What’s it to Utz? – Bond vote one of the most important in recent memory

Posted by Decaturish.com October 13, 2015
Hans Utz

Hans Utz

By Hans Utz

It should not be news to anyone that Decatur schools are nearly full and estimates show significant growth over the next several years.

To address this, the City Schools of Decatur is asking for a $75 million bond to pay for school expansions, improvements, and upgrades to keep up with enrollment growth over the next five to ten years. It is worth examining how the dollars will be deployed and what the typical tax impact will be in advance of the referendum.

We have discussed in a previous column the question of debt. Decatur is on a healthy fiscal footing, the city easily has the capacity for the debt, and the current market for debt is historically inexpensive. In other words, if we need to borrow capital, now is the time to do so.

The question asked of us voters in the upcoming referendum is whether we think we need the debt sufficiently enough to tax ourselves to pay for it over the next 25 years.

I’m pretty terrible at hiding my opinion, so I’ll just be upfront about it:

I think we ought to pass the referendum.

I have seen no credible long-term solution to school enrollment growth other than acquiring and building classroom space. Even with the temporary fixes and short-term stopgaps proposed by some, the question of more space is not a matter of if but when, and we will likely not see another debt market as favorable to the city as this one in our lifetime. Thus we ought to take the fiscally prudent step of investing relatively inexpensive capital in currently needed solutions that will favor the city and schools over the long term.

But we should do it with eyes wide open. Let’s breakdown the tax impact that the decision will have.

First, I have read and heard a lot of public concern about the impact that current properties under development will have on future enrollment and the affordability of the schools.

Specifically, the concern that I’ve heard is that the new high-density apartment and mixed-use developments cropping up around town are going to introduce too many students for the schools to handle and ultimately increase our shared costs.

There are very good reasons to have a community conversation about density. Without a doubt, high-density development impacts the look and feel of a community. However, student enrollment is not a reason to fear the current batch of residential units being built.

According to a recent Decatur Focus, multi-family developments have accounted for only 2 percent of the growth in student enrollment since 1999.

This may feel downright counter intuitive: there is a demand for housing in Decatur, the schools are highly attractive, and why wouldn’t folks with kids want to live in the apartments?

The data does not bear this out.  The primary market for the apartment dwellings turns out to be singles and young professionals. In fact, 430 of the 624 units currently being built are efficiencies or one-bedroom apartments. Even if all efficiency and one-bedroom apartments were included as a part of student enrollment growth projections, the estimated increase in students would be just 87.

Furthermore, apartments are charged property tax at their full appraised value because they do not qualify for homestead exemptions. It is estimated that the developments will generate enough tax revenue to cover 102 students, or 15 more students than the most aggressive estimates for their impact on new enrollments.

Now, Decatur desperately needs more commercial property to better balance the digest mix, but that is a full column in its own right. For our purposes here, it means the current apartment boom in Decatur is a net tax-positive for the schools and will contribute to reducing the tax burden on property owners.

I’ve written in a previous column a comparison between Decatur taxes and other municipalities in DeKalb, as well as the unincorporated areas. In 2014, the City Schools of Decatur charged the average homeowner approximately $560 more per year than DeKalb County Schools would have.

I’m not going to claim that $560 is an insignificant amount, but given the difference in the performance between the two systems it is difficult to say it is not a worthwhile bargain by comparison.

For the 25-year $75 million bond, the schools project a 5 percent interest rate, which is reasonably conservative given the current debt market, our bond rating, and the projections of growth in our digest value.  The resulting annual payment will range between $4.2 million and $4.7 million as the dollars are deployed.

Based on current digest values, the highest estimated millage rate to cover that annual payment will be 2.73 mills. On the average $400,000 Decatur home in 2014, that translates to a $546 increase per year in taxes. To see what the cost will be for home values between $150,000 and $700,000, the City Schools of Decatur has published a year-by-year analysis of the impact here.

Now, you may hear the case made that the millage rate could be lower depending on how quickly the digest grows.  That may very well be true, but a reduced millage is not the same thing as a lower tax.  If your home increases in value by 20 percent and the millage decreases by 10 percent, you will still pay more in net tax. This current tax year is a good example of that exact phenomenon.

So rather than focus on millage, stay focused on the annual payment against the bond.  No matter the scenario, the referendum is asking whether we are willing to pay more in tax to cover an additional $4.7 million in cost per year for 25 years. In all scenarios that will be a tax increase, no matter what happens to the digest.

Net: the average home in 2014 paid $7,600 in taxes, $4,100 of which went into the school system. Thus we are being asked to increase our average tax bill a little over 7 percent, or $546 per year per home, to cover costs related to building additional classroom space to handle the projected enrollment growth for the next five to ten years.

The referendum will be held November 3, 2015. Please vote…this decision will be one of the most important we’ve been asked to make as a community in recent memory, and the impact will be felt for years. I look forward to seeing you all at the polls.

Hans Utz has lived in and around Atlanta for 25 years and formerly served as the Deputy COO of the City of Atlanta.  He writes about local and national politics. He and his family currently reside in Decatur.

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  • Lindsay

    One of my main problems with the bond is that we’re taking out a 25 year loan to cover us for the next 5 years (maybe 10, but with the growth rate, probably not). So my concern is not with this bond specifically, but with the cumulative effect of taxes if we don’t come up with some plan that doesn’t include a 7% tax increase every 5 years. If I felt that this increase would sustain the schools for the length of time of the loan, I’d be more inclined to be in favor of the bond. I’m totally open to arguments against my position though. I am still undecided…just leaning towards no at the moment…

    • Hans

      That’s a good question worth exploring. The whole reason why a municipality borrows money over a longer time is to spread the very expensive cost of a building or a road out over many years, so that a) the costs more closely match the life of the building or road, and b) people who benefit from the building or road in the future help contribute toward paying for it.

      Thus you will rarely if ever see a bond that covers construction for the next 5-10 years spread out only over that 5-10 years. It puts an unfair burden on today’s taxpayer.

      The other concern regarding whether or not we will need a new 25-year bond every five to ten years is often asked about capital investment. The short answer is that it is almost impossible to know needs beyond a ten year window, and so they should not be included in projections. Certainly ten years ago it did not look like Decatur schools would have sustained double-digit growth each year for multiple years, and so it would not have made sense for them to plan for it.

      By the same token we cannot possibly project that Decatur will maintain double-digit enrollment growth for another ten years. We *may* need more capital, but it is equally possible we will not. The biggest reason why we may not is because we are running out of sufficient housing stock to support that enrollment growth. You see that manifest itself in the growth of home values across the city.

      Nonetheless, the fact remains we need the space now, and there are no other viable solutions on the table. Making the referendum cover uncertain projections over the next 25 years will require it to be substantially larger than it is now (i.e., instead of a 7% increase we’d need something much higher) which would be a bad decision given how unsure we’d be about the projections.

      Net: the 7% increase is a compromise that covers immediate and near-future needs without being too large and placing an undue burden on current taxpayers who may not see the full benefit of the improvements.

  • Marty

    Hello Hans – you (and Decatur Focus) use the choice architecture of 624 units when providing information.

    1,473 units have been approved. Construction on 849 units will begin next year.
    “It is estimated that the developments (624 units) will generate enough tax revenue to cover 102 students.”

    What is the estimated tax revenue generated by 1,473 new units?
    Callaway could add an another 361 units if that proposal is approved.

    • Hans

      Marty: thanks for the update, and I’ll chase that information down. The short answer is that the ratio should hold: apartments tend to go toward singles and young professionals and are not the primary choice for families with school-age children. My hypothesis (not backed in data yet, to be clear) is that it would be even more of a tax contribution to the schools, or put another way it would continue to help offset property owners’ tax burden.

      The much much bigger question behind the point you make is whether we have an appropriately balanced tax digest. It is safe to say we don’t: the majority of Decatur revenues come from residential property owners.

      We very much need more office and commercial development in Decatur, which is one of the reasons why the initial plans for Callaway were rejected. It is also one of the reasons the Commission seeks to annex some of the commercial development bordering the city. Until that development or expansion occurs, we will continue to fund schools and the city primarily through residential property tax, which is quite high compared to surrounding jurisdictions.

      • Marty

        Thanks Hans. So the estimated tax revenue from the new developments is unknown. Hopefully, Decatur will experience an increase in commercial values to balance the tax digest. After completion of the currently approved mixed use developments, what is the estimated residential and commercial values as a percentage of the overall property values? Would success be 80/20, 75/25, etc?

  • Chris Billingsley

    Other solutions: Trailers. Larger classes. Double sessions. Saturday school. Early graduation. Vouchers for home and private school with CSD testing and one day schooling on Saturday. Virtual schools or classrooms. Dont Panic- Wait and see how things turn out? I’m sure there are other ideas besides spending millions on buildings that may be obsolete in ten years or less.
    No one really believes that the average tax increase will be $500 but keep in mind that Decatur approved a bond referendum not long ago and our taxes have always gone up and up. It’s not just the upcoming tax increase if the bond referendum passes but all the past and future increases. It never seems to end, at least for those who don’t have kids in the system and seniors, both of which are the vast majority of Decatur taxpayers.
    Maybe what you and the other bond cheerleaders should do is put yourself in the position of the majority. What would you do if someone shows up on Saturday morning at your door and, instead of saying “Have you ever thought of life after death?” demands “Give me $500 or more per year for the next 20 years!” And there’s more- The reconfiguration of the schools ten years ago and the heavy influence of progressive politics in the classrooms!
    You might feel differently.

    • Darren

      Taxes have gone up because your property value has increased which I doubt you will complain about when you sell your house to save $500 a year in taxes to send your kid to a Dekalb County school with a 50% graduation rate.

    • Hans

      as I said, I’ve seen no other viable long-term solutions. All that you mention are reasonable but definitely short-term solutions.

      The core question is whether we think the schools deliver a sufficient value to justify the investment. You do not seem to think so. I would argue that the schools are the primary driver for the influx of residents in Decatur and thus what underpins your home’s value: look to the chaos in DeKalb for an easy point of comparison.

      I’d argue the schools are worth the investment. And regarding putting myself in the position of the majority: we shall see how the vote turns out. You may be correct, but the polling indicates otherwise.

      • Chris Billingsley

        Thanks Hans. I have no doubts about the passage of the bond referendum. It is the easy way out. But with approval comes more moving trucks, tear downs, McMansions and less diversity of opinion. Voters should think about other unintended consequences as well.

        • Hans

          I do touch a little on this in the column…density does impact the look and feel of a community. and you raise good questions about gentrification and affordability for the very people who made Decatur what it is today. That is on my list for an upcoming column.

      • Chris Billingsley

        Thanks Hans. Please dont assume that I think the schools are not worth higher taxes. I have a long history with CodD schools and understand value to the average homeowner and taxpayer more than most people. I consider myself a strong supporter of the schools especially teachers and support staff. I will leave it at that.
        You ask two things.
        1. Do the schools deliver a sufficient value to justify the huge tax increase? I stand by my previous comments. Support for any government function cannot be unlimited. The bond cheerleaders have not said anything about restraint in the future. Shouldn’t the board offer a five year freeze on any tax increase due to rising property values?
        2. You suggest that the schools are the primary reason for people moving into Decatur. These people will also be the first to flee once their children graduate or something tragic takes place. Is it healthy for a community to place so much emphasis on one government service?
        In my opinion, Decatur is a great place to live for a variety of reasons. Our schools are one. But we must understand that because of our size and lack of commercial tax base, government services must be frugal.
        Sooner or later we must confront runaway government spending of the commission and school board.

        • Hans

          I have two issues with a freeze: first, cost of service with the schools is almost perfectly lockstep with the number of students. As enrollment grows, you need more teachers, more books, etc. That all costs future money that hopefully we are not paying today. Second, a legislated freeze limits the flexibility to adjust to unforeseen circumstances (say a school or schools flood due to an unpredicted storm. A freeze means you have limited ability to respond.). So, rather than a hard freeze, perhaps a commitment to never grow costs faster than enrollment, and to clearly show that all increases in costs are directly linked to the students (i.e., not on administration costs, etc.).

          On the second point: I’m much likelier to advocate for solutions that help long term residents in the face of rapid valuation (and thus tax) increases. Someone who chooses to move to Decatur, tear down an existing home, and build a million-dollar replacement should pay the current tax level without complaint. It’s the folks on fixed income that have lived here for 40 years and who made Decatur what it is today that I think warrant relief in the face of rapid escalations. The Commission has recently taken some modest steps in this direction, but I hope the new Commission gets aggressive about this.

    • Glenn Carroll

      Totally agree.

  • Glenn Carroll

    GO SLOW NO GO — GO will max out the City of Decatur’s $200 million credit limit (most of our existing debt was racked up in the past 15 years). The projected numbers of school children upon which the schools’ massive build-out plans are based are pure speculation, and may be a passing wave at that. Renfroe Middle School is providing for 650 additional students and has space for additional modular teaching units which can be disassembled when they are no longer needed, retaining the playing field for future Decatur 6th, 7th and 8th graders. Residents of the neighborhood most impacted by the Middle School recently received shocking City of Decatur tax increases resulting from DeKalb County’s sharp upward reappraisal of Decatur homes. The City of Decatur’s reach is going too far. VOTE NO GO!

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