Thursday, January 14, 2021

Local School Tax up 10% in Lee, 9% in Madbury

Public Budget Hearing

Last night, Wednesday January 13, 2021, was the Public Hearing on the Oyster River School District FY 2022 budget.  Two brave members of the public showed up at the high school auditorium.  I watched on YouTube.  Click here for the superintendent's slide presentation.

The budget topped fifty million dollars for the first time.  The main news is the Local Education tax line is forecasted to go up 10.5% in Lee, 9% in Madbury, and 2% in Durham.  As I said the last few times, it's not the school board's fault, which admirably kept their increase to under 3% while financing a new $50M middle school.  

The Local Ed tax is about 55% of your total property tax bill in Durham, 62% in Madbury and 65% in Lee.

School board watchers have known since early December about the big projected rises in the Lee and Madbury local education tax line.  The superintendent presented this slide tonight:

I feel a twinge of guilt when I see this awful slide every year. Five or seven years ago I suggested using "tax impact" as the figure of merit, and the board more or less adopted that.  I meant a single number, the change in expenses less revenue including all recommended warrant articles, but not counting state adequacy aid. The idea was to boil down the responsibility of the school board to a single number. This is pretty much how the board states its annual budget goal, which is a great improvement over the old way.

But here what they're trying to do is, at least a first glance, is predict the change in the millage on the Local Education tax line on your tax bill.  They're not really doing this, as the asterisk indicates (and again is missing from Durham, which I've been assured in past years is a typo).  These millage predictions are a proxy for the change in the total amount asked of the taxpayers of each town.  The district doesn't yet know how assessments will change, so they can't really predict the millage.  If Durham has increased its tax base, that total will be divided among more property there and make the millage increase less than indicated here.  

It would be helpful to have percentage increase or just the current values of the millages for each town so the viewer can calculate percentages.  Unfortunately that's generally omitted, as it's usually bad news the district doesn't want to put in your face.  I'll calculate them below.

These millage numbers include the adequacy amounts that the state says it will grant each town, which is the main reason why the changes are so different across towns. (Another reason has to do with equalized valuation.)  There's a formula for adequacy aid, but the state plays around with the total amount of money available some years.  Last year the state was very generous; that's dried up this year.  Lee and Madbury get much more state aid than Durham, so benefited more from the increased aid last year, and get hurt more now that the party has ended.

All the board can really control, what is captured as "tax impact", is the total budgeted expenses less the total forecasted revenue.  That is the total amount of tax dollars that need to be apportioned between the towns.  It gets pegged to actual spending and revenue through the fund balance, the difference between the budgeted and actual amounts at year end, (some of) which gets counted as revenue for the next year.   

Once the school budget is determined, there's a complicated process of apportionment that goes into determining the Local Ed millage on everyone's tax bill.  First each town gets a bill for their share of school budget.  Half the budget is divided proportional to the number of students in the town, the other half proportional to the total equalized property value of the town. Then the state sends adequacy aid to each town; that's where the major differences arose this year.  What's left over is billed to the property owners in each town, in proportion to their individual assessments.  

The net result is pretty close to what would happen if the district was just one big town, where the property owners proportionally split what's left of the bill after the state contributes.  But the apportionment formula, varying state aid, and the valuation equalization (which I haven't talked about) pretty much randomly churn up the numbers, each year making a winner town and a loser town and generally increasing annoyance at the district and the need to finance schools. 

Tax Rate History

Here's another flawed but informative chart from the hearing.  The superintendent calls these the projected tax rates, but that's a bit misleading.  These millages per se are never presented at the budget hearing or deliberative session, just their forecasted increases, as I mentioned.

The superintendent's goal was to show that over the years their scary predictions at the budget hearings have been mostly overestimates, which seems true.  We can't tell for sure by just looking at the actual millages, because we can't tell how much of the change is due to what's happening with assessments. 

Though unstated, these numbers are the sum of two millages, Local Ed + State Ed.  The board has no control over the State Ed line; that's the money collected by the state and granted back as adequacy aid to each town.  I don't know why the district adds in State Ed in this chart.  I suppose the addition has the effect of attenuating the percentage changes.

Ignoring that (because I'm too lazy to look up and interpret valuations right now), the history is fascinating.  Over the eight year span, if you can believe the millages, the average household's school tax in Durham's went down 6%, Madbury's down 2% and Lee up 9%.   That's perhaps a bit misleading for Madbury, which benefited from the extra aid last year that won't reappear.  

It seems too good to be true.  I can imagine Durham adding real estate at a rate that actually lowers the average tax rate, but I don't think Madbury has. (Adding real estate doesn't really work as well as one might think to lower a town's taxes, because that increases the town's value and generally its student count, so its share of the school bill goes up, though with a lag of a year or two.  Commercial real estate adds to the valuation but not the students, so is effective at lowering taxes, though at half strength since it also raises half the apportionment.)  If it is true, it's definitely a story the board should be telling -- mostly lowering taxes as costs inexorably rise. I'll have to come back to this.

Let me try a spreadsheet.

Except for 2021, I got this data from NHDRA.  It looks like Local Ed + State Ed is what the superintendent reported in the previous table.  In both tables the years are off by one --  2020 refers to the December 2020 tax bill, which for us is the FY2021 budget. Durham's $17.37 and Madbury's $18.13 match my spreadsheet and the other years match as well.  It seems there's an error in the superintendent's chart: that 2020 Lee Actual number should be $22.12 so the actual eight year rise (through 2020, not counting this year's projected hike) is 7% not 9%.  

Anyway, assuming your assessment is unchanged over these years, Madbury's 9% rise is against a 17% cut last year, so the net two year change is still down 8%.  Durham is only up 2.5% over two years.  It's Lee that gets the short end, a two year rise of almost 9%.

Let's talk about equalized valuation.  The State Ed tax line is a good example.  In any given year, the State Ed rate is the same for every (non-exempt) property owner in the state.  The reason the millages are different is they're calculated on actual assessments, which are different than the equalized valuations that determine what's the "same" across towns.

The state recognizes assessed values aren't the same as actual values, so attempts to equalize the valuations so they're comparable across towns.  The way they do this is every year, for each town, they compute the ratio of the total assessments of all the sold properties to their total sale price.  Glossing over some details, that ratio is called the Equalization Ratio.  The total assessed value of each town is divided by its Equalization Ratio to get the equalized value of each town.

It's the equalized value that determines the proportion of the total State Ed paid by the property owners in the town. But the actual millage is determined by the dividing by the unequalized assessed values. So the millages of each town are different, even though each property owner in the state pays the same percentage of the equalized value of their house.  

Equalized valuation is a fair if sometimes noisy way for determining the State Ed line.  What it means for Local Ed is that a few home sales in Lee at higher than expected prices end up raising the imputed value of the town, and thus raising everyone's school tax in Lee through the apportionment formula.  While this probably all evens out in the long run, it is irksome each year as one town feels slighted.

Middle School Progresses

Let's show some more charts the Superintendent shared.  He presented these first, saving the bad news I lead with for the end.

The middle school is progressing nicely.  We're on schedule for the students to move in March 2022, only fourteen months away!

The bond financing finally closed in August. The rate was incredible, coming in at 1.97%, which will save lots of money compared to projections of 3.5% or more.  I think this is only for around half of the school; there's another bond to close this year.  With that rate they may regret not having financed the entire thing at once; we'll see where the next bond comes in.

At the public hearing yesterday, there was a fair amount of bragging about the district's SAT scores, special ed program and college placement rates that I won't repeat here; check out the slides or watch the video (should appear there soon) for all that.

Major Drivers of the Increase

The superintendent presented this chart indicating in which lines expenses have risen most.

The district kept things pretty lean in this difficult budget year.  We got lucky on the bond rate, the silver lining of the pandemic crashing the economy, which helped.  There's around $500,000 in bond interest I think (2% of $25M) that didn't make this chart; not sure why.

The $382K health insurance increase is historically not too bad -- we've seen much bigger numbers some years.  In some ways the low number is worrisome because the health insurance budget acts like a district slush fund.  They budget according to some "maximum increase" guidance from the insurer. Often the actual rate comes in lower (after the voting), freeing up some money to use for unexpected expenses.  

The Guild agreement number is the combined raises to all the teachers.  The five year contract was approved by the voters last March.  The only change the district can make is to the number and experience of the teachers.  They've done that for the upcoming budget year, offering a retirement incentive that 17 teachers have accepted, saving over $600K (they could use a negative sign in the chart).

The NH Retirement System entry of $676K is another round of cost shifting from the state to the local districts, making the latter responsible for a larger fraction of investments into the retirement system for teachers.   

The item about the Capital Account is a plan to defer up to $400K in facilities maintenance if needed for COVID expenses.  It's hoped that by September 2021 those will be minimal and maintenance can go on as scheduled.

I should mention the district is using $500,000 from an emergency fund to lower the taxes this year, a reaction to seeing the Lee and Madbury increases.  That's about 1% of the $50M budget, or about 1.5% of the fraction of the budget extracted from the property owners.  That should lower the millages by that amount (including in Durham -- all the towns have to be treated equally).  I'm not sure, but I think that 1.5% is already reflected in the 10.5% and 9% predicted increases in Lee and Madbury.

Deliberative Session February 2nd, 7 pm, ORHS Auditorium

The ORCSD Deliberative Session is Tuesday February 2nd, 7pm at ORHS.  It is a real election where the citizenry gets to amend the budget, the vestige of the traditional NH town meeting. Unlike most NH elections, same day registration is usually not available at DS.  So you need to be already registered to vote in one of the towns to be given a voting card at DS.  As far as I can tell, there is no provision for remote voting -- to vote at DS you must attend.

Each warrant article (except the ones that elect people) is read at DS, then explained by a board member.  Many, such as negotiated contracts, cannot be amended.  Some, like the main budget, can.  A majority of voters at DS can change those numbers, overriding the judgement of the board.  

The amended budget is voted on on election day, March 9.  For the main budget, Warrant Article 3, a NO win means the default budget will come into effect.  That includes only essential expenses.  Compared to the proposed budget, the default budget lowers the budget by $92K, about 0.2%, so won't make a noticeable difference in your tax bill. [EDIT: The difference in the warrant is $175K and I can't currently go back and check the recording].  A NO win would nonetheless be a surprising result after a long streak of YES wins through many difficult years.

Most years there are only around 25 to 50 voters at DS.  Last year they had a dinner ahead of time and got the number over a hundred.  This year there will probably be just a handful, which is scary -- they can rewrite the budget for the entire district.  

The ORHS auditorium can hold 70 socially distanced voters.  They're setting up the gym as an overflow space, which I'm guessing they won't need, and the music room behind the stage as the space for the Governor's mandated COVID party, where maskless citizens may congregate for the meeting. 

I'm guessing there will be around 20 voters at DS this year.  I haven't decided if I'll attend.

Other News

I should go into the other warrant articles and also discuss the irate parents mad at the school board for the remote learning situation.  This post is already plenty long and there's plenty of other news out there including a growing pandemic and an attempted coup in the US, so I think I'll kick the can of additional news down the road.

By the way, the two members of the public who did show up at the Public Hearing asked excellent questions, much better than I've typically seen in the past.  Thanks for being such informed and active citizens.