Monday, August 24, 2009

Reducing the Mill Rate - Mission Possible?

So we know that the school board is proposing (and will approve it unless enough people get vocal and convince them otherwise) a $1.28 minimum increase to the millrate, which will add $256/year to the property taxes on a $200,000 home.

Tax Levy (proposed)=$46,089,546. The Mill Rate(proposed) =$11.81 (per $1,000 assessed value). Do the math, and you see that basically every $1,000,000 of tax levied results in a $0.25 increase to the mill rate. George Washington quarter. reduce the mill rate to last year's level (net zero), with a mill rate increase of $1.28 (which amounts to 5 quarters) means we'd have to shave about $5,000,000 off the budget. OK...that sounds pretty unlikely...but....

What they haven't told us is how we got there or what we could do to lower such a huge increase during very tight times. What we can tell you is what some of the new additions have cost us relative to the mill rate:

  • Teachers Contracts, $1,457,075 = $0.37 on the mill rate
  • Debt Levy increase, $876,000 = $0.22 on the mill rate
  • New "SP4K" Program, $640,000= $0.16 on the mill rate
  • Administrator Pay Increases, $113,895= $0.03 on the mill rate
  • Administrative Support Pay Increases, $80,000= $0.02 on the mill rate

How to Reduce the Mill Rate

Basically there are 3 ways to reduce the mill rate:

1. Increase the value of property in the district. The budget was based, as directed by the Finance Committee, on the assumption of a net zero increase in the value of property (otherwise known as "Equalized Value") within the school district. This one is a little beyond our control. We know that assessed value of our homes actually went down, so the first inclination is that maybe the projection is actually too high already. But you also have to consider the value of NEW homes built since last year, and new businesses in the district...such as the new Target. A 1% increase in Equalized Value (with no reduction to the Tax Levy) would result in a $0.12 decrease to the mill rate.

2. Decrease the Tax Levy (Budget Cuts). This is the tough part...cutting things from a budget. Some things are fixed, such as the debt levy; we borrowed the money for construction of the new high school and now we have to start paying it back. This is also where the district and school board are right (technically) that a 7-day newspaper subscription, flowers, KitKat bars,sea bass dinners, and lots of pizza don't really affect the mill rate. Individually, they have minuscule impact on a mill rate. Add 'em all up, however, and we do start to see "real" money. More importantly, this kind of "want vs. need" budgeting only costs the taxpayers money.

It's funny that at the public hearing on the budget, school board member Caren Diedrich specifically spoke to teachers who may feel the lack the tools to do their jobs effectively.

" We meet the teachers' needs...we don't always rise to their wants. "
- School Board member Caren Diedrich

Hmmm...who's policing district administration and school board "wants"???

To really see a dent in the mill rate, we need to focus on the big ticket expenditures. The only new big ticket item, this year, was the 4K program. The bottom line, no matter how they spin it, is that the net effect THIS year was a COST to the budget of about $640,000. Assuming the Equalized Value projection is accurate, we would need to shave the budget by $1,000,000 for every $0.25 reduction in the mill rate.

3. Reduce the Tax Levy (Dip into the Savings Account). What many people do NOT know, is that the district maintains a "savings account" of sorts. It's called "Fund Balance", but it basically exists as a "rainy day" fund to cover unexpected high dollar costs that were not budgeted. Say, for example, the boilers completely die in a couple of schools. That would cost a lot of money, and once a budget is set, it's hard to cover these expenses. Just as you (hopefully) maintain savings accounts for these "rainy" days, so to the district has its "Fund Balance, which it can tap into for emergencies. Already, in this budget, the district is using $200,000 from Fund Balance to pay off property tax chargebacks. With the proposed budget, the general Fund Balance sits at $7,800,000. Using $1.500,000 from fund balance would reduce the mill rate increase by $0.38, saving the owner of a $200,000 home $77 on their property taxes.

The Case Against Using Fund Balance to lower the Tax Levy
Why shouldn't we dip into the savings account? The single biggest reason is that the strength of our "savings account" affects our bond rating (much like an individual's credit score). If the bond rating goes down too much, than when we need to borrow money, we are not eligible for the lowest rates generally available. The problem is that the district/board will never speak in specifics. There's just that somber tone of "our bond rating will drop. Our interest rates will rise".

Certainly, that is true, but the last time this issue arose, the difference in interest rate was less than 4.75% vs. 4.79%. Also, bond ratings are obtained based on MORE than just the heft of one's Fund Balance (savings account). They look at the viability of the school district. If the district's projections for increasing enrollment ring true, then more kids means more money...and who WOULDN'T invest in that?

The Case FOR applying Fund Balance to Lower the Tax Levy
They call Fund Balance a district's "rainy day" fund. With local people out of work, or suffering from wage cuts or furloughs...with people struggling to keep their homes out of foreclosure...people, could it really get much rainier??

And...if the district's answer to that question is, "Yes, it could get much rainier", then don't you think they should be telling us?