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.


Anonymous said...

Mike: you forget so quickly. You yourself wrapped yourself in the Bond 2004 campaign.

You and your company contributed discs and freind-to-friend cards to the effort. I still have some as proof for the trolls here.

So own up to it. You didn't read the fine print or see this comming either. Your points about a sinking fund are well founded but you are just complaining again and this time you complain about your own actions.

Mike Reno said...

Yep... I was duped like everyone else.

(Recall that I was not a board member at the time, and entirely unaware of how the game is played.)

We all live and learn.

Electronic Sally said...

If there is nothing to do about it- now what?

Jeremy Nielson said...

I think there's only "nothing to do" about this because the board has made up their minds.

It's a shame they weren't willing to consider other alternatives. The Finance Director mentioned "loans from the state" when the rate is about 7.0 mills in her presentation in April. Why can't we do loans from a bank right now, without raising taxes? Mike's right; there may be no other alternatives and no other options. But we should at least get a second opinion before fleecing taxpayers during "the perfect storm".

It might be worth recommending to folks to have their properties reassessed so they can offset this tax increase as much as possible. With a board dead-set in poor planning and not seeking alternatives, it's about the only option taxpayers have before the next election.