No goal? No plan? No millage. (Part 3)

Will renewing the bond increase property taxes?

The answer is yes--but it won't increase your tax bill--yet.

Supporters of the bond seem to think taxpayers can be fooled into thinking the $23 million will appear from thin-air.  They want voters to believe they have only to say yes to a $23 million handout, so why would anyone vote no?

Let's use an example to better explain how taxes will be increased, then later visit some legislation that may put Ferndale School District taxpayers at risk for having their taxes increased even more.

A simple example

Let's pretend your monthly mortgage payment (principle and interest) is $1000 and you have only two more years to go before your mortgage is paid-off.  That means that in 24 months your income will increase $1000/month, or $12,000/year.  That's a bigger pay increase than most people will ever see in their lifetime unless they change jobs.

Now, while still two-years away you ask your banker for an $100,000 loan.  Instead of increasing your monthly payment your banker simply adds 10 more years to the end of your mortgage.  Now, instead of getting a $1000 increase in two years you won't be getting it for 12 years.  With interest included you'll have given your banker another $120,000 that would have gone into your pocket.

Did your mortgage go up or stay the same?

For the purposes of this article we'll skip considering that your house is only worth $200,000 and that it's twice as big as it needs to be, your utilities expenses are twice as big as they need to be, your carbon foot-print is twice what it should be, and you spend twice as long cleaning it than you would a home rightsized to your family's size.  Given all that, does it make sense to borrow $100,000 in the first place?

How you may be at risk for increased monthly payments

On December 14, a Detroit News editorial urged readers to keep school bond debt in-check. It starts:

Because of sinking property tax revenues, more and more school districts have turned to a state revolving loan fund to help them meet payments on bonds they sold for new construction or remodeling buildings. Obligations in that fund have shot up to $1.2 billion during the real estate crisis, or the equivalent of $60 per student, and are threatening to more than double in the next 10 years.

Using our example from above, if a school district has to pay $1000/month to its bond holders but when property values drop and the district can only afford to pay $700/month, the state School Aid Fund lends money to the district to make up the $300/month difference.

The money for making up the difference between falling property values, the taxes they generate, and what school districts owe has ballooned to $1.2 billion--and because that money comes out of the school-aid fund, there is $60 less per-student to spend on books, curriculum, equipment, and teachers.  You know, the things that have a far greater impact on our children's education than decorating.

A problem under the existing rules is that school districts can roll their state debt into new bond issues for additional construction projects before the old bonds are paid off. State repayment thus can get extended past 30 or 40 years. The state, meanwhile, has issued general obligation bonds to raise the money it loaned the school districts and long since repaid the general obligation bonds.

That should sound familiar.  The Ferndale School District hasn't paid-off a single single bond since at least 1995, and the proposed bond will extend our indebtedness out 29 years--to 2041.

To keep school district bonds from eating further into per-pupil spending, Lansing is considering new legislation. 

Pending Senate legislation (SB-770)would rein in these practices not just by putting a $1.5 billion lid on the total the state could allow school districts to borrow. 

It also would require school districts involved in the state program to at least once a year recalculate the millage rate they use to pay off their construction bonds. A school district would have to raise its millage rate whenever necessary to meet the principal and interest payments on its bonded indebtedness.  

When asking voters to approve a bond proposal, the school district would have to notify them that the proposed millage rate wouldn't necessarily remain the same, but actually could go higher.

This is an easy law to support.  It would require school districts to actually pay for their renovation projects without borrowing money from students.  The bite is that when property values fall taxpayers may be required to pay more.

Our $1000/month may go up when we can least afford it--when our property values are falling.

Given this background, it's more important than it has been that taxpayers hold their school boards and administrations accountable for student performance.  The relationship between schools and property values is student performance and property values, and a strong inverse relationship between standardized test scores and foreclosure rates--the higher the scores the lower the foreclosure rate.

Without our district's board and administrators having a clear goal to increase our community's student performance, and a clearer goal for achieving that objective, taxpayers should vote no on the new school millage.