Friday, July 01, 2011

State budget deal includes property-tax reforms that are likely to affect high-school plans (Updated)

Update 2011-07-01 14:00: It’s now law: Governor Corbett approved SB 300, now Act no. 25. Also, I added links to additional coverage.

Yesterday, Pennsylvania legislators passed Senate Bill 330, “an Act amending [Act 1 of 2006], the Taxpayer Relief Act, further providing for public referendum requirements and for installment payment of school real property taxes.” The bill is expected to be signed into law by Governor Corbett later today. Governor Corbett approved the bill late on Thursday evening.

It’s a big deal because, on Wednesday, the bill was amended to include much of the controversial property-tax reforms of House Bill 1326. These reforms, among other things, would require school districts to seek voter approval before raising property taxes above inflationary rates to pay for school construction. The Philadelphia Inquirer explains:
Though payments on construction debt incurred before Act 1 passed would still be allowed – as would debt for a specific spending project approved by voters – [the bill] would do away with the exemption for school construction.
Why is voter approval of school construction important for property-tax reform? The answer, put in terms Mt. Lebanon residents can immediately understand, comes from James Broussard, chairman of Citizens Against Higher Taxes, who is quoted in the Tribune-Review’s coverage of the legislation:
One of the “real drivers” of increased property taxes is “Taj Mahal school building projects.”
So how is this legislation likely to affect the planned high-school project?

It’s hard to say. The school district has a track record of figuring out how to get what it wants, so who knows what it might be able to squeeze between the new requirements.

But I do think it’s likely that the project’s price tag will be forced downward. I think this for two reasons.

First, a higher-priced project is more likely to require voter approval and also more likely not to get it. Knowing this, the school board must now make sure the project is more in line with voters’ expectations for these frugal times.

Second, this legislation makes it harder for school districts to raise taxes in general. So, if the school district spends too much on the high school, it might not have enough money left over to pay for other things. Raising taxes is no longer an easy solution to such problems. Thus the school board will be forced, in a very public way, to choose between spending its money on bricks and spending its money on education.

Let’s hope the board members choose wisely.

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Blogger Bill Matthews said...

Senate Bill 330 - Amending Act 1 of 2006 is GREAT news.

Yes -- it will cause some consternation for School Boards (including ours), but it is about time they got serious about their responsibilities.

Just look at how the Board has handled parts of the HS project.

One month we need 31,000 square feet and the next month we don't.

AND, had it not been for the astronomical bids, does anyone think the Board would have said:

"Hey Tom (that's what they call Mr. Celli), Hey Tom, some things have changed here in the district in the last month, can you take a floor out of Building G and make other changes to pull 31,000 square feet out and save us a couple million dollars? While you are at it, how about shaving another 10 to 12 million off the project.

Not a chance.

The building would still include the now unnecessary 31,000 square feet and a bunch of other unnecessary stuff.

There might yet be more unnecessary stuff if the Board were focused on educational needs and not the maximum building cost -- read: maximum spend of OPM (Other People's Money).

I have also expressed concerns that some important and meaningful features may end up on the cutting room floor, in order to keep more desirable and unnecessary stuff.

I know the Board cannot predict the future and we are constantly reminded estimates and forecasts are nothing more than estimates and forecasts -- but what we ask the Board to do -- is work with the best available information.

The Board had visibility at the time it went out to bid, that we might not need the now unneeded 31,000 square feet. The Board knew an administrative reorganization was in the wind and certain administrative functions were not building bound and there was space in other buildings available.

Bottom line, when administrators and school board directors are pondering why they have been subject to SB 330 --- they should simply look in a mirror.

July 01, 2011 1:22 PM  
Blogger Tom Moertel said...

Just a quick reminder, dear readers: We don't publish anonymous comments. I mention this because about an hour ago we received a thoughtful comment that was unsigned. (If you wrote it, please submit it again, remembering to include your full name.)


July 01, 2011 10:56 PM  
Blogger Bill Matthews said...

Over the last few days I have had several discussions as to what this legislation will actually mean to MTLSD and even more specifically the HS project.

Frankly, I have no concrete idea. Our District financials, while award winning, are of limited use.

That said, I am confident the administration has invested the time to understand the potential implications of the legislation and the work arounds reserved for the creative.

Further, plans like this are almost always on a strict "need to know basis" in the District. The Board may not even be on the "need to know" list.

I know I am not on the list. Recently, after the budget was sewn up, I asked the District to post an updated 5-year forecast. The current posting is a forecast dated 01-04-11. I did not ask before the budget was completed, knowing I was not on the "need to know" list for even a forecast, or anything else that can be liberally defined as pre-deliberative.

As to my request, the District informed me the "official" forecast would be prepared for the budget book, to be released later in the summer.

I really did not need the "official" forecast. The one the Board used for the budget cycle would be just fine.

Certainly the administration was updating forecasts as better and better information became available throughout the budget cycle. After all, we have been told in previous cycles that the information in January is too inadequately refined for decision making, not much more than a professional guess.

Then again, maybe there really is yet no updated forecast, the administration simply flew by the seat of its pants through the budget cycle.

Maybe the award winning budget book, is nothing more than a story compiled after the budget is finalized, rather than a management tool available to the Board to make competent, informed decisions.

We may never know, as long as the District, in its new age of transparency, keeps most off the "need to know" list.

July 02, 2011 8:53 PM  
Anonymous Anonymous said...

Returning to the referendum and HS subject areas, lets be sure to understand and be able to differentiate between referendum requirements applicable to the HS project....there are two (2) separate considerations :

1) the first has to do with the now Act 25, covered in the posting, related to increase limitations in school district real estate millages....there are now, thankfully, fewer *loopholes* to circumvent (contravene) referendums;

2) the second, and less understood, has to do with a PDE PlanCon-imposed limitation on construction costs of the "New" portion or component of a school building project where partial reimbursement of debt service by the State (PDE) has been applied for by the school district. The limitation does not apply to the "Existing" or renovated portion of building construction cost.

The PlanCon construction cost limitation on the "New" portion of the HS project is roughly $48 million....anything above that in bids would require electoral referendum approval to proceed on that bid cost basis. The last known P.J. Dick cost estimate (10/2010) for the "New" portion of the final design & specs that went to bid was very close to to the $48 million limit.

And the construction bids for the overall design & specs came in $16-$37 million over the $86 million estimate....assuredly it is safe to assume that the bids for just the "New" portion exceeded the $48 million limit by a considerable amount as well, and yet no one admitted it or even inquired about it in public did they !

The major "New" portions of the HS project include Building G, the Athletic Building (H-J-K) and a few other lesser components including possibly the Loading Dock. Does this perhaps help to explain why an entire foor is being eliminated in G as well as Lower-level 2 in H-J-K, and that the 3rd. gym will probably remain a delete alternate ? And the Loading Dock is being redesigned, simplified and cost-reduced. And, someone should try to determine how much of that entire 31,000 square feet, net of the reductions described above, being eliminated is "New", and what construction cost reductions will likely result.

Recognize as well that the SB-approved project in early 2009 was a building based on carefully defined needs to be sized at 440,000 square feet. The Master Design Team (MDT), yielding to both internal and external special interests, allowed the design to increase to 479,845 square feet in early 2010, and the final design went out to bid in March, 2011 at 485,995 square feet ! Some 46,000 square feet added, and now 31,000 is being removed with reportedly no impact on programatic needs. Unknown to most unless they carefully reviewed the PlanCon Form filings for the HS, the final design exceeded the PlanCon design standards for enrollment comperable secondary schools by 67,000 square feet ! But, like ACT 1 *loopholes*, all the District had to do to obtain a size waiver was to literally check a box on a PlanCon Form submission.

So folks, it will take more than just Act 25 to effect more complete referendum control over school districts. We also need a complete overhall of the PlanCon process and the elimination of the *old boy network* that exists among and between PlanCon personnel, school district administrators, A&E's, CM's and PlanCon consultants.

Bill Lewis

July 02, 2011 10:53 PM  
Anonymous Anonymous said...

P.S. It is also my understanding that the PlanCon referendum requirement related to "New" construction costs applies to the project from beginning to end...that is, if change orders or costs generally of the "New" cause the "New" limit to be exceeded at any time during the construction period, a halt would be called for an electoral referendum approval to exceed cost limits and continue, or not.

Not sure of the PlanCon monitoring process or means for them to determine when a referendum would be required say midway through a project; however, that may be the *loophole* might require voluntary reporting by a District.

Bill Lewis

July 03, 2011 2:16 PM  
Anonymous Anonymous said...

Assume the HS project goes forward by year-end.

How will the District deal with the referendum realities now facing it with regard to the 2nd. funding requirement for the Taj Mahal high school ?

If past building project and budgeting practices over some 20 years years can serve to provide any clues, here is a potential's a bit complicated :

1) the District will have 2-3 years from now to face the funding and potential referendum requirement;

2) expenditures in carefully crafted (padded) budgets over the next 2-3 years will require maximum allowable millage increases each year;

3) these projected expenditures will likely not include Ostergaard savings as they will be deemed *speculative or "unreliable" at the time. So, expenditures will be overestimated (projected);

3) somehow budget revenues will be underestimated (projected) happens almost every year;

4) the end result will be a budget surplus every year accompanied with a higher millage rate than the year before;

5) what will happen to this surplus ? Anything that results in a total undesignated general fund balance exceeding 6% will automatically go into the Capital Projects Fund, already $10-$12 million or so...the SB may very well not assign surplus funds to PSERS and/or OPEB reserve accounts during this 2-3 year period;

6) so with the millage increasing to the allowable max, and surpluses being added to the Capital Projects Fund each year for the next 2-3 years, by the time a 2nd. bond issue is necessary (a) the ever larger Capital Projects Fund will permit a significantly reduced borrowing need in say 2014 to complete the project,resulting in reduced debt service requirements in the operating budget which in turn reduces the amount of a necessary millage increase, thereby reducing the need for a referendum; and, (b) the increased millage rate in next 2-3 years will result in a higher base from which to apply the % limit increase to fund a year later debt service requirement for the 2nd. bond issue (yes, there will be capitalized interest or issuance timing or interest only initial payment to defer and/or minimize the initial debt service payment);

7) we probably shouldn't overlook the arbitrage interest earnings on the proceeds from the initial $69 million bond issue proceeds from 2009, booked in a special District account and earning a bit of interest each year, though declining...but what the heck, 1% annual interest on $69 million = $690,000;

8) there will be no problem with debt limit because the revenue base will be increasing each year, debt principal from all previous bond issues...including the $69 million 1st. issue in 2009...will be paid down, all of which serve to increase the allowable debt limit accordingly. And the District will continue to advantageously apply state reimbursements to the formula for debt limit calculation;

9) and to make sure I haven't overlooked other relevant factors and possibilities, let me add that with the 2012 real estate reassessment going into effect, some calculation bases will change. Among these are (a) reassessment law requires a revenue neutral outcome...that is, if the 2012 reassessment increases the total market value of Lebo taxable real estate by say 25%, the real estate tax millage rate by law would have to be decreased by 25%, and a resulting individual mill would have a correspondingly increased monetary value; and, (b) however, anti-windfall provisions in PA law associated with reassessments do permit municipal government taxing bodies to retain up-to 5% of the resulting increased millage revenue prior to adjustment for just the reassessment year (as a politial *gift*);and, school districts are limited to only the % limitation applicable in Act 1, for us this year 1.4% for a 2012 *gift* at taxpayers expense....which will likely also flow down to a bottom line surplus don't you think.

Bill Lewis

July 04, 2011 11:56 AM  
Anonymous Anonymous said...

Mr. Lewis it seems to be impossible to get rid of dishonest administrators in the Mt. Lebanon School District.The only way I see this changing is when we start to give up union jobs about two or three years from now.

The only way I see us avoiding this job loss is if the younger teachers figure out they outnumber the older teachers and add the salary increases to the younger teachers salaries instead of the older teachers salaries. The real shame here is the younger teachers have outnumbered the older teachers since 2004 - too bad neither the teachers, nor the board, nor the administrators have figured this out YET!

John Ewing

July 06, 2011 6:02 PM  

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