Josh Roman High School Funding Presentation
At the Board of Commissioners (BOC) meeting on Jan 17, 2019 Lakeland Commissioner Josh Roman presented a potential financing method to be used to finance the construction of Lakeland High School (LHS). This financing method is called a Capital Outlay Note (CON) – it’s essentially a 12-year loan. Three of Lakeland’s commissioners (Josh Roman, Wesley Wright and Michele Dial) are heavily favoring this method above all others because of one simple thing – it denies the citizens of Lakeland a vote. All other financing methods being discussed by the BOC are exposed to the risk of being put to a vote by the citizens.
When Commissioner Roman presented his plan for using the CON financing method, he used $35 million as the amount to be borrowed. He focused on the $ difference between the current annual school debt payment vs. his calculation of the future debt payments (with LHS debt). He stated the difference would “only” be $754,995 – and then he put forth a plan to be able to afford that difference. He also stated if his plan were followed then there would be no need for ANY tax increase.
Here is Commissioner Roman’s plan:
- Use up to $3.7 Million of city savings (the maximum allowed by the city’s reserve policy) to pay off existing debt to free up money in the budget to go towards the $750k gap. Paying off existing debt would free up $417,654 in annual cash outflows.
- During years 1 – 4 of the 12-year CON, the $750k gap would be completely paid for by the Lakeland Board of Education (BOE). The BOE would use surplus tax money to cover it.
- During years 5 – 30, he said the balance of $337,341 could be made up through a combination of (1) sales tax revenue increases, (2) budget adjustments (the budget has had deficit spending for the past 3 years) and/or (3) additional homes to pay property taxes.
Sales taxes are one the most unpredictable forms of revenue. They are far from being a rock-solid foundation for debt repayments. And as for budget cuts, well, there isn’t much to cut in the budget – Lakeland’s budget is not bloated. Then there’s Lakeland’s roads. They’re in bad shape – and it just would not be feasible to gut the road budget for the next 30 years. And so, it seems the only way to make up the difference that shows any sign of traction at all is new homes.
How many homes would it take to generate $337,341 in annual property tax income at the current rate? It would take an additional $108,000,000 in additional residential property to generate $337,500.
The average home in Lakeland is $256,500 according to Zillow.
This means that, for there to be no tax increase, Lakeland would need 421 NEW homes built to make up the difference. AND we would have to have them built, occupied, and paying taxes within 5 years. New home sales are hard to track accurately depending on the method the home is financed but a fair estimate would be that Lakeland has been building between 25-40 new homes per year. This would mean at least 10 years to build the required number of homes to offset the difference. This is not very likely, and it will of course lead to an eventual tax increase.
It should be noted that in Commissioner Roman’s financial presentation he referenced future income - but never referenced future expenses. Not even expenses that we’ve already committed to spend money on such as millions of dollars for new Canada Road. The 14-18 million dollars we will spend to complete all phases of the new park on Canada road and Highway 70, etc.
Commissioner Roman was even bold enough to say in his presentation that:
“This will cost us nothing.”
No, sir. Building a $35M to $40M High School will cost us closer to 35 to 40 MILLION DOLLARS.
Additionally, he fails to acknowledge that the note for the 20-million-dollar CON for the middle school is NOT callable until 2021. This means the loan cannot be re-financed and that the interest of about $5 Million CANNOT be avoided. Yes, we can finance the interest, but it DOES NOT AVOID PAYING THE INTEREST. To do that means we would be squandering the money by paying for interest with no benefit.
BUT WAIT – IT GETS WORSE – ALL OF THE ABOVE IS NOT WHAT IS BEING PROPOSED NOW
As stated earlier, the problem for Roman is that a 30-year note allows for a vote by the citizens - and he knows he would lose - so what he would like to do is use a 12-year CON instead.
This will result in an ADDITIONAL payment of $3,886,250. This brings the total of school payments to $6,099,400.00 per year. ($2,213,150 + $3,886,250 = $6,099,400) *(this is for a $35M high school, not the $38M they are planning now, so the payment is actually more). See image below from Roman’s presentation:
How does Roman’s plan of paying off debt to free up room in the budget look now? Would he be able to come up with $417,654 in annual payments? – this represents only about 11% of the annual additional 3.9 million needed. For some perspective, what does it look like to spend $6.1 million per year on schools for a town of 12,000 people?
To put this in perspective we would be spending $6.1M per year of the current $10M we have in the budget for the two schools. UNLESS of course we raise taxes which we will, of course, have to do.
How much will we need to raise taxes? Here is what Roman told everyone:
On this slide he’s saying that to afford the $3.9 Million it would require “110 pennies” in either tax increases or tax cuts. How he arrives at the 110 pennies is each penny of property tax generates $35,343 in annual tax revenue - so 110 pennies would generate $3,887,730.00 in income. His table shows how he can get the needed tax increase of $1.10 down to only an increase of only $.58. However, there are problems with each of the four ‘Sources’ he presented in that slide. Lets look at the viability of the four sources.
1 - Board of Education
Earlier in the presentation the BOE was only going to be able to fund FOUR years of the project at $700,000 per year. This table shows them doing it for all TWELVE. The difference a total of $5.6M over the 12 years. The BOE would contribute 2.8M, not 8.4M like indicated above.
2 - Debt Payoff
This is possible but it of course spends the majority that is allowed of our savings. There was an issue later uncovered at the following BOC meeting with some of this debt. With our current budget with its 3-year deficit it was discovered that we are paying INTEREST ONLY on borrowed money to pave the roads. If you are unaware, Mayor Bunker tried to buy votes of the senior citizens in Sterling Place by paving their roads right before the election even though the city engineer at a BOC meeting said the roads were not on the list of roads slated to be paved any time soon.
3 - Cut the Roads Budget
Here is a slide from Roman’s presentation on January 17, 2019. Notice how 2018 is missing?
It isn’t just that the 2018 road repair data that is missing (that info was available when he presented this); accurate numbers were also not presented. Notice all the precise numbers from 2007-2016… and then the $1,150,000 for 2017? We budgeted $1.15M to be spent in 2017 BUT we only spent $974,731. And so, as demonstrated, we already spent $175k less on roads in 2017. But wait!? What about the 2018 data he didn’t include? The 2018 budget was already $250K less than the 2017 budget. The ACTUAL spend was only $258,104 – NOT the budgeted $900,000 – so we spent $641,896.00 LESS than budgeted in 2017-2018. He chose not to show this year because it would have changed the curve of his graph – DOWNWARD. The 2019 budget shows spending 1.2M but as we have seen budgeting for it and spending the money are two different things. By increasing the budget by $300,000 from the previous years budget it would make it easy to show that they could just decrease the road budget by $350,000. You need to look at what the city was able to afford to spend not what they budgeted for. See image below from the 2019 adopted city budget:
As an interesting side note the BOC has elected for the 2019 budget to cut the street drainage budget to ZERO from $150,000 in 2017-2018. Lakeland doesn’t have any street drainage issues, right? Here is a preview of the types of things they are going to cut to be able to afford the High School. See image below.
4- CUTS TO CITY HALL
Folks. Common sense here. If city hall could cut $350,000 from its budget per year, don’t you think we would have done so to avoid having aa deficit in the budget for the past 3 years? At the BOC meeting that followed this one the city manager expressed to the BOC that people were wearing so many hats and were so overworked that he feared that they would soon start to LOSE EMPLOYEES. There is nowhere to cut.
About how many Homes were Added / How is our Growth?
2017 to 2018 Growth (ACTUAL)
Here is the first thing to look at to get an idea of the housing growth we have experienced:
*Note in 2018 because home values increased, by law Lakeland was required to DECREASE property tax to essentially make the property tax revenue flat. Our tax was $1.40; we were REQUIRED to decrease it to $1.29 but the mayor decided to decrease it another $0.04 – note this would have resulted in $141,372 less in effective property tax revenue for the city in 2018. We had $233,951 less in property tax revenue between 2017 and 2018, of it $141,372 can be explained by the Bunker tax cut. This means the real adjusted LOSS in property tax revenue for the year was $92,579.
The article below discusses the property tax adjustment:
What about 2018 to 2019 growth?
First it should be noted that the budgeted property tax revenue for 2019 doesn’t even exceed the ACTUAL revenue for 2017.
The 2018 BUDGET of the city shows we expect to grow property tax by $90,706 for 2019. This means adding $29M in taxable Property tax value (new construction).
According to the 2019 adopted budget the 2018 actual (using an ending date of one month before the end of the fiscal year), we fell $25,380 short of what we had budgeted. That translates into us being 39% off what we had budgeted for property tax growth in a single year.
What does the CON mean to taxes – what would it take to afford it?
The CON would add $3,886,250 in annual tax payments the city would need to make.
How much new construction would it take just to break even on that new note?
It would take about $1,241,613,418 in new construction in Lakeland to break even! That’s right. Assuming new home construction alone would fund it would take 1.2 BILLION DOLLARS in new home construction. This would mean that between 3,267 and 4,841 NEW homes would need to be constructed. (256k homes require 4,841, 380k homes require 3,267)
BUT WAIT – Concerned Citizens of Lakeland (CCL) is lying because of new commercial business. OK fine, let’s say 20% of the tax growth comes from new business. That is about what it is now. How does that impact the numbers? We now only need between 2,614 and 3,872 new homes AS SOON AS THE HIGH SCHOOL OPENS.
BUT WAIT – THERE IS MORE – This also assumes we add all of this and there are exactly ZERO dollars needed to support increasing the size of the city. If you assume only 3 people per home, it means adding between 7,841 - 11,617 NEW citizens to a town of about 12,000 people. In other words, we would increase the size of the city between about 55% to 95%. You cannot increase the size of the city by 55% to 95% without additional costs.
If you don’t believe the 1.24 BILLION dollar number, go to:
Enter $1,241,613,418.53 into the Appraisal value, press calculate and it will show you the annual amount of property tax the city would receive for that amount. See image below:
BUT WAIT – THERE IS A LOT MORE
What about the estimate from the city’s Director of Finance?
Subsequent to the meeting where Roman presented his plan, the City Manager and the Director of Finance (who the way was a former Senior Analyst that worked on the Lakeland account at PFM) performed their own calculations. At the next BOC meeting they were prepared to present their own estimates for what they felt the tax rate would really need to be in order to properly run the city, including repayment of the High School debt.
What ensued was an embarrassment to our city. At the beginning of the meeting, for about 12 minutes, Commissioner Roman tried everything he could to stop the city manager from presenting his findings (keep in mind that Roman has seen the presentation - and the numbers within it). Roman tried to trick the City manager into admitting that the numbers were either his idea or Mayor Cunningham’s idea and tried to get him to agree NOT to present the numbers.
After Cunningham chimed in and said we will hear from them and allow them to present, Commissioner Roman yelled “Here is the WORST-case scenario.” Now let’s think about that statement for a moment… Roman had just got done actually presenting the BEST CASE SCENERIO. And in his scenario we spend all the savings allowed by the city and by the BOE and hope that within 5 years we can make up the shortfall somehow – which will let us avoid a tax increase – as long as the start align perfectly. The Lake District has been in discussion for over TEN YEARS, and now it’s DELAYED AGAIN - but apart from that what would a WORSE CASE scenario be for Lakeland? Well, for starters it would be a collapse of the nation’s economy impacting people’s ability to pay their property taxes, having people’s homes being foreclosed on, etc. This is NOT what the City Manager presented that evening. Roman was clearly wrong. His intent was to poison the well because the information that was going to be presented did not align with his agenda. Leaders DO NOT DO THIS.
What came out of the meeting with the Director of finance?
Note – the least expensive CON option presented by Kyle is still MUCH more than any other city except Memphis. This would make us the SECOND highest taxed city in the state. The more expensive option without cutting services would be only $0.10 less than Memphis!
Where are we NOW?
At the last meeting Commissioner Roman said he wanted to hire PFM to run the numbers. Please consider signing the following petition if nothing else to show your outrage by what they are doing here:
Josh Roman has now put on the Agenda for the meeting on March 5, 2019 that he wants to proceed with the expensive CON with the maximum tax increase.