I submitted my resignation to the Mt. Lebanon School Board early on Thursday morning.
Please read on at my new blog, http://jamesfraasch.blogspot.com
I will have every post from this site archived. With the move you will see some changes and also a broadening of topics covered in the new blog.
As always, thanks for reading. There will be no more posts on this blog.
Wednesday, December 15, 2010
Friday, December 3, 2010
The Joy of Stats
I love to share great finds on statistics and especially free markets.
Check out this video from Hans Rosling. Hat tip CoyoteBlog.
Every one of Hans Rosling's videos is a must watch and the best source for them is www.ted.com
His focus is on any statistic that has to do with world population, poverty, and health.
Thanks for reading.
James
Check out this video from Hans Rosling. Hat tip CoyoteBlog.
Every one of Hans Rosling's videos is a must watch and the best source for them is www.ted.com
His focus is on any statistic that has to do with world population, poverty, and health.
Thanks for reading.
James
Friday, November 19, 2010
More PSERS Hope and Hype
You may have heard recently that the Pennsylvania Senate passed HB2497. The PSBA recommended passage of the bill due to it reamortizing the liabilities of the PSERS system.
I linked to a great post on this bill back in June.
However, what you may have missed was why some of the opponents suggested voting against this bill.
Here is a snippet from The Pennsylvania Chamber of Business and Industry's John Callahan, Director of Government Relations:
Thanks for reading.
James
I linked to a great post on this bill back in June.
However, what you may have missed was why some of the opponents suggested voting against this bill.
Here is a snippet from The Pennsylvania Chamber of Business and Industry's John Callahan, Director of Government Relations:
Legislation to re-amortize both the Pennsylvania State Employee Retirement System’s (PSERS) and State Employee Retirement System’s (SERS) unfunded liability, allow for the smoothing of assets from 5 years to 10 years (PSERS only) and institute arbitrary collars on contribution rates was approved by the House Appropriations Committee on June 7, 2010. The PA Chamber believes this “reform” legislation would continue to defer already unaffordable costs and further underfund these plans leading to increased unfunded liabilities. According to a the Public Employee Retirement Commission (PERC) analysis this type of deferral will result in a $40 billion cost for PSERS and a $12 billion cost for SERS in order to ramp up the employer contributions over 10 years rather than over 3 years. This $52 billion burden on future generations and would do nothing to provide cost control, affordability or predictability to PSERS or SERS. Of significant note, these funding estimates are based upon the attainment of an 8% annual investment assumption.The document with the above quote is worth a read. It makes some realistic, pragmatic suggestions for an actual fix to the current system. This house bill allows our government to continue to underfund liabilities therefore blowing a bigger bubble down the road that will be even more difficult to tackle. The frustrating thing is that in the near term, this will feel like somewhat of a fix to local taxpayers as the contribution rates to employers in the near term will be less than they need to be to fully fund the pension. This is "accomplished" at a significant cost, however. It's akin to putting a bandaid over a bullet hole.
Thanks for reading.
James
Thursday, November 4, 2010
Quantitative Easing II and School Budgets
As you may know, the Federal Reserve announced yesterday another round of Quantitative Easing (QE2). The point of this QE2 is to make another attempt at "fixing" the economy.
As I posted in September 2008, this was the path that the Fed knew it was going to take even back then. Ben Bernanke has used every tool in his shed to fight deflation. The only thing more he can do is MORE of whatever he has done.
Be clear that the purpose of the QE1 and QE2 has been to stimulate asset prices, more specifically, to stimulate the stock market. One should ask whether the Federal Reserve's job is to stimulate stock prices. Here is the relevant quote from Bernanke yesterday:
That statement should concern everyone. Gaming stock prices is something that is far outside of the Federal Reserve's mandate.
Before I go too far off on a tangent, I want to bring this back to school budgeting. QE2 is supposed to have the effect of lowering interest rates to the point that businesses will want to go out and get a loan and expand business and hire employees.
School districts, and most other government entities, only invest their money in very safe government bonds. This means that our budget will take a hit on the revenue side since our revenues generated from our investments will go down (as it did last year).
However, if QE2 has the added effect of goosing stock prices, this could have a beneficial effect on PSERS. PSERS is counting on 8% returns in its portfolio. Any gains over 8% could have the effect of lowering future PSERS contribution rates.
It is important to note that there are a number of economists out there that are suggesting QE1 and QE2 simply are an attempt by the FED to blow another asset bubble. In this case, the bubble appears to be in commodity prices (not good for HS construction costs) and stocks (good for PSERS). The FED again is forcing people to choose between no return on safe assets or mild yield on risky assets. This necessarily punishes savers, retired folks on fixed income, and the middle-class. And when the asset-bubble bursts (think NASDAQ 2001, home prices 2007-2008) the consequences far outweigh the short-sighted, short-term benefits. As Ludvig Von Mises said:
My educated guess is that QE2 will have no impact on unemployment or business activity. Money is already quite cheap. Businesses that wanted a loan, already got a loan.
Impacts on school district budgets will be difficult to judge in the near term. There will be some short term benefits (if stock prices remain elevated and that translates to lower PSERS contribution rates) but there will also be near term input price increases on raw materials (hurting us on the HS project).
The bigger problem here is the stubbornly high unemployment rate. The Federal Reserve has shot all its bullets and has not been able to make a dent in it. Until we can get people back to work, this economy will struggle through a quagmire for some time.
Thanks for reading.
James
As I posted in September 2008, this was the path that the Fed knew it was going to take even back then. Ben Bernanke has used every tool in his shed to fight deflation. The only thing more he can do is MORE of whatever he has done.
Be clear that the purpose of the QE1 and QE2 has been to stimulate asset prices, more specifically, to stimulate the stock market. One should ask whether the Federal Reserve's job is to stimulate stock prices. Here is the relevant quote from Bernanke yesterday:
Federal Reserve Chairman Ben S. Bernanke said resuming large-scale asset purchases should boost economic growth through lower borrowing costs and higher stock prices and that concerns about the strategy are “overstated.”
That statement should concern everyone. Gaming stock prices is something that is far outside of the Federal Reserve's mandate.
Before I go too far off on a tangent, I want to bring this back to school budgeting. QE2 is supposed to have the effect of lowering interest rates to the point that businesses will want to go out and get a loan and expand business and hire employees.
School districts, and most other government entities, only invest their money in very safe government bonds. This means that our budget will take a hit on the revenue side since our revenues generated from our investments will go down (as it did last year).
However, if QE2 has the added effect of goosing stock prices, this could have a beneficial effect on PSERS. PSERS is counting on 8% returns in its portfolio. Any gains over 8% could have the effect of lowering future PSERS contribution rates.
It is important to note that there are a number of economists out there that are suggesting QE1 and QE2 simply are an attempt by the FED to blow another asset bubble. In this case, the bubble appears to be in commodity prices (not good for HS construction costs) and stocks (good for PSERS). The FED again is forcing people to choose between no return on safe assets or mild yield on risky assets. This necessarily punishes savers, retired folks on fixed income, and the middle-class. And when the asset-bubble bursts (think NASDAQ 2001, home prices 2007-2008) the consequences far outweigh the short-sighted, short-term benefits. As Ludvig Von Mises said:
Inflation and credit expansion, the preferred methods of present day government openhandedness, do not add anything to the amount of resources available. They make some people more prosperous, but only to the extent that they make others poorer.
My educated guess is that QE2 will have no impact on unemployment or business activity. Money is already quite cheap. Businesses that wanted a loan, already got a loan.
Impacts on school district budgets will be difficult to judge in the near term. There will be some short term benefits (if stock prices remain elevated and that translates to lower PSERS contribution rates) but there will also be near term input price increases on raw materials (hurting us on the HS project).
The bigger problem here is the stubbornly high unemployment rate. The Federal Reserve has shot all its bullets and has not been able to make a dent in it. Until we can get people back to work, this economy will struggle through a quagmire for some time.
Thanks for reading.
James
Saturday, October 23, 2010
Pittsburgh Pension Mess Makes Wall Street Journal
PSERS is not the only pension system that is seeking solutions. The Wall Street Journal has this article about the mess that is the Pittsburgh City pension.
From the article:
Thanks for reading.
James Fraasch
From the article:
Pittsburgh's city council nixed a deal this week to lease its parking assets to a consortium led by J.P. Morgan Chase & Co. Instead, the council is proposing that the city's parking authority issue a 30-year bond and pay it off with parking-rate increases. Part of the proceeds would go to the pension plan.Taxpayers in Pittsburgh should be absolutely outraged at the possibility of this unsustainable plan. This would mean the City of Pittsburgh would be borrowing money to pay its pension obligations. In the short term this might seem like a solution, but in the long term it will bankrupt Pittsburgh, if Pittsburgh is not bankrupt already. Floating 30-year bonds to fund liabilities without addressing the true problem of actual pension obligations is fiscal insanity. Mayor Luke Ravenstahl thankfully seems to have his head screwed on straight on this issue as he has announced that he does not support this plan.
Thanks for reading.
James Fraasch
Wednesday, October 20, 2010
Rise in Unemployment Rate Likely
A recent Gallup poll finds that the unemployment rate reported by the Federal Bureau of Labor and Statistics has been understating the unemployment rate. Gallup (and others) believe that shortly after the November mid-term elections the BLS will start to show the unemployment rate tick up. I am not at all suggesting this is some type of election year conspiracy, it's just that at some point the numbers cannot be managed anymore.
Please see the article by Gallup here. From the article:
This data from Gallup (and ADP for that matter) are just another way to suggest that this has been no ordinary recession. While the NBER has said the recession ended last summer (due largely to increased government intervention), the unemployment picture suggests we still have a long way to go.
It will be interesting to see how this chart from Calculated Risk changes in the coming months. I don't think we have seen the peak unemployment rate for this recession.
At last month's Audit Finance Committee meeting we looked at our Earned Income Receipts and they have been declining for two straight years. In addition to that worrisome development, we have seen a significant decline in Real Estate Transfer tax over the past 3-4 months. At Thursday's meeting we will go over the more recent Real Estate transfer tax receipts and talk about what, if anything, the trends mean.
Thanks for reading.
James
Please see the article by Gallup here. From the article:
Unemployment, as measured by Gallup without seasonal adjustment, increased to 10.1% in September -- up sharply from 9.3% in August and 8.9% in July. Much of this increase came during the second half of the month -- the unemployment rate was 9.4% in mid-September -- and therefore is unlikely to be picked up in the government's unemployment report on Friday.It is interesting that both Gallup and ADP (which tracks only private company payroll data) see the same trends. Unfortunately, these trends are not picked up by the BLS and therefore the unemployment rate will most likely face a downward adjustment after the fact. This is standard operating procedure for the BLS. They revise their numbers every January and July.
-----------------
The government's final unemployment report before the midterm elections is based on job market conditions around mid-September. Gallup's modeling of the unemployment rate is consistent with Tuesday's ADP report of a decline of 39,000 private-sector jobs, and indicates that the government's national unemployment rate in September will be in the 9.6% to 9.8% range. This is based on Gallup's mid-September measurements and the continuing decline Gallup is seeing in the U.S. workforce during 2010.
This data from Gallup (and ADP for that matter) are just another way to suggest that this has been no ordinary recession. While the NBER has said the recession ended last summer (due largely to increased government intervention), the unemployment picture suggests we still have a long way to go.
It will be interesting to see how this chart from Calculated Risk changes in the coming months. I don't think we have seen the peak unemployment rate for this recession.
At last month's Audit Finance Committee meeting we looked at our Earned Income Receipts and they have been declining for two straight years. In addition to that worrisome development, we have seen a significant decline in Real Estate Transfer tax over the past 3-4 months. At Thursday's meeting we will go over the more recent Real Estate transfer tax receipts and talk about what, if anything, the trends mean.
Thanks for reading.
James
Wednesday, October 6, 2010
The Recession in Pittsburgh- Allegheny Institute Policy Brief
I received this interesting update from the Allegheny Institute in my inbox this morning. It paints the current picture of the state of recession in Pittsburgh (posted with permission from the author).
Policy Brief
An electronic publication of
The Allegheny Institute for Public Policy
October 6, 2010 Volume 10, Number 55
Has Recession Loosened Its Grip on the Pittsburgh Region?
Is the recession loosening its grip on the Pittsburgh area? According to the latest payroll employment data for August, the answer may be “yes”. August marked the third straight month that total private jobs showed a year-over-year increase. The August 2010 figure of just over one million jobs bests the August 2009 figure of 994,300 by more than one-half percent. This follows on the heels of small year to year increases in June and July. While relatively miniscule, these gains represent the first positive upswing in the year-over-year payroll employment since October 2008.
The seven-county area showed an increase of 5,800 total private jobs from August 2009 to August 2010. Which sectors led the growth in jobs?
Leading the way, professional and business services posted a pickup of 3,800 jobs in the August year-over-year tally. The biggest gainer in this sector was administrative and support services with a rise of 2,900 jobs. These are clerical, security, and other office administration functions. Hiring support personnel might be a signal that companies see the end of the recession and are willing to hire support staff.
Construction is also notable for meaningful job improvement with 2,000 jobs added from August 2009 to August 2010. Considering that most major projects in the area—such as the new PNC Tower and Consol Energy Center—have been completed, this increase is somewhat unexpected. It’s possible that road and bridge projects are propping up construction employment. It could be also attributed in part to construction and site preparation of Marcellus Shale gas drilling sites that use construction companies to do some of the work. While these gas drilling sites are not common in Allegheny County, they are plentiful in Fayette, Washington, and Westmoreland Counties which are part of the Pittsburgh MSA.
Nonetheless, it is important to bear in mind that the 57,100 construction jobs in August are still seven percent below the 61,400 recorded in August 2008.
What has happened to jobs in the mining and logging sector of the economy? This sector, which includes coal mining as well as natural gas extraction, gained 400 jobs in August compared to the twelve month earlier level. Back in August 2005 there were 5,000 employees in this sector. By August 2010 jobs had risen by 900 —just under 20 percent. The Marcellus Shale gas formation may be a great source of employment in years to come, but the types of jobs created will be dispersed throughout various sectors such as construction, manufacturing and transportation as well as mining, making the jobs impact of the gas drilling hard to pin down with great accuracy.
Other sectors with large jumps in year-over-year employment include “retail trade” with 1,800 more jobs and “educational services” gaining 1,500. The “health care and social assistance” sector added another 1,000 people to payrolls led by 600 new jobs in “social services”. As we have mentioned in previous Policy Briefs, the social services subsector has been steadily adding jobs, growing more than 50 percent since 2000. But keep in mind that social services is very heavily dependent upon government spending and typically does not offer many high paying jobs—and therefore is not a good indicator of economic growth or labor market strength.
While some sectors showed year-over-year job gains, several sectors did not fare very well. Manufacturing continues to shed jobs as another 2,000 were lost between August 2009 and August 2010. The recent total of 84,900 manufacturing jobs is the lowest August count in at least two decades. Meantime, “financial activities” shed 1,700 jobs and the “government” sector lost 1,300 with local governmental education jobs dropping by 700.
Overall, payroll employment data seem to suggest the recession is loosening its grip on the Pittsburgh area—albeit very slowly and unevenly. Some sectors are showing signs of an upturn while others are still losing jobs or remaining flat—not an uncommon picture for the early stages of an economic recovery.
Clearly, the stability and recession resistance shown by education and health related jobs together with the huge decades long decline in the proportion of the area’s jobs in manufacturing and the absence of a housing boom have helped dampen the region’s employment losses during the current recession. Still, that is little consolation in light of the fact that employment remains well below levels reached in 2000.
Friday, October 1, 2010
More PSERS Pension Reform
I check in on Paul Fisher's blog over at PrideandPromise.com from time to time. He has been terrific on giving updates on PSERS. I headed over there yesterday only to find out that he resigned his school director seat "To regain his first amendment rights". Good to know, however, that he intends to keep the site going.
He added a great article from CapitolWire that analyzes the latest attempts to reform the Pennsylvania State Employees Retirement System. There is still a lot of confusion about what is happening at this level. That article sort of sets the record straight. The fact is that there is still a lot of negotiating to get done. Some people want to pay what we owe sooner than others, but the thing to take away from the negotiations is that nobody thinks there is a magic bullet. The only thing that will significantly change the PSERS cost curve is significantly positive returns on the PSERS portfolio of stocks, bonds, real estate and other investments. PSERS projections are based on 7.5 or 8% annual returns in a diversified portfolio. Like I have said before, if someone ever promises you 8% annual returns, LOCK IT UP because it is almost impossible to do.
Thanks for reading and please be sure to check out the CapitolWire article. It is full of good info as well as all the names of the players in the PSERS reform game.
James
He added a great article from CapitolWire that analyzes the latest attempts to reform the Pennsylvania State Employees Retirement System. There is still a lot of confusion about what is happening at this level. That article sort of sets the record straight. The fact is that there is still a lot of negotiating to get done. Some people want to pay what we owe sooner than others, but the thing to take away from the negotiations is that nobody thinks there is a magic bullet. The only thing that will significantly change the PSERS cost curve is significantly positive returns on the PSERS portfolio of stocks, bonds, real estate and other investments. PSERS projections are based on 7.5 or 8% annual returns in a diversified portfolio. Like I have said before, if someone ever promises you 8% annual returns, LOCK IT UP because it is almost impossible to do.
Thanks for reading and please be sure to check out the CapitolWire article. It is full of good info as well as all the names of the players in the PSERS reform game.
James
Friday, September 24, 2010
Taxing Something Doesn't Make it More Valuable
From an article in the Wall Street Journal:
The projected increase in tax revenues generated by this tax increase on little cigars was supposed to be used to help finance the expansion of a children's health-insurance program backed by President Barack Obama. But with the decrease in sales, the money just wont be there.
This is just common sense. Taxes create market distortions because those who would otherwise pay the taxes have an opportunity to change their behavior by buying something else (a replacement without the tax- see the story about how consumers have changed their purchasing behavior) or somewhere else where the punitive tax does not apply.
Thanks for reading.
James
Last year, Congress sharply increased the federal excise tax on "little" cigars—filtered, often sweetly favored products that are similar in size and shape to cigarettes.
...
Sales of products listed as "little" cigars fell by 79%.
The projected increase in tax revenues generated by this tax increase on little cigars was supposed to be used to help finance the expansion of a children's health-insurance program backed by President Barack Obama. But with the decrease in sales, the money just wont be there.
This is just common sense. Taxes create market distortions because those who would otherwise pay the taxes have an opportunity to change their behavior by buying something else (a replacement without the tax- see the story about how consumers have changed their purchasing behavior) or somewhere else where the punitive tax does not apply.
Thanks for reading.
James
Tuesday, September 21, 2010
PlanConD Vote
Last night I voted against accepting the Pennsylvania Department of Education's approval of PlanConD.
Part of the purpose of part D is to determine the ability of local taxpayers to actually be able to afford the debt payments associated with the construction project. Unfortunately, due to the inability of the PDE to update their forms, our PlanCon D documents reflect old and stale data. However, if we understand the intent of PlanCon D, then we should be able to roll numbers forward and come up with our own calculation of affordability.
As an example, let's say you want to buy a house for $187,000. The loan officer says it should be no problem to get the loan as long as your payment stays below 35% of your monthly income of $2000. At 5% interest, a $187,000 loan would be about $1,000 a month.
You knew going into it that it would be close, that it would be a stretch to your budget to try to afford this size and price of a home. But what the heck, why not aim for the fences.
You fill out all the paperwork and you get approval from the loan officer. However, when the documents get back you realize that something seems amiss. The documents given to you that outline your debt/income ratio do not reflect the payment on the house you are about to buy. The loan officer did a calculation on your debt/income ratio WITHOUT INCLUDING THE DEBT PAYMENT FROM THE HOME YOU ARE ABOUT TO BUY. So now, even though your debt payments will exceed the loan officers' 35% income limit, you still walk out of that office the owner of a new home.
How does this work? Well, the Pennsylvania Department of Education hasn't updated their PlanCon D forms for a number of years. That means that when the District fills out its forms, it is entering in income and debt payments from past years and these numbers DO NOT reflect the reality of the current project. In fact, the PDE even changed the numbers for us to reflect an Aid Ratio that is no longer relevant and skews the numbers even more to look like the District can afford this project.
When I asked in June to have the District prepare our documents to reflect the current known information, we were given information that created even more confusion when some numbers were changed and some stayed the same.
The information to fill our these forms does exist. but it is in many different places on the PDE website. Please see the link here for a copy of the form that was voted on last night. Page D-18 is the one that deals with affordability. Based on my own analysis of the numbers, I believe the District will be very close to or even exceed what the State says is the maximum allowable budgeted local effort for this project. When you look at D-18 note that the Market Value Aid Ratio has been changed by the PDE to .4154 instead of our current .49. This has the effect of reflecting an increased aid ratio from the State when this is not the reality.
Note also in Section B that the Budgeted Local effort for this project shows a big, fat $0 since we have no debt service payments for this project in 2009-2010 (our payments start in 2010-2011). The intent of the form was to look a few years out from the floating of bonds to determine whether the District is putting too much stress on local taxpayers.
When the PDE changes the form to reflect an incorrect and artificially inflated aid ratio and then ignores actual debt payments that will come due for the project they are supposed to be evaluating, I am not sure how one can realistically evaluate whether this form should be approved or not.
That being said, if the District had made a determined effort to reflect TRUE numbers and the TRUE local effort for this project, I would have been much more inclined to vote in favor of PlanCon D.
Thanks for reading.
James
Part of the purpose of part D is to determine the ability of local taxpayers to actually be able to afford the debt payments associated with the construction project. Unfortunately, due to the inability of the PDE to update their forms, our PlanCon D documents reflect old and stale data. However, if we understand the intent of PlanCon D, then we should be able to roll numbers forward and come up with our own calculation of affordability.
As an example, let's say you want to buy a house for $187,000. The loan officer says it should be no problem to get the loan as long as your payment stays below 35% of your monthly income of $2000. At 5% interest, a $187,000 loan would be about $1,000 a month.
You knew going into it that it would be close, that it would be a stretch to your budget to try to afford this size and price of a home. But what the heck, why not aim for the fences.
You fill out all the paperwork and you get approval from the loan officer. However, when the documents get back you realize that something seems amiss. The documents given to you that outline your debt/income ratio do not reflect the payment on the house you are about to buy. The loan officer did a calculation on your debt/income ratio WITHOUT INCLUDING THE DEBT PAYMENT FROM THE HOME YOU ARE ABOUT TO BUY. So now, even though your debt payments will exceed the loan officers' 35% income limit, you still walk out of that office the owner of a new home.
How does this work? Well, the Pennsylvania Department of Education hasn't updated their PlanCon D forms for a number of years. That means that when the District fills out its forms, it is entering in income and debt payments from past years and these numbers DO NOT reflect the reality of the current project. In fact, the PDE even changed the numbers for us to reflect an Aid Ratio that is no longer relevant and skews the numbers even more to look like the District can afford this project.
When I asked in June to have the District prepare our documents to reflect the current known information, we were given information that created even more confusion when some numbers were changed and some stayed the same.
The information to fill our these forms does exist. but it is in many different places on the PDE website. Please see the link here for a copy of the form that was voted on last night. Page D-18 is the one that deals with affordability. Based on my own analysis of the numbers, I believe the District will be very close to or even exceed what the State says is the maximum allowable budgeted local effort for this project. When you look at D-18 note that the Market Value Aid Ratio has been changed by the PDE to .4154 instead of our current .49. This has the effect of reflecting an increased aid ratio from the State when this is not the reality.
Note also in Section B that the Budgeted Local effort for this project shows a big, fat $0 since we have no debt service payments for this project in 2009-2010 (our payments start in 2010-2011). The intent of the form was to look a few years out from the floating of bonds to determine whether the District is putting too much stress on local taxpayers.
When the PDE changes the form to reflect an incorrect and artificially inflated aid ratio and then ignores actual debt payments that will come due for the project they are supposed to be evaluating, I am not sure how one can realistically evaluate whether this form should be approved or not.
That being said, if the District had made a determined effort to reflect TRUE numbers and the TRUE local effort for this project, I would have been much more inclined to vote in favor of PlanCon D.
Thanks for reading.
James
Thursday, September 16, 2010
Debt and Deflation
I came across a terrific economics article written by Steve Keen at Steve Keen's Debt Watch website. The title of his article is, "What Bernanke Doesn't Understand About Deflation".
On this blog I have hit a number of times on the problem with having too much debt. On a national level people (Secretary of State Hillary Clinton for one) are even saying that our debt represents a national security threat. On an economic level, economists such as Steve Keen are making the argument that the deleveraging process following a borrowing and spending boom like the one we have witnessed from 1987 to 2009 will take years to play out.
Keen argues and illustrates that:
This is what part of last year's stimulus was intended to do; stimulate aggregate demand. Since consumers have clearly and demonstrably started to become net savers instead of net spenders, the government was looking for a way to increase GDP. Any kind of government spending will have a positive impact on GDP. As I have said many times before, the problem with debt is that it needs to be paid back at interest. This payment is a tax on future production and future spending.
When you max out the amount you can borrow, the consequences are long lasting and staggering. Other, normal expenses will come under stress while a less fool-hardy approach would have produced better long-term results.
Thanks for reading.
James
On this blog I have hit a number of times on the problem with having too much debt. On a national level people (Secretary of State Hillary Clinton for one) are even saying that our debt represents a national security threat. On an economic level, economists such as Steve Keen are making the argument that the deleveraging process following a borrowing and spending boom like the one we have witnessed from 1987 to 2009 will take years to play out.
Keen argues and illustrates that:
Debt reduction is now the real story of the American economy, just as a real story behind the apparent free lunch of the last two decades was rising debt. The secret that has completely eluded Bernanke is that aggregate demand is the sum of GDP plus the change in debt. So when debt is rising demand exceeds what it could be on the basis of earned incomes alone, and when debt is falling the opposite happens.There are a number of charts and math involved that Steve uses to prove his point. And logically, it makes sense. When you borrow, you have to pay it back. If consumers have indeed increased borrowing over the last 22 years by $34 trillion and GDP has only grown by $9 trillion, then we are in for quite a period of economic staleness, especially if the deleveraging process continues. What happens when the consumer appetite for debt goes away? Surely the GDP growth cannot be sustained.
This is what part of last year's stimulus was intended to do; stimulate aggregate demand. Since consumers have clearly and demonstrably started to become net savers instead of net spenders, the government was looking for a way to increase GDP. Any kind of government spending will have a positive impact on GDP. As I have said many times before, the problem with debt is that it needs to be paid back at interest. This payment is a tax on future production and future spending.
When you max out the amount you can borrow, the consequences are long lasting and staggering. Other, normal expenses will come under stress while a less fool-hardy approach would have produced better long-term results.
Thanks for reading.
James
Thursday, August 26, 2010
New Teacher Contract Approved
The Mt Lebanon School Board last night approved a new 5-year contract with the Mt Lebanon Education Association.
Please see these links:
School District Press Release
Post-Gazette Article
Mt. Lebanon Education Association Information (information about the ratification procedure)
As I said at the meeting last night, this vote was a tough, tough call. I truly feel as if there are two realities in place at the moment. One reality is where private sector workers are doing whatever they can to remain employed. This may mean taking smaller pay increase, no increases, or reductions in pay. We are in an era of wage stagnation and teetering on wage deflation in the private sector. The reality in which our Board and negotiating team had to operate in negotiating the contract with the MLEA was one in which public sector unions have had more "traditional" wage increases. It's almost as if the recession has not hit home for these unions based on many recently settled contracts.
So how does one balance across this chasm between private and public sector union pay?
For me, it starts out by looking at the entire contract and not just the headline number. The headline number of 4.15% average wage increase per year for five years in today's economic environment seems unreasonable on the surface. And quite honestly, if it was just about this salary increase there is no way the contract would have had my support. It is beneath the surface where things start to get interesting. Here is my checklist of why I supported the contract:
1) No step or pay increase for a teacher that receives and "unsatisactory" rating. This puts us on a path to discussing merit pay, something that very few Districts across our State can say they have in their contracts. As a former union member/shop steward myself, I can tell you that this is a very significant gain for the District and a testament to the MLEA's willingness to do what's best for our students.
2) Healthcare contributions rise to 10% of total premium and employees will need to cover the difference if they choose the PPO plan (more expensive) over the HMO plan. The 10% number, while not large compared to the private sector, is towards the higher end of comparator school districts.
3) Two additional teacher days per year plus 15 minutes more per day of instructional time. The increase in instructional time will allow more teacher/student "face-time" and again shows the District's and MLEA's understanding that increased achievement should be a goal for both of us. I believe the added face time has the potential to help increase test and achievement scores and lead to better educational outcomes for all students.
4) The District has negotiated increased management rights in being able to have a say in Extra Duty Responsibilities. EDRs are an added cost to the District and being able to rein in some of the expense associated with the EDRs with result in a long-term net benefit to the District.
It is my opinion that in order to gain the rights/concessions outlined above as well as a number of other management rights throughout the contract, it was necessary to award a raise higher than I initially thought was my limit.
At the end of the day I had to ask myself whether our negotiating team did the best they possibly could at the table. Given recent arbitration awards and other recently settled teachers contracts, I do feel that this was the best we could do while maintaining a good labor relationship with the MLEA.
Thanks for reading.
James
Please see these links:
School District Press Release
Post-Gazette Article
Mt. Lebanon Education Association Information (information about the ratification procedure)
As I said at the meeting last night, this vote was a tough, tough call. I truly feel as if there are two realities in place at the moment. One reality is where private sector workers are doing whatever they can to remain employed. This may mean taking smaller pay increase, no increases, or reductions in pay. We are in an era of wage stagnation and teetering on wage deflation in the private sector. The reality in which our Board and negotiating team had to operate in negotiating the contract with the MLEA was one in which public sector unions have had more "traditional" wage increases. It's almost as if the recession has not hit home for these unions based on many recently settled contracts.
So how does one balance across this chasm between private and public sector union pay?
For me, it starts out by looking at the entire contract and not just the headline number. The headline number of 4.15% average wage increase per year for five years in today's economic environment seems unreasonable on the surface. And quite honestly, if it was just about this salary increase there is no way the contract would have had my support. It is beneath the surface where things start to get interesting. Here is my checklist of why I supported the contract:
1) No step or pay increase for a teacher that receives and "unsatisactory" rating. This puts us on a path to discussing merit pay, something that very few Districts across our State can say they have in their contracts. As a former union member/shop steward myself, I can tell you that this is a very significant gain for the District and a testament to the MLEA's willingness to do what's best for our students.
2) Healthcare contributions rise to 10% of total premium and employees will need to cover the difference if they choose the PPO plan (more expensive) over the HMO plan. The 10% number, while not large compared to the private sector, is towards the higher end of comparator school districts.
3) Two additional teacher days per year plus 15 minutes more per day of instructional time. The increase in instructional time will allow more teacher/student "face-time" and again shows the District's and MLEA's understanding that increased achievement should be a goal for both of us. I believe the added face time has the potential to help increase test and achievement scores and lead to better educational outcomes for all students.
4) The District has negotiated increased management rights in being able to have a say in Extra Duty Responsibilities. EDRs are an added cost to the District and being able to rein in some of the expense associated with the EDRs with result in a long-term net benefit to the District.
It is my opinion that in order to gain the rights/concessions outlined above as well as a number of other management rights throughout the contract, it was necessary to award a raise higher than I initially thought was my limit.
At the end of the day I had to ask myself whether our negotiating team did the best they possibly could at the table. Given recent arbitration awards and other recently settled teachers contracts, I do feel that this was the best we could do while maintaining a good labor relationship with the MLEA.
Thanks for reading.
James
Monday, August 9, 2010
The Higher Education Bubble
I was referred to two opinion pieces in the Washington Times today. One was from back on June 6th and the other from August 8th. Writer Glenn Reynolds talks about what he thinks is the Higher Education Bubble and what will come next.
Mr. Reynolds is suggesting that higher education is in a bubble much like housing was in 2007. Glenn offers some advice to students (don't go into debt) and colleges (don't go on spending binges).
If true, the article also talks about some interesting ramifications when/if students get priced out of college.
Click on picture for larger image.
Relative to the housing bubble, that rise in tuition is something to behold.
Thanks for reading.
James
Mr. Reynolds is suggesting that higher education is in a bubble much like housing was in 2007. Glenn offers some advice to students (don't go into debt) and colleges (don't go on spending binges).
If true, the article also talks about some interesting ramifications when/if students get priced out of college.
...a college degree is an expensive way to get an entry-level credential. New approaches to credentialing, approaches that inform employers more reliably, while costing less than a college degree, are likely to become increasingly appealing over the coming decade.To get an idea of how much out of whack college tuition has risen, please take a look at the following chart which compares CPI, Housing Prices, and Tuition.
Click on picture for larger image.
Relative to the housing bubble, that rise in tuition is something to behold.
Thanks for reading.
James
Thursday, July 29, 2010
Parent Resource Network Evening Event
As you probably already know, a passion I have outside of work/family/volunteering, is the work my wife and I do for the non-profit we started, Parent Resource Network, a 501(c)(3) non-profit company. Annually we hold a fundraiser where money raised goes directly to families with children born prematurely or with chronic illness and/or congenital disorders. This organization was founded after we had our daughter, Taylor, born 17 weeks prematurely. After spending nine full months in the Neonatal Intensive Care unit, my wife Kelly and I realized that there were a lot of families who needed a network of support to rely on during the trying time in the NICU and beyond. This is why we founded PRN in 2006; to provide direct services to families that need it. From simple things like GetGo gas cards that help with hospital commute costs to goody bags with snacks, PRN pitches in. We have also been successful in rolling out more involved programs like Bereavement Services and Palliative Care. Today we provide services to all of the hospitals in the Pittsburgh region operating a NICU.
On August 14th, Parent Resource Network will hold its annual fund raising event at the Smart House on Mt Washington. Cost to attend is only $40 and there will be a live band, silent auction items and live table games to win prizes. It is your support that keeps this organization going and allows us to have a tremendous positive impact on these families.
Please visit http://parentresourcenetwork.org for more information on the event.
If you are unable to attend but would still like to donate to our organization, please visit our website at http://parentresourcenetwork.org/giving and donate online. Your financial support would be greatly appreciated! Donation are tax-deductible.
Thanks for reading. Email me with any questions about the event.
James
Tuesday, July 27, 2010
July Update
The question now on many people's minds is, "Now What". Our property taxes just increased over 10% in June. The High School Project is effectively stalled until Judge James renders his ruling. We just let the cat out of the bag on the deduct alternates. We will have no tennis courts for approximately 3 years at the high school in the current design. We were recently turned away by both the Zoning Hearing Board and the Planning Board. The Board recently passed a new policy requiring many documents in our packets to be released to the public only by a majority vote of the Board or after our voting meeting. We are also having discussions regarding posting information about who is requesting right-to-know requests on the District website.
Unfortunately, these are the issues that the Board is dealing with. Most, if not all, of them could have been avoided with the proper foresight, advice, and planning. I am going to comment on the issues one at a time while keeping in mind that there are some legal issues surrounding the Zoning Hearing Board.
First, I want to update you on where we are with our property taxes. As you know, taxes were increased for the 2010-2011 school year to help pay for the high school. We floated the bonds in October 2009 in order to try to take advantage of what were historically low interest rates. As you may know, interest rates have remained at about the same level as they were in October 2009. The District has paid hundreds of thousands of dollars in interest on these bonds. This is interest that was unnecessary as we had enough money in the bank to pay current bills for some time. Additionally, the bonds we floated were traditional municipal bonds and not the less expensive Build America Bonds. We floated the traditional bonds in order to "maximize bond proceeds" as opposed to trying to make the bond float more beneficial to the taxpayer. This was a decision I voted against as it was clear on the documentation we had on the night of the vote that the Build America Bonds would have saved our taxpayers over $2 million over the life of the bonds. Our bond advisor was given the instruction to maximize proceeds and we therefore were able to get a premium on the traditional bonds. The premium simply meant that the District was going to make payments on the bond that were higher than what the market was asking for at the time. In exchange for this higher coupon payment, bond buyers were willing to pay the District a little more (a premium) for our bonds. While this does mean we will borrow less in the second float of the bonds for the high school, this is only because we paid more than market coupon rates for the first float of bonds. These bonds accounted for a very large percentage of your recent tax hike.
Another factor in our latest budget is that it is another year in which we plan to have a reduction in students and another year in which we will not lose any staff to compensate for that reduction. You may remember from the passing of the 2008-2009 and 2009-2010 budgets that I advocated for reductions in staff to compensate for the reduction in student enrollment. In fact, in the 2009-2010 budget we planned to eliminate 3 positions partially to account for this reduction in students. However, every one of these positions was added back prior to the start of the school year. As I said last year, just as we would plan to increase staff when we have an increase in students, we need to figure out how to reduce staff when we have the trickle out of students that we have seen over the past 10 years. In a perfect world we would have been able to reduce staff to account for the reduced student population. This would have had the effect reducing the overall burden of the high school project on our residents. Unfortunately, there was not enough Board support to either reduce staff or programs to help offset the tax increase for the bonds floated for the high school (the budget passed 6-2).
Here is a table of our student population:
Over 200 students lost (and counting) and we have not reduced our staffing levels. Since staffing is the single largest expense in our budget, it is important that we stay on top of exactly what we need. Otherwise, we start to raise taxes at a rate far faster than the Districts that have the ability to adjust more readily to these types of changes.
Here is an updated graph comparing our millage (municipal and school district) to some other Districts throughout the County:
What this graph shows is exactly what I talked about in my White Paper in January. We are continuing on a path to taxing our residents at a much higher rate than school districts with which we compete. A continuation of this trend will no doubt lead to some serious consequences in Mt Lebanon. We cannot expect to charge a large premium to live in our community and avoid negative consequences. At what point that happens I don't know. But I have a feeling that the point is awful close.
As of the passage of school district 2010-2011 budgets, here is a list of the millage rates for the 25 highest taxed school districts in Allegheny County:
There we are, sandwiched between Deer Lakes and East Allegheny. No disrespect to the other school districts, but what else do we have in common with them besides these millage rates? For a District and community that wants to compare itself to other peers like Upper St Clair, Fox Chapel, North Allegheny, Bethel Park and others, is this the position in which we want to find ourselves?
Regardless of the tax hike to pay for it, the high school project itself is effectively stalled. It is public knowledge that the District went before the Mt Lebanon Zoning Hearing Board and requested two variances. One of the variances was for parking spaces and the other was for lot coverage. The Zoning Hearing Board voted unanimously against approving the variances to allow the project to move forward. The District has since appealed and is awaiting a ruling by Judge James about the status of the variance request. As I said before, there are some legal issues here that cannot be commented on until the case is over. The reality of the situation is that it is rather embarrassing for me to be in the position of suing my own Zoning Hearing Board. Both sides have "lawyered up" (the ZH Board attorney paid for by the Municipality) and we are now using tax dollars on both sides of the issue to fight a no-win situation in court.
Still sticking with the high school project, we have recently talked about a deduct alternate list. To be clear, there has already been some significant value engineering when it comes to using materials in the school. As an example, we are going to use a vinyl composite material for the flooring. This decision will result in savings based on the materials we had previously planned to use. There are a number of decisions like this that I consider to be part of the value engineering process. What the Board has started to consider on top of these types of changes is alterations to the design of the building itself. The architects and project manager are preparing more information for the Board regarding larger possible deductions to the project. These possible deductions include eliminating the second auxiliary gymnasium, altering the number of air handlers in the athletic wing, changing the scope of the renovations to the Little Theater and Auditorium, and moving the tennis courts off-site. There was even discussion about leaving some parts of these deducts alternates to be completed at a different time so as to reduce the overall cost and scope of the current project. The Board will decide in August which, if any, of the deduct alternates should be bid. Please be sure to give your feedback to the Board regarding these possible changes prior to August 9th.
Finally, there have been some recent policy changes and discussion that are of interest. In June, while I was away on business, the Board took up policy BBAA, Board Member Responsibility and Ethics. We added the following text to the policy:
Individual Board members shall refrain from publishing, distributing, releasing or disclosing any documents, records or information containing or reflecting the predecisional deliberation of the Board relating to matters such as budget recommendations, legislative proposals or any contemplated or proposed policy or course of action. This preclusion includes any research, memorandums or other documents used by the Board in its predecisional deliberations.
I would have voted against this policy. The thing is, this is how I do my job as a Director. When we get a packet that is filled with information and recommendations, it is important for me to try to understand each issue as best as I can. Often times I will seek advice outside of the District and central office when it comes to certain issues. One example would be the bond issue from October of 2009. After reviewing the information given to the Board from the central office and our bond advisor I decided to go outside of the District to get more information. I called other financial advisors to other school districts and I called friends of mine who work in the bond industry. It was these people who led me to ask our bond advisor to compare costs of both the Build America Bonds (part of the federal government stimulus package) and traditional municipal bonds. Prior to my research we had only been quoted information about traditional bonds. Armed with new information on Build America Bonds, I was able to get our financial advisor to present the BAB bonds and traditional bonds side by side for comparison purposes. The result was that the BAB bonds would have saved the District taxpayers over $2 million dollars. Unfortunately, as mentioned previously in this post, our bond advisor was ultimately given the advice to maximize the proceeds of our bond sale as opposed to maximizing the savings of the bond float to our taxpayers. The bond information that was given to the Board would have been classified as "predecisional" or possibly even "research". This means I would have been in violation of Board policy if I went outside of the Board and District to get additional information regarding items in my packet. I wholeheartedly disagree with this policy and I promise you that I will violate the policy at least once a month for the rest of my years on the Board. If I didn't then I wouldn't be doing my job as a Director. Think about this for a second. Two weeks ago we were given the State Auditor's report on the District. There was some interesting information in there on a number of topics. Our solicitor said in our discussion meeting that because we had not yet voted on the report, that it was considered pre-decisional. That means that I could technically not even talk to a neighbor about the auditor's findings about bus drivers or about the Marge Sable incident without violating board policy. I would have had to have waited until after the vote to make comment. If we withhold this type of information from the public prior to a vote, then how in the world can we expect our residents to come up to the microphone before a meeting and comment on any number of topics on the agenda? Is this the kind of board our residents expect?
The other policy that has been part of our discussions has been regarding right-to-know requests. Director Remely first suggested a few months back that we post the names of people making right to know requests on the District website. While we have had a number of right-to-know requests, I am not sure that the best way to deal with it is to post people's names online. The idea here should be figure out WHY we have so many requests and then address THAT issue. If we post the names of requesters then we are not addressing the issue, instead we are simply appearing as if we have something to hide. Posting names on the district website will end up having a "chilling effect" on our residents and may inhibit them from doing something that they would otherwise do quite freely. This action would only reinforce the idea that the Board and District is trying to hide something. Rather than taking this route it is my belief that the District and Board need to increase transparency in all things that we do. If the Board decides to follow through with this idea to post names of RTK requesters online, then it is only fair that the information requested in the RTK request also get posted online. If the District will not post this information on the District website itself, then the RTK information should get posted on a publicly available website open to all Mt Lebanon residents for review and inspection.
Thanks for reading.
James
Unfortunately, these are the issues that the Board is dealing with. Most, if not all, of them could have been avoided with the proper foresight, advice, and planning. I am going to comment on the issues one at a time while keeping in mind that there are some legal issues surrounding the Zoning Hearing Board.
First, I want to update you on where we are with our property taxes. As you know, taxes were increased for the 2010-2011 school year to help pay for the high school. We floated the bonds in October 2009 in order to try to take advantage of what were historically low interest rates. As you may know, interest rates have remained at about the same level as they were in October 2009. The District has paid hundreds of thousands of dollars in interest on these bonds. This is interest that was unnecessary as we had enough money in the bank to pay current bills for some time. Additionally, the bonds we floated were traditional municipal bonds and not the less expensive Build America Bonds. We floated the traditional bonds in order to "maximize bond proceeds" as opposed to trying to make the bond float more beneficial to the taxpayer. This was a decision I voted against as it was clear on the documentation we had on the night of the vote that the Build America Bonds would have saved our taxpayers over $2 million over the life of the bonds. Our bond advisor was given the instruction to maximize proceeds and we therefore were able to get a premium on the traditional bonds. The premium simply meant that the District was going to make payments on the bond that were higher than what the market was asking for at the time. In exchange for this higher coupon payment, bond buyers were willing to pay the District a little more (a premium) for our bonds. While this does mean we will borrow less in the second float of the bonds for the high school, this is only because we paid more than market coupon rates for the first float of bonds. These bonds accounted for a very large percentage of your recent tax hike.
Another factor in our latest budget is that it is another year in which we plan to have a reduction in students and another year in which we will not lose any staff to compensate for that reduction. You may remember from the passing of the 2008-2009 and 2009-2010 budgets that I advocated for reductions in staff to compensate for the reduction in student enrollment. In fact, in the 2009-2010 budget we planned to eliminate 3 positions partially to account for this reduction in students. However, every one of these positions was added back prior to the start of the school year. As I said last year, just as we would plan to increase staff when we have an increase in students, we need to figure out how to reduce staff when we have the trickle out of students that we have seen over the past 10 years. In a perfect world we would have been able to reduce staff to account for the reduced student population. This would have had the effect reducing the overall burden of the high school project on our residents. Unfortunately, there was not enough Board support to either reduce staff or programs to help offset the tax increase for the bonds floated for the high school (the budget passed 6-2).
Here is a table of our student population:
| Year | Student Population |
| 2001 | 5640 |
| 2002 | 5597 |
| 2003 | 5610 |
| 2004 | 5551 |
| 2005 | 5494 |
| 2006 | 5441 |
| 2007 | 5429 |
| 2008 | 5423 |
Over 200 students lost (and counting) and we have not reduced our staffing levels. Since staffing is the single largest expense in our budget, it is important that we stay on top of exactly what we need. Otherwise, we start to raise taxes at a rate far faster than the Districts that have the ability to adjust more readily to these types of changes.
Here is an updated graph comparing our millage (municipal and school district) to some other Districts throughout the County:
What this graph shows is exactly what I talked about in my White Paper in January. We are continuing on a path to taxing our residents at a much higher rate than school districts with which we compete. A continuation of this trend will no doubt lead to some serious consequences in Mt Lebanon. We cannot expect to charge a large premium to live in our community and avoid negative consequences. At what point that happens I don't know. But I have a feeling that the point is awful close.
As of the passage of school district 2010-2011 budgets, here is a list of the millage rates for the 25 highest taxed school districts in Allegheny County:
| School District | Millage | |
| 1 | Fort Cherry | 118.5 |
| 2 | Wilkinsburg | 35 |
| 3 | Brentwood | 28.27 |
| 4 | Northgate | 27.6 |
| 5 | East Allegheny | 27.54 |
| 6 | Mt Lebanon | 26.63 |
| 7 | Deer Lakes | 26.25 |
| 8 | South Park | 25.99 |
| 9 | Woodland Hills | 25.65 |
| 10 | Shaler | 25.63 |
| 11 | Sto-Rox | 25 |
| 12 | South Fayette | 24.88 |
| 13 | Penn Hills | 24.81 |
| 14 | Bethel Park | 24.56 |
| 15 | Highlands | 24.41 |
| 16 | Carylton | 24.15 |
| 17 | Cornell | 24.11 |
| 18 | Steel Valley | 24.07 |
| 19 | Riverview | 24.05 |
| 20 | Elizabeth-Forward | 23.51 |
| 21 | Baldwin-Whitehall | 23.5 |
| 22 | Allegheny Valley | 23.46 |
| 23 | West Mifflin | 22.992 |
| 24 | Upper St Clair | 22.29 |
| 25 | Plum | 22.2 |
There we are, sandwiched between Deer Lakes and East Allegheny. No disrespect to the other school districts, but what else do we have in common with them besides these millage rates? For a District and community that wants to compare itself to other peers like Upper St Clair, Fox Chapel, North Allegheny, Bethel Park and others, is this the position in which we want to find ourselves?
Regardless of the tax hike to pay for it, the high school project itself is effectively stalled. It is public knowledge that the District went before the Mt Lebanon Zoning Hearing Board and requested two variances. One of the variances was for parking spaces and the other was for lot coverage. The Zoning Hearing Board voted unanimously against approving the variances to allow the project to move forward. The District has since appealed and is awaiting a ruling by Judge James about the status of the variance request. As I said before, there are some legal issues here that cannot be commented on until the case is over. The reality of the situation is that it is rather embarrassing for me to be in the position of suing my own Zoning Hearing Board. Both sides have "lawyered up" (the ZH Board attorney paid for by the Municipality) and we are now using tax dollars on both sides of the issue to fight a no-win situation in court.
Still sticking with the high school project, we have recently talked about a deduct alternate list. To be clear, there has already been some significant value engineering when it comes to using materials in the school. As an example, we are going to use a vinyl composite material for the flooring. This decision will result in savings based on the materials we had previously planned to use. There are a number of decisions like this that I consider to be part of the value engineering process. What the Board has started to consider on top of these types of changes is alterations to the design of the building itself. The architects and project manager are preparing more information for the Board regarding larger possible deductions to the project. These possible deductions include eliminating the second auxiliary gymnasium, altering the number of air handlers in the athletic wing, changing the scope of the renovations to the Little Theater and Auditorium, and moving the tennis courts off-site. There was even discussion about leaving some parts of these deducts alternates to be completed at a different time so as to reduce the overall cost and scope of the current project. The Board will decide in August which, if any, of the deduct alternates should be bid. Please be sure to give your feedback to the Board regarding these possible changes prior to August 9th.
Finally, there have been some recent policy changes and discussion that are of interest. In June, while I was away on business, the Board took up policy BBAA, Board Member Responsibility and Ethics. We added the following text to the policy:
Individual Board members shall refrain from publishing, distributing, releasing or disclosing any documents, records or information containing or reflecting the predecisional deliberation of the Board relating to matters such as budget recommendations, legislative proposals or any contemplated or proposed policy or course of action. This preclusion includes any research, memorandums or other documents used by the Board in its predecisional deliberations.
I would have voted against this policy. The thing is, this is how I do my job as a Director. When we get a packet that is filled with information and recommendations, it is important for me to try to understand each issue as best as I can. Often times I will seek advice outside of the District and central office when it comes to certain issues. One example would be the bond issue from October of 2009. After reviewing the information given to the Board from the central office and our bond advisor I decided to go outside of the District to get more information. I called other financial advisors to other school districts and I called friends of mine who work in the bond industry. It was these people who led me to ask our bond advisor to compare costs of both the Build America Bonds (part of the federal government stimulus package) and traditional municipal bonds. Prior to my research we had only been quoted information about traditional bonds. Armed with new information on Build America Bonds, I was able to get our financial advisor to present the BAB bonds and traditional bonds side by side for comparison purposes. The result was that the BAB bonds would have saved the District taxpayers over $2 million dollars. Unfortunately, as mentioned previously in this post, our bond advisor was ultimately given the advice to maximize the proceeds of our bond sale as opposed to maximizing the savings of the bond float to our taxpayers. The bond information that was given to the Board would have been classified as "predecisional" or possibly even "research". This means I would have been in violation of Board policy if I went outside of the Board and District to get additional information regarding items in my packet. I wholeheartedly disagree with this policy and I promise you that I will violate the policy at least once a month for the rest of my years on the Board. If I didn't then I wouldn't be doing my job as a Director. Think about this for a second. Two weeks ago we were given the State Auditor's report on the District. There was some interesting information in there on a number of topics. Our solicitor said in our discussion meeting that because we had not yet voted on the report, that it was considered pre-decisional. That means that I could technically not even talk to a neighbor about the auditor's findings about bus drivers or about the Marge Sable incident without violating board policy. I would have had to have waited until after the vote to make comment. If we withhold this type of information from the public prior to a vote, then how in the world can we expect our residents to come up to the microphone before a meeting and comment on any number of topics on the agenda? Is this the kind of board our residents expect?
The other policy that has been part of our discussions has been regarding right-to-know requests. Director Remely first suggested a few months back that we post the names of people making right to know requests on the District website. While we have had a number of right-to-know requests, I am not sure that the best way to deal with it is to post people's names online. The idea here should be figure out WHY we have so many requests and then address THAT issue. If we post the names of requesters then we are not addressing the issue, instead we are simply appearing as if we have something to hide. Posting names on the district website will end up having a "chilling effect" on our residents and may inhibit them from doing something that they would otherwise do quite freely. This action would only reinforce the idea that the Board and District is trying to hide something. Rather than taking this route it is my belief that the District and Board need to increase transparency in all things that we do. If the Board decides to follow through with this idea to post names of RTK requesters online, then it is only fair that the information requested in the RTK request also get posted online. If the District will not post this information on the District website itself, then the RTK information should get posted on a publicly available website open to all Mt Lebanon residents for review and inspection.
Thanks for reading.
James
Saturday, July 17, 2010
Mt. Lebanon Real Estate Numbers
One of the interesting things about our budget for fiscal year 2009-2010 was the fact that our Real Estate Transfer Tax continued to outperform every other line item in our budget. Clearly there was something different happening in 2009-2010 than happened in 2008-2009.
Without the data I have now, I hypothesized that the number of home sales had likely increased due to the $8000 homebuyer tax credit. This was not a hard guess to make as home sales around the country rebounded once the tax credit went into effect. What I didn't know was at what price the homes were selling for.
I was able to get a summary of all real estate sold in the 15228 zip code for FY 2008-2009 and for FY 2009-2010 until May of 2010.
Here is the data:
As you can see, starting in October 2010, home sales for every month in fiscal year 2009-2010 equaled or outpaced home sales in fiscal year 2008-2009. The Home Buyer Tax Credit I believe went into effect starting in January 2009 and expired April 30, 2010.
The above data is interesting in that it shows that the number of homes sold in Mt Lebanon during this period increased by 26.7%. That's quite the jump.
The other side of the coin to this is that the transfer tax is not based on just the number of homes sold but also on the price of the home. For instance, despite the increase in the number of sales, if the average sales price had fallen substantially, then we would not have seen the increase in transfer tax receipts. Luckily, I have the average sale price data for the same time period below:
As you can see above, not only did the number of homes sold increase by 26.7% but the average price of the home sold increased by 5.5%. What I find interesting is that the increase in the average price was just above the $8,000 stimulus.
There are a lot of conflicting conclusions I can draw from the above information. Or maybe a better way to say it is that the above data begs a lot of questions. Did home prices actually go up in Mt. Lebanon during this time period? If so, was it short lived due to the stimulus money? Was it simply the effect of more expensive homes being listed on the market than the year before?
There is another set of data that can help answer that last question. Below is a chart showing the average list price of a home for each of the fiscal years:
As you can see, the average list price of the homes on the market increased by a whopping 14.1%. So, we had more expensive homes on the market and more sales of said homes.
So what does this mean for the 2010-2011 budget that we just passed? I would expect our transfer tax receipts to drop substantially from 2010-2011. The FY 2009-2010 increase was due mostly to a number of higher priced homes on the market and higher sales volume driven by the home buyers tax credit.
As is the case with most stimulus, what the tax credit did was move demand forward. I have heard from more than one Realtor that the real estate market is extremely quiet for this time of year (and that is not just in Mt Lebanon). Those people that had planned to perhaps wait an extra year to buy a home in 2011 simply accelerated their purchase to gain the $8000 tax credit to help them buy a home in early 2010. As with the "Cash for Clunkers" program, we will see demand for home purchases decline substantially once the stimulus is removed. How long it lasts is anyone's guess.
If anyone has any additional insight to the information presented above, I'd love to hear it. If enough people email me, I would be happy to provide an update or a different perspective.
Thanks for reading.
James
Without the data I have now, I hypothesized that the number of home sales had likely increased due to the $8000 homebuyer tax credit. This was not a hard guess to make as home sales around the country rebounded once the tax credit went into effect. What I didn't know was at what price the homes were selling for.
I was able to get a summary of all real estate sold in the 15228 zip code for FY 2008-2009 and for FY 2009-2010 until May of 2010.
Here is the data:
| Fiscal Year Home Sales Through May | ||
| Month | FY 2008-2009 | FY 2009-2010 |
| July | 35 | 31 |
| Aug | 23 | 31 |
| Sept | 21 | 18 |
| Oct | 12 | 27 |
| Nov | 8 | 18 |
| Dec | 14 | 23 |
| Jan | 10 | 13 |
| Feb | 9 | 9 |
| Mar | 8 | 14 |
| Apr | 19 | 19 |
| May | 21 | 25 |
| Total | 180 | 228 |
As you can see, starting in October 2010, home sales for every month in fiscal year 2009-2010 equaled or outpaced home sales in fiscal year 2008-2009. The Home Buyer Tax Credit I believe went into effect starting in January 2009 and expired April 30, 2010.
The above data is interesting in that it shows that the number of homes sold in Mt Lebanon during this period increased by 26.7%. That's quite the jump.
The other side of the coin to this is that the transfer tax is not based on just the number of homes sold but also on the price of the home. For instance, despite the increase in the number of sales, if the average sales price had fallen substantially, then we would not have seen the increase in transfer tax receipts. Luckily, I have the average sale price data for the same time period below:
| Average Sold Price Through May | ||
| Month | FY 2008-2009 | FY 2009-2010 |
| July | $ 245 | $ 233 |
| Aug | $ 204 | $ 248 |
| Sept | $ 279 | $ 261 |
| Oct | $ 196 | $ 188 |
| Nov | $ 186 | $ 226 |
| Dec | $ 166 | $ 238 |
| Jan | $ 216 | $ 224 |
| Feb | $ 220 | $ 160 |
| Mar | $ 252 | $ 258 |
| Apr | $ 214 | $ 268 |
| May | $ 234 | $ 232 |
| Average | $ 219 | $ 231 |
As you can see above, not only did the number of homes sold increase by 26.7% but the average price of the home sold increased by 5.5%. What I find interesting is that the increase in the average price was just above the $8,000 stimulus.
There are a lot of conflicting conclusions I can draw from the above information. Or maybe a better way to say it is that the above data begs a lot of questions. Did home prices actually go up in Mt. Lebanon during this time period? If so, was it short lived due to the stimulus money? Was it simply the effect of more expensive homes being listed on the market than the year before?
There is another set of data that can help answer that last question. Below is a chart showing the average list price of a home for each of the fiscal years:
| Average Active Price Through May | ||
| Month | FY 2008-2009 | FY 2009-2010 |
| July | $ 268 | $ 345 |
| Aug | $ 267 | $ 337 |
| Sept | $ 268 | $ 341 |
| Oct | $ 277 | $ 310 |
| Nov | $ 292 | $ 327 |
| Dec | $ 294 | $ 342 |
| Jan | $ 290 | $ 358 |
| Feb | $ 287 | $ 341 |
| Mar | $ 331 | $ 336 |
| Apr | $ 339 | $ 339 |
| May | $ 356 | $ 350 |
| Average | $ 297 | $ 339 |
As you can see, the average list price of the homes on the market increased by a whopping 14.1%. So, we had more expensive homes on the market and more sales of said homes.
So what does this mean for the 2010-2011 budget that we just passed? I would expect our transfer tax receipts to drop substantially from 2010-2011. The FY 2009-2010 increase was due mostly to a number of higher priced homes on the market and higher sales volume driven by the home buyers tax credit.
As is the case with most stimulus, what the tax credit did was move demand forward. I have heard from more than one Realtor that the real estate market is extremely quiet for this time of year (and that is not just in Mt Lebanon). Those people that had planned to perhaps wait an extra year to buy a home in 2011 simply accelerated their purchase to gain the $8000 tax credit to help them buy a home in early 2010. As with the "Cash for Clunkers" program, we will see demand for home purchases decline substantially once the stimulus is removed. How long it lasts is anyone's guess.
If anyone has any additional insight to the information presented above, I'd love to hear it. If enough people email me, I would be happy to provide an update or a different perspective.
Thanks for reading.
James
Friday, July 2, 2010
Jobs Still Scarce
I came across an article at the Calculated Risk blog that I thought I would share. CR has been tracking employment during this recession and has an interesting graph when comparing unemployment for this recession to all other post World War II recessions.
Please see the chart below:
Click on image for larger view
From the CR blog:
The Daily Kos has the following tidbit (I just realized they copied the same graph I have above):
Pennsylvania's unemployment rate (8.5% in May 2010) trails the national unemployment rate of 9.5%. Mt. Lebanon's unemployment rate has risen to 6% (May 2010) from 5.5% in April (see the excel sheet in this link). This is up from 4.9% in May 2009 (again in the excel sheet in this link).
While our rate is lower than the national and state averages, our trends are very much the same. The scary thing about this is that the national unemployment rate continues to decline not because jobs are being created but because people are simply giving up looking for work. Not a good sign at all.
Thanks for reading.
James
Please see the chart below:
Click on image for larger view
From the CR blog:
For the current employment recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).This has been no ordinary recession.
The decrease in the unemployment rate was because of a decline in the participation rate - and that is not good news. Although better than May, this is still a weak report.
The Daily Kos has the following tidbit (I just realized they copied the same graph I have above):
- About 14.6 million Americans remain unemployed.
- 45.5% the unemployed, or 6.8 million Americas, have been out of work for 27 weeks or more. The ranks of these long-term unemployed remains at a post-Depression record.
- There are now 7.9 million more Americans out of work than when the recession began in December 2007. (Roughly 15 million more are underemployed or have dropped out of the labor force -- and thus the statistical calculations).
Pennsylvania's unemployment rate (8.5% in May 2010) trails the national unemployment rate of 9.5%. Mt. Lebanon's unemployment rate has risen to 6% (May 2010) from 5.5% in April (see the excel sheet in this link). This is up from 4.9% in May 2009 (again in the excel sheet in this link).
While our rate is lower than the national and state averages, our trends are very much the same. The scary thing about this is that the national unemployment rate continues to decline not because jobs are being created but because people are simply giving up looking for work. Not a good sign at all.
Thanks for reading.
James
Wednesday, June 30, 2010
Terrific Post on the PSERS Crisis
A school board member in Northwestern Lehigh School District runs his own blog, Pride and Promise. I was going to do a lengthy post on the House Bill that is set to address the PSERS issue but this blog beat me to it. I don't think I could have done a better job explaining this myself.
Please check out Paul Fischer's post on the PSERS crisis here:
http://prideandpromise.com/2010/06/11/the-psers-crisis-kicking-the-can-further-down-the-road-with-hb-2497/
The idea here is that the HB actually kicks the can down the road again. It has the short term effect of slightly lowering employer contributions but in the long term it will cost taxpayers billions ($52 billion according to some)more than simply sticking with the bad plan we already have.
Thanks for reading.
James
Please check out Paul Fischer's post on the PSERS crisis here:
http://prideandpromise.com/2010/06/11/the-psers-crisis-kicking-the-can-further-down-the-road-with-hb-2497/
The idea here is that the HB actually kicks the can down the road again. It has the short term effect of slightly lowering employer contributions but in the long term it will cost taxpayers billions ($52 billion according to some)more than simply sticking with the bad plan we already have.
Thanks for reading.
James
Tuesday, June 29, 2010
Rising Government Debt is a Ponzi Scheme
The Economist magazine has a terrific article titled, "Repent at Leisure". It's important because it is the first mainstream article in The Economist that I have read which takes on the problem of increasing government debt in order to stimulate the economy. I wrote way back in January 2009 about the Aftermath of Financial Crises and was hopeful that this day would come. Here is a quick snippet:
It took a little longer than I had hoped but it seems like the mainstream media is now starting to focus on the effect that deficits have on future production. That The Economist magazine has printed an article about the downfalls of Krugman/Keynesian fiscal stimulus and debt is no small deal.
Here is a piece of the article:
The problem with debt, of course, is that it needs to be paid back.
The Wall Street Journal also just published this editorial titled, "The Keynesian Dead End". Here is an excerpt:
One of my favorite economists is Ludvig Von Mises (1881-1973). Here is a pertinent quote from him:
Kudos to The Economist and WSJ for letting these articles fly.
Thanks for reading.
James
The point of this is to say that the large majority of economists that are prominent today come from the Keynesian school of economic thought. When we hear people talk about a huge majority of advisers and academia folks agreeing on the best way to get us out of whatever malaise we are in, it is because most are believers in the Keynesian school of thought. Those that follow the Austrian school of economic thought were proven to be correct about a lot of the causes of the Depression. Those that are Keynesians believe that we can stimulate demand (and therefore employment and production) by embarking on massive government spending programs. While these programs may make us feel good in the near term because we can see that our government is trying to do something, the long-term consequences of such programs is astounding.
I am hopeful that the Austrian school of economic thought will start to make its way into the mainstream in 2009.
It took a little longer than I had hoped but it seems like the mainstream media is now starting to focus on the effect that deficits have on future production. That The Economist magazine has printed an article about the downfalls of Krugman/Keynesian fiscal stimulus and debt is no small deal.
Here is a piece of the article:
Rising government debt is a Ponzi scheme that requires an ever-growing population to assume the burden—unless some deus ex machina, such as a technological breakthrough, can boost growth. As Roland Nash, head of research at Renaissance Capital, an investment bank, puts it: “Can the West, with its regulated industry, uncompetitive labour and large government, afford its borrowing-funded living standards and increasingly expensive public sectors?”
The problem with debt, of course, is that it needs to be paid back.
The Wall Street Journal also just published this editorial titled, "The Keynesian Dead End". Here is an excerpt:
The larger lesson here is about policy. The original sin—and it was nearly global—was to revive the Keynesian economic model that had last cracked up in the 1970s, while forgetting the lessons of the long prosperity from 1982 through 2007. The Reagan and Clinton-Gingrich booms were fostered by a policy environment for most of that era of lower taxes, spending restraint and sound money. The spending restraint began to end in the late 1990s, sound money vanished earlier this decade, and now Democrats are promising a series of enormous tax increases.
One of my favorite economists is Ludvig Von Mises (1881-1973). Here is a pertinent quote from him:
There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.
Kudos to The Economist and WSJ for letting these articles fly.
Thanks for reading.
James
Monday, June 28, 2010
State Budget Update
After a long trip to China, its good to be back and have access to Blogspot. The government in China chooses to block access to a number of sites- hence the long break between my blog posts. Scribd and Blogspot being sites I use quite often, it was frustrating trying to keep up on things back home through other sites.
On to the post...
I received an email from the PSBA today with a rather bleak assessment of where we are with the Commonwealth's budget.
Full text of the email is below:
Note two things. First, the PSBA points out that in order to close a budget gap there are only two alternatives. Slash programs or raise taxes. The PSBA thinks neither of these alternatives is good. Second, note that there is no promise that the Federal government will pass another stimulus for this budget year. This action (or non-action) would likely result in a further $850 million hit to the state budget. The PSBA believes that if another stimulus does not pass then the basic education subsidy provided by Pennsylvania to local school districts will not be able to grow. Is it sacrilege for me to tell the Feds to keep their money?
It is the season for belt tightening all across this country. State budgets are in shambles. Borrowing and spending money has done nothing but put our budgets further in a hole than anyone ever imagined. It's time to get real and cut costs so that government (local, state, and federal) budgets can all live within their means.
Thanks for reading.
James
On to the post...
I received an email from the PSBA today with a rather bleak assessment of where we are with the Commonwealth's budget.
Full text of the email is below:
State Budget Update: Chances Growing Dim for Agreement by July 1
Going into this past weekend, optimism was high that a budget agreement could be reached by the June 30 deadline. However, following a weekend of meetings among the four legislative caucuses and Gov. Edward Rendell, it appears that an agreement will not be in place by the deadline. Instead, Senate Republicans will likely present a budget plan that $27.8 billion budget and take a floor vote on Tuesday or Wednesday of this week. Meanwhile, the other three legislative caucuses appear to have an informal agreement on a budget that is closer to $28 billion.
Meetings last week and through the weekend appeared to be productive in all sides moving closer towards agreement on an approximately $28 billion budget proposal. Budget negotiations on Sunday were expected to determine how much of an increase the agreed-upon budget would provide for basic education funding. However, issues such as a proposed Marcellus Shale extraction tax and continued funding for the Department of Community and Economic Development prevented an agreement from taking place.
Additionally, as part of the original conditional agreement, House and Senate Republicans agreed to consider a Marcellus Shale extraction tax by Oct. 1 if a budget is enacted by the June 30, 2010 deadline. Although the details of that tax have yet to be negotiated, PSBA has continued to work to secure a portion of an oil and gas severance tax to be dedicated to local school districts.
Another issue is what to do if federal legislation on Medicare payments is not passed. The failure of that measure would be mean an $850 million hole for the commonwealth's budget and would all but eliminate any increase in education funding and create additional layoffs both on the state and school district levels. Reportedly, the sides are discussing who gets to make the additional cuts and how they are agreed upon.
Caucus leaders and the governor are meeting this morning to see if the budget can be put back on track. Regardless of the results of those discussions, education funding is in dire trouble and legislators need to be reminded of its importance in the 2010-11 fiscal year. Please contact your members of the Senate and House of Representatives now to express to them the importance of basic education funding. Here are talking points you can use:
-- As a result of Pennsylvania's commitment and investment in basic education, students in the commonwealth have demonstrated academic gains. Nearly 75% of Pennsylvania students are testing on grade level in reading and math, an increase over the more than 50% who were performing on grade level in 2002.
-- It is vital to the future of Pennsylvania's students to maintain the state's commitment to the basic education funding formula, as established in Act 61 of 2008.
-- Almost all school district expenses continue to increase. Therefore, the difference between state funding and increased costs must be made up by increasing property taxes or slashing programs and services to students, neither of which are acceptable.
-- The PA School Funding Campaign, which includes PSBA as a member, recently released detailed information on the cuts being made by school districts statewide. The coalition reported that almost a quarter of districts have already approved cutbacks in teaching positions, transportation, technology, and extra-curricular activities. Funds for full-day kindergarten, special education services, foreign languages and alternative education programs also are being cut. Further cuts to state funding will only require deeper cuts on the local level. Click here for details on cuts being made by districts around the state.
Thank you for your continued advocacy efforts that will help to ensure Pennsylvania's commitment to adequate and equitable education funding for our school districts. Please call your legislators today!
Note two things. First, the PSBA points out that in order to close a budget gap there are only two alternatives. Slash programs or raise taxes. The PSBA thinks neither of these alternatives is good. Second, note that there is no promise that the Federal government will pass another stimulus for this budget year. This action (or non-action) would likely result in a further $850 million hit to the state budget. The PSBA believes that if another stimulus does not pass then the basic education subsidy provided by Pennsylvania to local school districts will not be able to grow. Is it sacrilege for me to tell the Feds to keep their money?
It is the season for belt tightening all across this country. State budgets are in shambles. Borrowing and spending money has done nothing but put our budgets further in a hole than anyone ever imagined. It's time to get real and cut costs so that government (local, state, and federal) budgets can all live within their means.
Thanks for reading.
James
Sunday, May 30, 2010
Eyeing the 2012 Allegheny County Reassessments
One of the things that has many homeowners on edge here in Mt Lebanon and all around Allegheny County is the 2012 Reassessment. In an effort to have our residents better understand what this will mean to them, I decided to try to tackle the topic at the May 27th Audit Finance Committee Meeting.
Perhaps the most important take away from the analysis is to understand that just because your assessment increases, your taxes do not necessarily increase along with it. As you will see in the Powerpoint slides below (or available here), how the reassessment impacts you will be determined by how much your reassessment changes in relation to the Mt. Lebanon mean change.
Here is the presentation (click here if the presentation below does not show):
Basically, here are some highlights:
Slide 2- The Allegheny County real estate tax system is based on a 100% of assessed value model. Other counties determine market value and then base their assessed value on some ratio of the market value (Washington County does this). There is no inherent advantage or disadvantage to using any particular method. Personally I prefer the Allegheny County system since there is no calculating ratios to figure out what it is you owe. The thing that made Allegheny County out of compliance with the Pennsylvania Constitution was the "Base Year" Model. Tying market values to what your home would have been worth in 2002 meant that, as a home on one side of town appreciated in value and a similar home on another side of town depreciated in value, after ten years these homes would still have the same tax. That is a violation of the Commonwealth's Uniformity Clause and is what is forcing the 2012 reassessment.
Slide 3- There will be a parcel by parcel reassessment in 2012. The plan for reassessment uses County employees to perform the reassessment.
Slide 4- The Anti-Windfall provisions from Act 1 restrict school districts and municipalities from gaining any revenue due to reassessment over and above Act 1 limits. Act 1 limits have been very small the last few years due to very small CPI increases. As long as CPI stays in check, the maximum increase in revenue to the school district will be less than 3%. The school board will have an opportunity to determine whether they want to gain any additional revenue or not.
Slide 5 and 6- These slides try to mathematically show the impact on real estate taxes for fiction town. The important thing to realize here is that in the two slides you see that the revenue to the town is the SAME before and after the reassessment. This is because the millage rate is lowered to compensate for any increased assessments. The other point to take away is that homes that have their assessment increases more than the average for the community will have their taxes increase. Homes that have their assessment increased less than the community average will have their taxes decrease. And homes that have their assessed values increased the same as the community average will see no change in tax.
To further understand this point, let's look at a Mt. Lebanon home assessed at $120,000. This same home was purchased in 2009 for $180,000. If collectively assessments in Mt Lebanon increase by 50%, then in theory this home should have the same exact tax as before the reassessment. If instead the collective reassessed values of all properties in Mt Lebanon increase by less than 50%, then this home will have increased taxes due to reassessment.
The problem here is that nobody will know how much assessments will change until they actually happen. Suffice it to say that any home that has had significant upgrades to it that has not been reassessed recently will have an increase in taxes. Since the school district cannot see an increase in revenue due to reassessment (or a very small increase) this necessarily means that some other home will have their tax bill reduced.
In conclusion, the reassessment is an attempt to more fairly assess homes across Allegheny County. This will most definitely mean a change in the tax bill makeup of Mt Lebanon. There will be some homeowners that will be shocked to see their new tax bill and this shock will be from both those that have an increased tax bill and a decreased tax bill. The best way to determine the reassessment impact on your individual home is try to think about how your home value has changed versus the rest of the homes in Mt Lebanon since 2002.
The last page of the presentation has the sources I used for the meeting. They are listed below:
* http://www.youcontrolyourmoney.org/ (search for “real estate assessment process”)
* http://money.cnn.com/magazines/moneymag/bplive/2007/snapshots/PL4251704.html
* http://pubs.cas.psu.edu/FreePubs/pdfs/ua308.pdf
* http://www.alleghenycounty.us/munimap/profile.asp?muni=73
* http://www.klgates.com/newsstand/Detail.aspx?publication=5381
* http://www.post-gazette.com/pg/09339/1018698-455.stm
* http://www2.county.allegheny.pa.us/realestate/Search.aspx
* http://www.city-data.com/housing/houses-Mount-Lebanon-Pennsylvania.html
Please take a look at some of the links above. The PSU document is a great one and is where much of the information for my presentation came from.
Thanks for reading.
James
Perhaps the most important take away from the analysis is to understand that just because your assessment increases, your taxes do not necessarily increase along with it. As you will see in the Powerpoint slides below (or available here), how the reassessment impacts you will be determined by how much your reassessment changes in relation to the Mt. Lebanon mean change.
Here is the presentation (click here if the presentation below does not show):
Basically, here are some highlights:
Slide 2- The Allegheny County real estate tax system is based on a 100% of assessed value model. Other counties determine market value and then base their assessed value on some ratio of the market value (Washington County does this). There is no inherent advantage or disadvantage to using any particular method. Personally I prefer the Allegheny County system since there is no calculating ratios to figure out what it is you owe. The thing that made Allegheny County out of compliance with the Pennsylvania Constitution was the "Base Year" Model. Tying market values to what your home would have been worth in 2002 meant that, as a home on one side of town appreciated in value and a similar home on another side of town depreciated in value, after ten years these homes would still have the same tax. That is a violation of the Commonwealth's Uniformity Clause and is what is forcing the 2012 reassessment.
Slide 3- There will be a parcel by parcel reassessment in 2012. The plan for reassessment uses County employees to perform the reassessment.
Slide 4- The Anti-Windfall provisions from Act 1 restrict school districts and municipalities from gaining any revenue due to reassessment over and above Act 1 limits. Act 1 limits have been very small the last few years due to very small CPI increases. As long as CPI stays in check, the maximum increase in revenue to the school district will be less than 3%. The school board will have an opportunity to determine whether they want to gain any additional revenue or not.
Slide 5 and 6- These slides try to mathematically show the impact on real estate taxes for fiction town. The important thing to realize here is that in the two slides you see that the revenue to the town is the SAME before and after the reassessment. This is because the millage rate is lowered to compensate for any increased assessments. The other point to take away is that homes that have their assessment increases more than the average for the community will have their taxes increase. Homes that have their assessment increased less than the community average will have their taxes decrease. And homes that have their assessed values increased the same as the community average will see no change in tax.
To further understand this point, let's look at a Mt. Lebanon home assessed at $120,000. This same home was purchased in 2009 for $180,000. If collectively assessments in Mt Lebanon increase by 50%, then in theory this home should have the same exact tax as before the reassessment. If instead the collective reassessed values of all properties in Mt Lebanon increase by less than 50%, then this home will have increased taxes due to reassessment.
The problem here is that nobody will know how much assessments will change until they actually happen. Suffice it to say that any home that has had significant upgrades to it that has not been reassessed recently will have an increase in taxes. Since the school district cannot see an increase in revenue due to reassessment (or a very small increase) this necessarily means that some other home will have their tax bill reduced.
In conclusion, the reassessment is an attempt to more fairly assess homes across Allegheny County. This will most definitely mean a change in the tax bill makeup of Mt Lebanon. There will be some homeowners that will be shocked to see their new tax bill and this shock will be from both those that have an increased tax bill and a decreased tax bill. The best way to determine the reassessment impact on your individual home is try to think about how your home value has changed versus the rest of the homes in Mt Lebanon since 2002.
The last page of the presentation has the sources I used for the meeting. They are listed below:
* http://www.youcontrolyourmoney.org/ (search for “real estate assessment process”)
* http://money.cnn.com/magazines/moneymag/bplive/2007/snapshots/PL4251704.html
* http://pubs.cas.psu.edu/FreePubs/pdfs/ua308.pdf
* http://www.alleghenycounty.us/munimap/profile.asp?muni=73
* http://www.klgates.com/newsstand/Detail.aspx?publication=5381
* http://www.post-gazette.com/pg/09339/1018698-455.stm
* http://www2.county.allegheny.pa.us/realestate/Search.aspx
* http://www.city-data.com/housing/houses-Mount-Lebanon-Pennsylvania.html
Please take a look at some of the links above. The PSU document is a great one and is where much of the information for my presentation came from.
Thanks for reading.
James
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