000, over the life of the issue - - - - now there is an issue.
So we squander $4,000,000 so we can waste even more money?
ReplyDeleteMr. Matthews, one of your excellent assessments of the situation.
ReplyDeleteWhile following the news on the Detroit bankruptcy, a lit of the experts are claiming that as more cities and municipalities fail, bond money could get harder and more expensive. That suggest that places that use wrapping may lose that tactic down the road. Is that correct? At that time may we have reached a point where it would be time to pay the piper?
4:33, We are spending an extra $4,000,000 so we can pay a $1,000,000 grievance.
ReplyDeleteThe sky is falling, the sky is falling!!
ReplyDeleteNo...
ReplyDelete"Taxes are going up, services are going down!"
You need to quit listening to fairy tales about talking frogs.
Just like Rob Papke wrote on Real Lebo http://www.reallebo.com/2010/02/school-district-budget-numbers-mocked.html
ReplyDelete"Rob Papke Feb 12, 2010 08:49 AM
Last week a 20 pound chunk of cement fell from the Little Theater (ceiling?) onto the dance floor below. For any of you Doubting Thomas' or Chicken Little's out there, The Sky IS Falling.
No one was hurt, this time."
There never was a 20 lb. chunk of anything that fell.
Perhaps it was Rob who posted that the sky is falling again.
Elaine
And then there is the money itself; the value of it. Consider the current 10 year period - 2003 to date; it now takes $1.27 to buy what a dollar would purchase in 2003. In more practical terms, if you made $70,000 in 2003 you would now have to make over $88,900 to stay even; and frankly, that does not consider the fact that a)income taxes will take a bigger bite out of your higher income, and b)property taxes, which are paid out of after-tax income, are by definition regressive and much higher.
ReplyDeleteNow the school board will counter that the economy is recovering quite nicely, thank you; that disposable income in Mt. Lebanon is up; housing still sells quite well here; and the high school debt is "manageable." On the face of it there is some truth in what they say. But consider the following:
1. Even if you replace all Mt. Lebanon taxpayers making below the MEDIAN income with people making at or above the current level the situation for the District would not improve. Parkinson's Second Law, "expenditures rise to meet income," will kick in, and all the civil servants in the town will want their cut - led, I might add, by the teachers union. The increase in pension costs would soar beyond even the current depressing estimates. As my dad once told me, "It's not so much the size of your income as it is how much money you have left after you pay all your bills."
2. There is no room to grow. Mr. Remely once stated that he expects a small increase in student population over the next few years. Even if that is true it would certainly not be the kind of increase that would justify the District's current spending binge. "Kids" mean families; and families mean housing. The stock of homes for sale in Mt. Lebanon is limited, and a lot - probably most - are older homes that most Gen-X'ers don't want. (I should mention, too, that it's probably a good thing that we don't get sharp increase in the numbers of kids coming into the system - can you imagine the type of costs that would effect?!)
3. Even if one has all the facts and figures one may obtain from the finest economists in the world, if those facts and figures do not match the worldview of the members of our school board it will be all for naught. Given that the vast majority of the current (and probably future) members of the school board are statists, it "will be all for naught."
Real change "under the dome" will come only when residents realize that there is a vast difference between "education" and "schools," and when the 19th Century Prussian school system model that we labor under is replaced by one that puts the emphasis on kids instead of on the system.
4:50, The kids are already paying the piper. Think about how many curriculum changes have happened in the last four to five years. Are the kids better off today or just the Staff?
ReplyDeleteHere is some legislation that might help. Give it a cut and paste.
ReplyDeletehttp://www.righttoworkcommittee.org/rtwash_petition.aspx?pid=0726d
I wonder if 5:16 can give us a lesson in economics and why we shouldn't be concerned with the financial situation beyond that highly intellectual "the sky is falling" snarky comment?
ReplyDeleteI'd love to hear their take on the numbers, and forecast of future revenues and expenses.
Did anyone watch Stossel on Fox tonight? Stossel did a great piece on Detroit!
ReplyDeleteFolks, just keep listening to Franklin, Remley and the big public service unions and Mt Lebanon will be next.
Maybe part of the problem is that we have too many post-Aliquippa residents advising our current leadership on the direction that they shoild take.
Do we really want to become another Aliquippa? The parallels are frightening!
Sorry i missed Stossel, he's great!
ReplyDeleteHere's a post on his blog- http://www.foxbusiness.com/on-air/stossel/blog/2013/07/18/are-we-rome-airs-sunday-10pm-et-fnc - that makes some interesting points, like Nero's travel and sports stadiums.
A person named Connie submitted this comment earlier under "We're surrounded by greed".
ReplyDelete""The less you respond to RUDE, CRITICAL, AGUMENTATIVE people, the more peaceful your life will become". Sometimes it just is not worth the time because the result seems to be the same. Connie July 28, 2013 at 11:42 AM"
I wish Connie would check in and tell us whom we should not respond (ignore?) too.
People like Mr. Matthews or people that hit and run with comments like "the sky is falling, the sky is falling."
Mr. Matthews is certainly critical, but he backs up his criticism with facts and numbers. The troll on the other hand offers up nothing intelligent.
If Detroit doesn't resonate with some of you here are some other names to watch:
ReplyDeleteChicago
Los Angeles
Philadelphia
Puerto Rico
San Jose
I could continue, but you should get the idea.
Mt Lebanon does not equal in any circumstance to Chicago, LA, Phila, Puerto Rico or San Jose. Mt. Lebanon will not be filing for bankrupcy, as a previous commenter wrote....the sky is falling!
ReplyDeleteTo Connie:
ReplyDeleteYou might want to ponder the words of this woman.
"The freedom to criticize judges and other public officials is necessary to a vibrant democracy."
-- Sandra Day O'Connor, former U.S. Supreme Court justice
10:25 PM, you aren't going to get that lesson in economics from 5:16 PM, or even from 2:21 PM any time soon. They want to cut interest earnings. Oy vey.
ReplyDeleteElaine
That's correct 2:21 pm AND the High School Project is going to come in under $90 million. ;)
ReplyDelete6:55 PM, to 2:21 PM, you need to be saying that it will only be $18 a month. And to check the facts on the VOICE website.
ReplyDeleteElaine
These people that are claiming Mt. Lebanon isn't Detroit... are they insinuating that the leaders of that city sat aroumd 10-20 years ago and planned for it go bankrupt?
ReplyDeleteDo municipalities and their elected officials make decisions like lets borrow tons of money, raise salaries and therefore pensions, and drive out business and residemts so that in thext decade or so we won't be able to cover oir obligations.
So municipal bankrupcies are planned, i didn't know that!
Actually 8:43pm, when you look at the deal that O'Bama gave General Motors, whose pre-packaged bankruptcy was effectively planned, you can't blame any city or municipality to spend wrecklessly if that is the sweetheart deal that is waiting on the other side!
ReplyDeleteWhat sweetheart deal did Detroit get out of the GM bail out?
ReplyDeleteWhat is incredible is that the unions think the democrats are their friends. Keep an rye on how they protect the Detroit pensions.
Closer to home, remember how quick our board was to cut a student advisor until the kids protrsted and put a stpp to it. Remind me, how much excess cash was Klein sitting on that year?
Detroit's bankruptcy is lumping the debt in with the pensions and offering to pay the bondholders 10 cent on the dollars they lent the City so they can protect union pensions. That is a sweetheart deal and credit won't be granted on those terms once bond buyers catch on.
ReplyDeleteThe same deal was given the unions in the GM bankruptcy bailout when the bondholders got screwed so the union pension plans were taken care of.
In the most tangible sign of fallout from Detroit's bankruptcy filing, a Michigan municipality postponed a $53 million bond sale as investors blanched at the offered terms.
ReplyDeletePotential buyers wanted much higher yields than Genesee County was willing to pay, said people familiar with the offering.
The setback came amid broader concerns about the county's finances, the small size of the offering and the safety of municipal securities given the potential for some Detroit bondholders to suffer losses.
As the bond markets close the legislatures will have no choice but to fix the bloated pension and healthcare problems.
ReplyDeletePensions can continue to be viable as long as those who benefit contribute accordingly. Unfortunately, what is promised to the pensioners is too much for the public to sustain. Those in private 401k or 403b plans contribute to a fund that is a variable and not guarentee. The days of the guarentee will soon be extinct. It is unfortunate but reality dictates the market.
ReplyDeleteAGAIN,
Best of luck,
Connie