Council’s “Ugly” Draft Financial Policy with a Touch of “Fake News”

Assumptions Built Upon Assumptions to Create a “False” Reality

Who Do You Believe: The Urban Land Institute or the City Council?

Parents Should Be Concerned About Financially Hollowed-Out Schools


Second of Two Articles

By Ira Kaylin

Kaylin is a Former Member of Council and Chair of the Budget and Finance Committee

The Ugly is very, very ugly. The document’s proposed changes, correctly, do not reflect or imply an analysis of the impact for correlated expenditures that accompany a $100 million new High School.

However, the City, in a Joint Session of the School Board/City Council, addressed the issue of affordability. The presentation is so methodologically flawed that it borders on “fake news”.

First, The City’s presentation (page 5) is based on an assumption that City expenditures grow at 2.5% percent per year. On that basis the City estimates that taxes would increase by 8 to 10 cents.

By excluding operational costs (page 6) related to an approximately doubling of school enrollment are included the City’s presentation represents a propaganda piece rather that a decision support document. School costs have increased on average in the high single digits to low double digits. The estimate that the tax rate will increase by 8 to 10 cents is false and misleading. By the time full capacity the school transfer amount is estimated increase, at least, to $20 to 25$ million per year. In other words the tax will go up to at least 16 to 20 cents.

To put that number in context the Rushmark (Harris Teeter) project is estimated to generate around $2 million in net revenue per year. The project added around 300 new apartments and used around 2.5 acres of land. Extrapolating from those numbers it would take ten Rushmark type projects to cover the estimated increase in school operating costs. It also implies an increase of 3,000 additional apartments and the availability of 25 acres of develop-able land.

The Urban Land Institute (ULI) estimates it will take 10 years before commercial development reaches capacity. The City claims that significant commercial development will take place in two to three years. The ULI has been consistently right and School Board/City consistently wrong.

Second, by excluding operational costs the City claims that $5 million in capital funding will be available, by 2022, every two years. That claims is based on taking the remaining $10 million water sale proceeds that was promised, by the City Council to be used for city capital projects and giving it the schools for operational uses (debt payments). The assumption that land proceeds will generate $30 million is based on speculation and verbal statements. No wonder trust in government is so low.

Conclusion: It is important to repeat a fact that merits repetition, if the City fails then the School Division fails as well. A $100 million school is not even remotely affordable. It exists as a possibility solely through gimmicks and methodological errors.

The City’s financial planning must factor in all costs not just capital costs.

9 Comments on "Council’s “Ugly” Draft Financial Policy with a Touch of “Fake News”"

  1. The debacle with Mt. Daniel significantly underscores that citizens of FCC simply cannot trust the school board with regard to capital improvement projects..

  2. To Erik Pelton
    There may be no precise answers now regarding the capital and operating needs of the schools, but there certainly are many “right” questions in order to get to the right answers–and they need to be put forward.

    Opinion not buttressed any data and which do not question assumptions—is per se unbalanced and to challenge that construct is neither un-cordial or adversarial—and is certainly detrimental to the interests of our citizens and our children.

    The City’s “Mixed Use Development Fiscal Impact Report, updated as of December 12, 2016, does not present a realistic basis for concluding that we can “develop” our way to a $100 Million + facility without unprecedented increases in operating and capital costs. The entire document can be found on the city’s website:

    The updated May 2015 fiscal report shows that the NET fiscal impact from six completed projects was approximately $3 Million. Projected fiscal impact for two projects just coming on line—Harris Teeter and Tenner Hill—is approximately $2.5 Million NET.

    These eight projects utilized some 18 acres and required over 15 years to complete.

    The amount of revenue they produce or will produce would fall short of supporting a $100 Million bond—and interest rates are now even rising increasing the cost of financing.

    During that same time period, notwithstanding increased development, the real estate tax rate increased by some 25 to 30 percent.

    When Mary Ellen Henderson came on line approximately $1 Million in new operating funds were required—or about 3 cents on the tax rate at that time.

    Based on this data, the Council has a responsibility to answer questions with credible and verifiable information—from experienced sources with a proven track record, including:

    What alternatives to a $100 Million new school have been explored to meet growing enrollment needs?

    In order to develop hard data, has the City issued a Request for Proposal for the construction of a new high school?

    And in that same regard, has the City issued a Request for Proposal for the repair, renovation and expansion of the existing high school?

    What evaluations and assessments have been done to quantify the impact of a $1.50 tax rate on supporting or suppressing home values?

    What will be the projected operating cost impact of new high school facilities on the annual school budget request and tax rate?

    Finally, Mr. Pelton’s comments do serve the purpose of underscoring the high risk that this $100 Million option poses for our citizens—and our children.

  3. Response to Erik Pelton
    There are number of conclusions contained in your comments none of which is supported by supporting analysis. It is essential to compare expected school expenditures with projected City revenues. Please recall that an almost doubling of school enrollment means:—Operational costs (primarily) teacher salaries and benefits will likely double as well.—We have to assume that there will be a doubling of enrollment of the feeder schools (TJ) and Mt.Daniel. They will have to expand as well to meet projected enrollment which means a corresponding increase in terms of operational and capital costs.—Please recall that the latest estimate available indicated that the City’s unfunded Pension liability to Teacher’s Retirement System (VRS) is approximately $30 million.

    That shortfall has not been caused by the City but rather by the General Assembly which refuses to contribute meaningful support to the VRS. Nonetheless, the City will have to cover that liability. —The operational cost estimates was based on old data, with new information now available it is now estimated that operational costs have increased.

    Your counter is that it can’t be true because you don’t want to believe that the City’s financial situation is very precarious.

    Somehow you, and others believe, that economic development will come to the rescue.It would be very much appreciated if you could provide a projection of economic/commerical growth.

    Please take into account that developers want more rental apartments and are very reluctant to make major investments in non-residential commercial development. What is the result of comparing projected school related expenses with projected revenue?Your comment that you are willing “to participate in a cordial and balanced discussion “ is appreciated. However, at the moment your views are entirely “conceptual” with practically no analysis buttressed by numbers. Where is the balance?There has been no independent analysis of various alternatives available to the Schools. Why was Kieran Sharpe’s suggestion that the GMHS be expanded on modular, as needed, basis dismissed out of hand?

    A fair and balanced dialogue can only take place when hard analytical data is married to conceptual concerns.

    That has not occurred.

  4. The sooner we sober up and realize we cannot afford a $110 million plus new high school, the better. Also, I seriously doubt we need such a costly facility. Take that off the table, and think smarter and more prudently and settle for less.

    Aside, i am still trying to figure out why we have a multi million dollar asset sitting adjacent to wfc metro that we apparently can’t figure out what to do with. So, we sit on that huge asset and instead we want to impose a huge tax increase to increase a savings account so we can borrow more for that $110 million high school. And we are looking to implement this scheme on all taxpayers including those on fixed or stagnant incomes.

    This seem irresponsible to me. Why tax without achieving the sale or yield of the wfc asset. Once that is settled, then you figure out where you are fiscally. What am I missing? Who is pushing this scheme?

    • Timing may be a big consideration. GM needs a lot of very expensive repairs right now. If we can’t decide on a path to follow soon, we will have to sink big maintenance money into the building just to keep it functional.

      I am trying to think of the logistics..if we sold the property the owner would not be able to do anything until a new school building was done at the other side of the site. Would they do that? Would they pay premium dollar for something they can’t get revenue from for some time? Maybe tax abatement until they could development?? Dunno. If we sold the property that money could, I guess, be put in the pot to build a new GM and we would add debt financed dollars to make a bigger pot. I agree Dale, there must be a lower cost option…maybe phasing the construction over several years to spread the cost?
      This must be too simple, I must be missing a biggie someplace.

  5. Dear Mr. Pelton:
    Your comment is absent any recognition that the city must have the financial capability to meet the educational costs for the children who will come to our schools over the next decade as well as those decades that follow.

    Those of us who question the financial wisdom of the Council also do so from a social perspective: That is, what is our civic and moral responsibility to those who are not now here but will come?

    The municipal financial information and data that Mr. Kaylin, others and myself, put forward is rarely if ever disputed on substance. Rather it is dismissed in a blinding storm of rhetorical prose.

    Challenging the financial assumptions of the Council is an imperative to protect the citizens from a constituency that advances what “we want now” over what should be done prudently to protect the school and community for the decades ahead.

    Or, to put it another way, the Council, should bring forth recognized expertise that endorses a way forward financially for school construction and operating costs that doesn’t have the citizens and school children in 2027, 2037 or 2047 holding an empty bag depleted by those who only wanted current desires satiated.

    • Regarding your first statement, “Your comment is absent any recognition that the city must have the financial capability to meet the educational costs for the children who will come to our schools over the next decade as well as those decades that follow.” Is that a fact or an opinion? Because I certainly mentioned development, and space, and quality of facilities — all of which impact the financial capability to meet the needs for children in the future. If we don’t improve and enlarge the HS substantially, where will the future students attend class? In the parking lots? If property values (and thus city revenues) plummet due to school woes, how will that affect students of the future? If we fail to increase revenue via development, and to increase the percentage of city revenues that comes from commercial rather than residential taxes, how would that be assisting the students of the future you seem so concerned about given the increases in space, teachers, equipment, etc that they will require?

      I tried to have a dialogue with real questions balancing the needs at stake. There is no right answer, no one solution. If you want to participate in a cordial and balanced discussion, terrific. If you prefer to ignore or belittle any opinion that contradicts yours, that is your choice — but understand that (it is my opinion that) it is not helping your position, it is turning away others who may want to understand the explore your position.

      Given the student population increases that are forecast (if you are disputing that forecast, I missed it) how would you prudently plan for the future (increased facilities age, more facilities space needed, growth in operational expenses) while also caring for the current students?

  6. Thanks as always.
    Do you have any ideas about what we could afford or what we could do about GM? Given, all things are affordable if folks are willing to pay/accept risk. A bucketful of money will be needed just for the roof and HVAC to keep the present school functional. My sense is that development would necessitate moving the school and that means a new building on the site.
    I think the working group asked for some scenarios…like what could we do for 40 mil/60 mil and so on.
    I have heard the 16-20 cents number around town….most distressing.

  7. There are many complicated factors, financial and otherwise, at play here. I think too often we look at them in a vacuum, instead of the big picture comprehensively. Here are just a few to chew on:
    > If we assume the projected student enrollment increases, then doesn’t the increase in annual school operating funds (I don’t know how you come up with your $20-25 mill. number, but whatever that number is) occur whether or not we build a new high school? I believe the answer is yes. In other words, we need new revenue (taxes or commercial development) to fund those expenses with our without a new high school. And if we don’t build a new school soon, where will we put those students. Trailers, building rentals, and other stop-gap measures will cost money.
    > What is the cost of *not* moving forward with a new or renovated school in the very near future? More space will be needed and will come with a cost. Money spent in repairs in the short term may end up sunk and lost. There is risk regarding the city’s property values (and tax revenue) if the quality of the schools overall declines.
    > A new high school can include central offices, which would presumably save considerable money on rent.
    > Without building a new high school (or significantly modifying the current one), most or all of the potential revenue from developing up to 10 acres on the site could be lost.

    You opine that if the City fails then the Schools fail as well. Perhaps the converse is true as well. I do not believe this should be an debate or discussion about schools vs the rest of the city. Schools and education are important to the entire community, and always have been. When we each went to school, the entire community paid for and supported the schools. The schools serve the entire community, they are developing our future neighbors, bosses, employees, inventors, CEOs, leaders, elected officials, and more. Furthermore, the school campus is host to countless community events, meetings, church groups, athletics and more and is used by far more than just the students who attend.

    Again, there are many more issues in play. This is the biggest decision and project that the City has faced in decades. I commend the City Council and the joint subcommittee for digging into the details this fall and laying out all of these particulars and complex issues to chew on.

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