Wednesday, June 30, 2010

Risky Bonds and Lazy School Boards

Most people don't know that school boards can raise your taxes without a vote of the people.

In Michigan, we are protected from large tax increases by the Headlee Ammendment, passed in 1978. But taxpayers have no protection against school boards.

Among other things, Headlee limits the total amount of taxes collected by limiting the total increase to the rate of inflation. But there is apparently some loophole that exempts school bonds, and school boards exploit it to the fullest extent of the law.

Rochester's risky bond scheme just blew up, and now they are dumping on local taxpayers with a 30% tax increase, from 5.18 mills to 6.7 mills. There is another 15% increase on the horizon, up to 7.7 mills.

(Incidentally, they'll now be collecting $27.5 million in bond taxes, which translates into $1850 per pupil! That is IN ADDITION TO the $10,500 or so they receive into their general fund from all sources of revenue.)

I wrote about it last week in the Oakland Press:

Oakland Press: Poor management leads to school tax hikes (6/24/10)

What can you do about it? Absolutely nothing.

And don't think this is the end of their desire to tax.

For years the district as budgeted very little for building maintenance, assuming that they would just call for another bond issue, and fund maintenance out of special bond dollars, rather than consider them normal operating expenses.

That scheme has run it's course, and is no longer an option.

However, while they were operating this scheme, the board was underfunding budgets for building maintenance, instead funnelling every available penny to salaries and benefits.

So, they are no longer in a position to pass more bonds, and they have no money in the general fund for building maintenance.

My guess is that the school board will soon be looking for a taxpayer bailout, and they'll call it a "sinking fund."

They'll blame the state for "underfunding schools", and plead for this new tax. Taxpayers will be told they can approve this new tax, or instead watch the district's beautiful buildings fall apart.

I've pasted the full article below in case the link doesn't work.

==> Mike.


GUEST OPINION: Poor management leads to school tax hikes
Thursday, June 24, 2010

By Mike Reno

School bonds are ticking time bombs set to explode this month on unsuspecting taxpayers.

They were planted years ago by lackluster school boards.

Rather than attempt to disarm them and avoid a tax increase, boards will let them detonate, banking on another taxpayer bailout, with little regard for the collateral damage their hikes may inflict on struggling homeowners.

This serves as a lesson to those who ignore school board elections, and ignore the “fine print” when these bonds are promoted.

A school board typically markets a bond proposal by communicating the bond value and millage rate. For example, a district might ask for a $64 million bond issue, with a 5.18 mill tax rate.

However, the “fine print” reveals the millage figure might be a “low introductory rate,” subject to increases determined by your local school board.

This just happened in Rochester, where the 5.18 mill rate
increased by 30 percent to 6.7 mills. Taxpayers have no say, and most will probably remain unaware of the tax hike until they open their next tax bill.

It’s happening in other communities too, such as South Lyon and Royal Oak.

On the surface, plummeting home values are to blame. With housing assessments down, the amount collected by the current millage isn’t enough to make scheduled school bond payments.

Yet as much as school boards might wish to be seen as helpless victims of economic circumstances, there’s plenty they could be doing to relieve our school tax obligations.

Let’s start with the bonds themselves. In Rochester, the repayment schedule is based on the assumption home values would increase 6 percent annually — forever.

This is like taking out a home mortgage with monthly payments that increase annually based on the assumption that you’ll get a substantial raise every year — forever.

Who came up with this idea? A financial consultant who’s been awarded no-bid contracts since the 1990s and also hired a sitting Rochester school board member.

A consultant who now says raising taxes is the only option.

Perhaps a tax increase is inevitable. But rather than merely rubber-stamping it, our elected officials should probe everything, leaving no stone unturned in an effort to avert a tax increase.

Instead, none questioned a misleading board presentation. This increase is $152 per $100,000 of taxable home value, but the presentation attempts to fool people into thinking the increase will be much less.

After the deceptive presentation, and considering how this consulting firm put the district into its present “no option” predicament, the board was urged to go the extra mile on behalf of the taxpayer, and at least seek a second opinion. The board didn’t respond to the suggestion.

Someone then pointed out how the benevolent board has kept tax rates constant for the past decade, as if we should expect regular taxes increases and be grateful they’ve held off for so long. And it completely ignores the fact that 10 years ago the district collected $16.7 million in taxes, while next year they’ll levy $27.5 million.

In the end, the board made no effort to protect taxpayers, and voted unanimously for a tax increase. And there’s another 15-percent increase projected for next year, to 7.7 mills!

The biggest problem isn’t the tax increase; it’s the sloppy way it happened. It’s been a lesson in poor governance, from the risky bond scheme to the conflict-of-interest consultant, to the deceptive presentations, and concluding with the downright lazy decision to skip a second opinion.

These school boards are their own worst enemy. Their behavior and mismanagement causes people to doubt their credibility, ultimately making it difficult to find tax dollars for worthwhile projects and justifiable needs.


Wednesday, June 23, 2010

Sports: The 3rd Rail of School Politics

High voltage electricity was once supplied to trains through the “third rail”. Over time, the phrase “third rail” became a metaphor denoting a political subject so highly charged that politicians who dared to discuss the subject – metaphorically touch the rail – would suffer greatly.

In school politics, athletics is a third rail, and some local school boards recently tested voltage. Sparks flew... and the boards backed down.

I wrote this piece a few weeks ago:

Detroit News: Bloated costs hurting schools (06/03/10)

As predicted, the school board is going to pull hundreds of thousands of dollars out of savings to subsidize sports.

They will spend about $900 per pupil for the 1800 students that play sports, and it comes at the expense of the 13,000 kids who don't play.

Meanwhile, they are slashing $1,000,000 out of the already underfunded building maintenance budget.

Keep all of this in mind when this board approaches voters in a few years to ask for a sinking fund millage. We'll have leaky roofs, and cracked parking lots, and they'll tell you that there is just no money to fix things. Remember their actions here when they trot out the "we have no choice" excuse.

==> Mike.

P.S. I've pasted below the article in case the link doesn't work.


June 3, 2010

Bloated costs hurting schools


For years, irresponsible school board spending set the stage for a financial meltdown. The economic crisis in Michigan accelerated the process, compelling boards to consider tough budget choices.

These choices have brought out competing special interest groups, claws extended, defending their turf, trying to push the cuts onto someone else.

Employee unions are the 800-pound gorilla in these fights, but the "athletic parent" is proving to be one tough mama grizzly as well. They view after-school sports as an entitlement, and attack anyone who threatens it.

This entitlement is being tested in cash-strapped districts, and fur is flying from Rochester to Romeo to Farmington.

In Rochester, student athletes
are assessed a $180 pay-to-play fee, which comes nowhere close to covering athletic spending.

Even after these fees, Rochester athletic spending exceeds $1.6 million dollars. That's nearly $890 for each of the 1,800 student athletes. Add together the school expenditures and student fees, and the average cost for after-school sports is $1,070 per participant.

Compare school spending to several private intramural football and basketball teams in Rochester. Some are recreational, while others are more competitive. They range in cost from $140 to $250 per child per season; up to 85 percent less than the school.

Beyond the annual costs, the district recently installed three artificial turf football fields at $1 million dollars each, as well as two middle school auxiliary gymnasiums "needed" to supplement the main gyms.

Ignoring costs, there's no doubt that sports are constructive for some students. Sports can teach leadership and teamwork, and help a child learn to humbly accept victory or graciously concede defeat. For some, athletics are the only motivation to do well in school.

But the fact remains that after-school sports aren't part of a school's core curriculum, and the costs come at the expense of the thousands of students who do not play.

The $1.6 million dollar athletic expenditure in Rochester is now being examined as the district faces a $14 million dollar deficit. One proposal considers increasing the pay-to-play fee to $450, and athletic boosters are marching on the board with torches and pitchforks.

Yet none of them comment on the layoff notices to 30 teachers and dozens of secretaries, or the reductions in library and special education support staffs.

Deficit reduction proposals consider maximizing the "contractual staffing formula." This is jargon for increasing class sizes to the absolute contractual limits. There hasn't been a peep out of parents.

The board proposes to reduce an already underfunded building maintenance budget, causing speculation they'll soon be begging taxpayers to pass a sinking fund millage. Parents have been silent on this issue.

But the board has received hundreds of letters from athletic parents "outraged" at the increased pay-to-play proposal.

Parents should be upset, but not at the fee. They should be upset that the school board let the cost of sports become so outrageously expensive. And they should be upset that the board continues to squeeze academic and athletic programs to feed unreasonable union demands.

In the end, politicians on the Rochester board -- lacking conviction -- will likely cave to the pressure, pulling more money from the district's rapidly dwindling savings account to subsidize after-school sports.

Rochester is the example, but extrapolating these numbers statewide suggest athletic spending might exceed $185 million annually. And sports may be the face of the debate, but other extra-curricular activities such as drama and choir are also at risk.

Sadly, no solution is in sight.

Rather than deal with economic reality, schools contend this is a "Lansing problem," issuing calls for "stable funding" (more education jargon for a tax increase).

A taxpayer bailout of irresponsible school board spenders is not the solution.

Schools must acquire the fiscal discipline necessary to get spending in line with reasonable benchmarks set by the private sector, not just in sports, but in all areas of their operation.

And boards must develop the communication skills necessary to help us understand why this is the time for shared sacrifice from employee unions, athletic parents, and other special interest groups.