I received an email from a fellow Board member who asked me to make corrections to my white paper. I asked this individual if I could be given permission to publish the full email (without edits) on my website so that it could not be taken out of context. Unfortunately, I was not given permission to post the email in full. Instead, I will respond here to the general questions/corrections that I was asked to make.
Issue #1: The $117 million dollar number used in the "worst-case" scenario budget will NOT be the case since we voted to cap the project at $113 million.
First, the Act 34 maximum project cost is set at $113 million. Act 34 clearly states that, "A second Act 34 hearing is required if specified costs based on bids exceed by eight percent or greater those costs based on estimates". In reality, bids can exceed $113 million and the Board can still go forward- unless that number is over the referendum limit in which case we would have to stop everything and figure out the next step. Act 34 applies to new construction and allows us to exceed the maximum spend number on new construction by 8% before having to either change the Act 34 document to match the bids or to make adjustments to the design to have the next round of bids come in less than 8% over the Act 34 maximum spend number.
I know members of the Board last Monday said they expect bids would come in 17-25% below the estimates. The Board President was even confident enough of this to post it on his FAQ (which is apparently being mailed to you at taxpayer expense). Given that I appear to still be in the minority on this, I truly hope the bids DO come in 25% below PJ Dick's estimate. However, I have asked PJ Dick on more than one occasion if their estimate reflects the construction bids received by Bethel Park and Upper St Clair (both of their bids came in under budget). On these occasions PJ Dick has responded that their estimates DO include those reduced bids. Additionally, I asked PJ Dick in December what the variance might be from their $113 estimate. Their response was "plus or minus 5%". Please review the tapes from October, November, and December to verify that these questions were asked and were responded to as I describe above. Who is right on this? I hope its the Board President..
Finally, we found out recently that our reimbursement from the Commonwealth (known as the Commonwealth' share of the project) was going to be 8% instead of the 15% we were told previously. This was a loss of almost $600,000 a year in revenue to the District which was not accounted for in that long-term budget.
So yes, I used the "worse-case" scenario budget because it was the MOST ACCURATE. The other two possible budgets were not even in the same neighborhood because of their assumptions. Given that PSERS returns were -26% (the budget was based on -30%) and the construction budget was based on $117 million (and we are very much in that neighborhood) and that the reimbursement rate was reduced by almost $600,000/yr, that budget remains the most accurate of the three presented at the time. We should have an updated five-year budget available on Thursday night. You can be sure I will go through it with a fine tooth comb and I will post it here when it is available online.
Issue #2: The email took issue with the following statement from my recent blogpost: The FACT is that if we tried to borrow all of the money for this project at the same time we would HAVE to go to referendum. By splitting the bond floats into two different years we avoid it altogether
The email goes on to suggest that we DO have the ability right now to borrow all the money we need for this project. The email also suggests that we did not split the bond float into two separate floats in order to avoid a referendum.
First, no, we cannot borrow $113 million right now for this project. We have TOO MUCH DEBT already. The most we can borrow is $93,106,575. How do I know this? I have a copy of our 2008-2009 Comprehensive Annual Financial Report sitting right next to me (the link is broken on the District website and brings you to the 2008 CAFR otherwise I would link it). On pages 105 and 106 the calculation of Nonelectoral Debt (total debt we can take on without going to referendum) is done TWICE. Additionally, I asked this very question about how much we would be able to borrow "right now" late last year in a public meeting and the response from our Finance Manager was a number very much in line with the $93 million number above. This number has since been reduced because of the $69 million float for this project in October.
Second, we absolutely split this bond float into separate issues in order to avoid a referendum. In fact, a previous Board (circa 2006) approved a resolution to allow the issuance of $69 million in bonds prior to Act 1 passing in order to specifically avoid an Act 1 referendum. By approving the resolution before the passing of Act 1, the debt service required to pay for the bonds is not subject to Act 1 limits. By splitting the bond floats you allow your revenues to increase due to increased taxes which in turn increases your debt limits. So in essence, as you borrow more, you get to borrow even more because of the increased revenues/taxes required to service the new debt.
So, to sum up, we avoided a referendum by:
1) Approving the issuance of $69 million worth of bonds prior to Act 1 passing
2) Splitting the project bond floats into multiple floats (there was a scenario at one point where we were going to do three separate bond floats to avoid a referendum)
3) Approving an Act 34 project cost about 2% under our Nonelectoral Debt Limit
Issue #3- Cost Per Household
The argument is made in this email about the cost per household being an inaccurate way to measure the cost of this project. In retrospect, there were perhaps better ways to show the impact on the taxpayers. The cost per household number does NOT include the businesses in Mt Lebanon. This is true. So while it is true that if you divide the total project cost (approximately $160,000,000 with principal and interest and after reimbursement) by the number of household units, the total cost per household unit is more than $10,000, that is not the best way to measure the increase in debt since there are businesses that the debt will be spread across as well.
The impact on business in Mt Lebanon is not something I focused on in that paper. I could have spent more time on it but it was long enough as it was. Let's take Mt Lebanon's largest taxpayer as a case study. The Galleria is currently assessed at $30,400,000 (again from the 2009 CAFR which has a list of the Principal Real Estate Taxpayers). The Galleria makes up 1.4% of our total assessed value. An increase in taxes of just 30% would increase their taxes by almost $285,000 annually ($949,934 to $1,234,914). How is the Galleria going to pay for this? They certainly will have to figure out if they will cut staff, increase lease rates, or do something else to make their budget work. What impact will their decision have on other businesses that lease space from them? How will they pay for any increased lease costs? These are the questions that need to be answered before we commit ourselves to a $113 million project. Every business in Mt Lebanon will have to make the same kind of choice that the Galleria does but on a smaller level.
I used the Galleria above as a case study because it does point out the mathematical error of simply spreading new debt costs across only housing units. While the calculation was not wrong, I can see how some might see it as misleading since we have some significant businesses (like the Galleria) in Mt Lebanon. But does this change the argument at all? You make that call.
Issue #4- Why 50%
In my paper I used a range for the tax increases projected as between 45-50%. I believe the actual number from 2008-2009 to 2014-2015 was in line with a 47% increase. Last I checked, that number was firmly planted between 45% and 50%.
Issue #5- Emails about people calling for my resignation
This was an interesting addition to the email. The emails started rolling in while I was in Washington, DC this weekend. There were a bit more than a handful that asked for a resignation, censure, or outright censorship of me. By the time I returned home, I had received more than a few phone calls from people asking me if I had heard about the efforts to get me to resign. Mt Lebanon is a small place. News travels fast. One person overheard a conversation in a coffee shop about this movement. Another said they had received an email from someone saying that this was happening and they called to make sure I was prepared for it. This doesn't mean that there was a "leak" of an email at all. Like I said, news travels fast- especially in emails.
I hope this information clears some things up for everyone.
As always, feel free to email me with any questions.
Thanks for reading.
James Fraasch
