A Debt Dilemma

I had interesting conversations with some constituents this week. It really hammered home a point that I was warned of before I ran for school board. That point was that you can never please all of the people all of the time. There will be people that disagree with you no matter how firmly you believe in your arguments- especially when your arguments are out there for everyone to see two weeks a month. The best one can hope for is an honest discussion about the merits of all sides of issues. Seeing two school district neighbors lose school directors to resignation over the course of the last few months has been a real wake up call to me about how political this job position can be. Reading their letters or reasons for resignation was really a summation of the frustrations that I imagine many Directors feel. Special interests, disagreements with administration, disagreements with other Board members, all of these reasons were cited in one way or another. I cannot begin to imagine the depth of their frustration to make them take their chosen route but I think that at one time or another most Directors will feel that everything and everyone must be against them. In my short time on the Board I have seen some of those frustrations happen to our Directors and if the casual observer has not noticed it then it is a testament to the character of those directors that they have not made their frustration apparent in a more public manner.

I preface this post with the preceding paragraph because what I am posting today is one of those things that some just don't want to see. There will be those that think the information presented doesn't add to the discussion around the High School project and that it casts the District in a negative light. Others will say I am using scare tactics to get people to come around to my way of thinking. But let me make this clear- I intend to keep my promise to Mt Lebanon to increase the transparency of what is happening in this District and to keep the public informed about how I come to my decisions. There are no hidden agendas here. My agenda is to do what is best for Mt Lebanon and its students. There are occasions when I come across information that genuinely surprises me. When I posted earlier about PA School Construction Buzz and compared the State construction cost numbers from what I found in that research to what was presented by our architect, I was surprised. When I researched where Mt Lebanon fell with regards to Comparative Millage Rates and Taxation I was surprised to find out where we stood in relation to our neighbors. I think the information in those two posts surprised a number of other people as well as they are two of the most visited posts on my website. The research I found for today's post is another bit of data that surprised me. It adds to my argument that we have got to research ALL possible solutions to the high school project.

As most already know, the estimated numbers for the project were released recently. If you need a refresher on those costs, please see this previous post. I have been concerned for some time about how much we pay in debt service payments each year. This year we passed a budget that includes about 7% of our budget going to retire existing debt. But really, having that number without any kind of context makes no sense. I set out to find some kind of data to measure us against. I found it on the Pennsylvania Department of Education website. Here they link to all kinds of budget data for Districts across the State. In particular I was looking for the outstanding debt of all the school districts in Pennsylvania. I found the information here. The latest year they have brought all the debt information together was for the 2005-2006 budget year so keep that in mind as you see the information below. Some Districts have floated more bonds to increase their debt and others, like ours, have been able to pay some of that debt down. However, I feel the data gives the reader a good idea of how we compared to Districts throughout the County and State at a specific point in time.

The below chart shows how Mt Lebanon School District compared to other Districts in Allegheny County with regards to total dollars of debt outstanding for the 2005-2006 budget year:

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The above data lists the 20 School Districts in Allegheny County that had the most debt and shows that Mt Lebanon had the 8th most total outstanding debt in Allegheny County for that budget year. There area total of 43 school districts in Allegheny County.

If we then take a look at high school project costs and estimate the District will float $100 million in bonds for the project then the data changes to look like this:


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You can see that a float of $100 million, which is at the lower end of our project cost scale, would catapult Mt Lebanon to being the second most indebted school district in the County behind the City of Pittsburgh. However, the City of Pittsburgh has more than a half a billion dollars a year in revenues. Mt Lebanon has just over $70 million. Additionally, MTLSD's debt to income ratio becomes the worst in the County. The compounding factor for this is that Mt Lebanon gets a far less percentage of its funding from the State than do most other districts. This forces the debt to be paid by more localized funding sources than in districts like the City of Pittsburgh.

I went ahead and took the next step and compared our debt to all Districts in Pennsylvania. Much like the data for Allegheny County, we look decent prior to floating additional debt. Of the 501 school districts in PA, Mt Lebanon had the 64th most total debt for the 2005-2006 budget year. However, when we float $100 million of additional debt, we jump up to having the 12th most debt in the Pennsylvania:


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On the far right of the picture you can see that our debt to income ratio becomes the 4th worst in the State after a $100 million bond float. Note that this ratio will change as the increase in taxes to support such a float will increase District revenues. There is no way to tell what those revenues would be at this time which is why I look at both the total debt outstanding and the debt to income ratio. A $130 million float would put us in the top 10 of most indebted districts in the State.

While I personally find this data a cause for concern, I put this information together not because I want to convince you of any one idea in particular- I'll try to do that in future posts when I have more information on which to base my final opinion. I want readers to digest this information and decide if it impacts how they view the high school project and its effect on the District and the Mt Lebanon community. This is but one piece of a large, complicated puzzle.

Thanks for reading.

James

August Meeting Roundup

There was a lot of activity in August on a lot of fronts. I will attempt to touch on a few of the topics briefly.

In no particular order, here are the items that caught my attention more than most:

1) Gallup Teacher Insight- The Board approved in a 9-0 vote the purchase of this software that will help the District in the evaluation and selection of new teachers. The software was recommended by the Superintendent and after questions we all seemed to think it was a good idea. You can find the Gallup information page on the software here. There is no more important factor to student success than having great teachers. School Boards, Superintendents, and others have influence, but the classroom is where the rubber meets the road. We need to make sure we recruit and hire the best teachers so our students have the greatest chance at success. I am hopeful that this software will improve an already great teaching staff.

2) Superintendent's Salary- The Board voted 9-0 to approve a 4% increase in salary for the Superintendent. I have not met a person yet who doesn't get a sense of honesty, integrity, and intelligence from a meeting with Mr. Allison. In my opinion, he is the right person at the right time to help lead the District. I look forward to helping him implement some of his ideas over the course of the next few years. He has a great vision for the District.

3) Washington Elementary Playground- The Board was shown updated plans for the Washington Elementary Playground. You can review the plans here. There are a number of drawings for you to peruse. In June there was a bit of controversy surrounding the playground but I think the latest plans that include security gates and the removal of proposed parking spaces are ready to go.

4) Discussion to Review Board Meeting Procedures- Director Posti had requested this topic be added to the agenda and I voted for the discussion to be had. She also posted an explanation on her blog here about her intentions. The discussion surrounded whether or not there should be a subcommittee appointed to review and/or correct statements that are made by residents during the public comments portion of school board meeting. I didn't have any comments for the meeting because I was on the fence. I wanted to see what was being proposed before I offered up an opinion. I don't want the Board to be involved in policing comments- especially after the fact- and I was worried that this was the direction things were headed. Residents have every right to come to the microphone and voice their opinions about things that they think are related to the Board. I don't want to get into a game of figuring out what comments are related to Board business and which are not. This opinion should be left to residents to decide unless something is so far off the mark that a Board member calls a Point of Order and asks the President to stop the comments. At that point it should be up to the President to decide if the comment should be allowed to continue. Every Board member has this power. Every Board member also has the right to respond to any comment by a resident. My worries about limiting speech were confirmed at our voting meeting when after a resident gave comments, a Board member said (and I paraphrase here) 'those were the type of comments that we should not allow'. Policing and correcting citizen comments is a losing proposition. By its actions and discussions the Board should make its intentions and facts about issues known to the public. Comments from residents, while mostly well intentioned, are sometimes not well informed. That means to me that we need to do a better job of communicating with the public instead of finding ways to correct possible misstatements from them. I agree with the President's decision not to form a subcommittee at this time.

5) Construction Managers- The Board will be looking to select a Construction Manager for the High School Project at its September meeting. We conducted interviews of the three finalists last week and I believe we have some terrific options. I look forward to the discussion surrounding the selection.

Enjoy the first day back to school.

James

High School Project Costs

On Monday the Board heard an update from the architects about the progress being made on the high school renovation project. We also heard from a number of residents regarding the project. One resident's comments in particular hit home with me. One of the things I have been wondering about is how the costs for certain options of this project seem to be out of touch with what was presented to us by Dejong during their research just over 18 months ago (Dejong final summary was released in January 2007).

At the time, Dejong presented four possible alternatives to the community:
Option 1: Renovation came with a cost between $30-50 million
Option 2: 25/75 New/Renovation split at a cost of $60-80 million
Option 3: 50/50 New/Renovation split at a cost of $80-100 million
Option 4: Build a new facility at a cost of $110-120 million

At the July forum we were presented with the following options:
Option 1: Renovate existing structure at a cost of $77.8 million
Option 1a: Renovate structure with significant redesign for $97.3 million
Option 2: 66/33 New/Renovation split at a cost of $118.6 million
Option 3: Build a new facility at a cost of $131.6 million

Two questions really pop up here. First, why is there such a large change for the renovation costs? Renovation costs seem to have increased by almost 100% (using the $40 million midpoint Dejong estimate). Costs for the construction of a new school have only increased just over 10% since Dejong released his study. There may very well be a good explanation for this and I will ask the question of the architect at our next meeting.

Second, what should we expect to pay for construction of a new school? The resident pointed out that RSMeans (a construction data company) uses an approximation of $150/sq foot for our area. Our architects used an approximation of $300 per square foot. RSMeans has a website where you can play with a cost calculator tool. Indeed, after I put in our zip code and square footage, the site spit out the following information:



Understand that the QuickCost Estimator is very limited in the information you can put into the calculation. For instance, if we wanted oak staircases and marble floors there is no way to account for that in this calculator. But it does give us an idea about what we might expect for costs in our area.

If you do the calculation at the high end dividing the $68 million by the 440,000 square feet, then you get a high project cost of $154 sq/ft. When dividing the recently estimated $131.6 by the 440,000 square foot building you get a project cost of $299 per square foot. This is the exact discrepancy that the Mt Lebanon resident pointed out at our last meeting as being unrealistic. Perhaps when we get the construction manager on board these numbers will be revised downward.

One more quick point here. The Bethel Park School Board recently voted to build a new school for their District. The final documents they put out on their website included new construction costs of $204 sq/ft for a new 307,420 square foot building. Something to keep in mind is that their architect also included a 12% escalation in the cost of the entire project. The above linked document is a good place to go to see what other costs you might expect to see added onto our project soon. Additionally, the $204 per square foot price is extremely close to the Pennsylvania Department of Education calculated average cost for new construction of $212 per square foot. I linked to the PDE document in a previous blog post on July 9th. That same document calculates an average cost of $114 per square foot for renovation projects.

Thanks for reading.

James

Almanac Editorial

There was an interesting editorial in this week's edition of the Almanac. It touched on a lot of issues that need consideration when thinking of the Mt Lebanon High School project.

Here is the entire editorial:


Click on image for link.

Other articles keep popping up in local papers describing how the nation's credit crunch is affecting working and middle class families like the ones that live in Mt Lebanon (kudos BlogLebo for finding that story). While I personally believe that Mt Lebanon, and Pittsburgh more generally, will be spared the worst of the housing downturn, that does not mean we will escape unharmed. With so much of the nation's economy dependent upon consumer spending and that spending supported in large part by ever increasing home prices in recent years, the downturn we are experiencing now could last until home prices rebound. Many economists are now predicting housing prices to continue to drop into 2009 before stabilizing This means it might be some time before we see a true recovery.

This housing recession will have an impact on all local economies as well. We have already seen a number of states, including most of Pennsylvania's neighbors, cut back severely on spending or raise significant taxes to fix budget shortfalls. Please see the following paragraph in the linked article from the Center on Budget and Policy Priorities:

"The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Weakening consumption of other products has also cut into sales tax revenues. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets. And if the employment situation continues to deteriorate, income tax revenues will weaken and there will be further downward pressure on sales tax revenues as consumers become reluctant or unable to spend."

While Pennsylvania does not make the list of 29 states in the above article, our latest State budget included adding new debt. Debt service payments increased by over $35 million annually in this latest budget to a grand total of $905 million per year.

The point of all this is to say that we are embarking on a project of a grand scale, no matter what option is chosen, and that we must consider where we are headed as a community economically when discussing what we could, should, and must do.

As always, I welcome your feedback to james.fraasch@gmail.com

James

Comparative Millage Rates and Taxation

We hear often in Mt Lebanon that our taxes are high. Most people probably don't think about what it means, it is just taken as fact and not questioned. I sometimes hear statements like, "I live in Mt Lebanon and will pay higher tax for the good schools and the services the municipality offers". Most people would say that the services they get are worth the tax. I would assume that to be the case or else they wouldn't have chosen to live here in the first place.

I went to the County Treasurer's online office and did some digging around to find out exactly where we fall when it comes to total tax burden. I wanted to get an idea about not just school taxes but County and Municipal taxes as well. I found the exercise interesting and will present it to you here with some thoughts.

The image below is taken from data collected at the Allegheny County Treasurer's Office:


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I picked each of the townships and school districts above for one reason or another. Either they are geographically close to Mt Lebanon, often compared academically to Mt Lebanon, or their millage rates are similar to ours. You can see that our School District Tax is towards the higher end of the scale. You would find the same thing if you compared us to every District in the County. Twelve of the 45 school districts on the Allegheny County website have higher millage rates than Mt Lebanon. Thirty-two have lower school district millage rates. One thing I would like to add to the chart is the Wage Tax for each community. It is not as easily available as the other tax information and will have to come in a later revision to this data.

While I agree with those that say they get good value for their tax money in Mt Lebanon, it is important to remember that in order to stay competitive in attracting residents to our community, we need to ensure that our total taxes stay within a tight range with the other townships that are trying to attract those same residents. Potential residents will do calculations to figure out what the true cost of living is in each community they consider. They can get a $200,000 house in Mt Lebanon and pay $6700 per year in RE taxes. Or they could buy a house for $225,000 in USC and pay the same $6700 in tax. What this means to me is that you can afford a bit more house for the same money in USC compared to Mt Lebanon. That doesn't mean you get the same services, the same education, or the same sense of community. It is simply a piece of the bigger puzzle when folks try to figure out where to live. The larger the discrepancy in the total taxation numbers, the more likely they are to give more weight to those numbers when making their final decision.

James