What does $10.5 million really cost the taxpayers?
The “Future of Oak Ridge” group is saying that the city’s $10.5 million input to the Crestpointe project will be paid back in just 15 years by property taxes on the shopping center.
That claim is not consistent with the City’s analysis, as presented in several different public venues and posted on the City website. That analysis shows a 20-year payback period, relying on a combination of both property and sales taxes. The FOR claim that the money can be paid back by property taxes alone is apparently based on a second spreadsheet analysis (attributed to the City, but not published by the City as far as I can determine) on the FOR website.
[ADDED May 16: At last night's forum, it was confirmed that this spreadsheet was actually prepared by Steve Jenkins, assistant city manager. I'm flabbergasted -- I thought we could depend on Mr. Jenkins for a professional approach to financial analysis.]
As near as I can determine, the 15-year “payback” from property taxes alone is based on several exceptionally optimistic assumptions (at least one of which I think is entirely unreasonable):
1 - The City issues bonds for just $2.5 million (but note that the bond referendum would authorize borrowing up to $6 million) and gets a very favorable interest rate of only 4.5%.
2 - The rest of the City input ($8 million) comes from “reserves”. This implies that the City has $8 million of spare money sitting idly in the public coffers for no particular reason. (I don’t believe the City has extra money lying idle. These funds surely are earmarked for another purpose — most likely the plan is to borrow from the “nest egg” that is being established for the high school rebuild project. If the “reserve” money used for this project is diverted from another purpose, it will need to be replaced…)
[ADDED May 16: Last evening, Steve Jenkins said that this is money for which the City has no particular plans, so he considers it to be available for the Crestpointe project. This is astonishing information in view of the repeated City pronouncements that the budget cannot support needed capital projects, such as a new senior center and a new preschool, and that even some maintenance of capital facilities is being deferred for lack of funding.]
3 - That $8 million of city money is essentially “free money” — it can be paid back to the public coffers with zero interest, with most of the payback delayed until the later years when inflation has reduced the value of the money. This is the assumption that I consider unreasonable. There’s no such thing as free money. Good accounting practice requires that when the City borrows money from Purpose A and uses it for Purpose B, it must account for the cost of that money by imputing interest on it. Stated another way, when we borrow money from ourselves, we deserve to pay ourselves back with interest. (After all, if we had not “lent” this money for this project, we could have invested it or used it for something else. See the comment above about the need to replace the money diverted from another purpose…) In the spreadsheets that the City posted on its own website, City staff correctly treated the entire $10.5 million as a loan needing to be paid back with interest. The interest on the $8 million is the main difference between the City spreadsheet and the spreadsheet on the FOR website.
[ADDED May 16: Astounding but true -- we learned last evening that the City staff does consider it entirely reasonable and responsible to treat the $8 million as "free money."
When an individual person lends money to a family member, as a personal favor the lender might allow the family member to pay the money back without interest, but most people who do that are fully aware that by forgiving the interest on the loan they are making a gift to the other family member. Evidently the City staff would like to make a similar gift to the Crestpointe project, using taxpayer money. Taxpayers should demand a full accounting for the value of that gift.]
4 - Property taxes increase 3% every year for the next 15 years. (That is sure to be an unpleasant surprise for taxpayers who have been misled to believe that Crestpointe would prevent their property taxes from increasing. Neither FOR nor the City has claimed that Crestpointe will keep property taxes from rising, but this is what some people believe they have been told…) [ADDED May 30th: It has come to my attention that the new spreadsheet also assumes that the combined city and county property tax rates in the first year would total 14% higher than they were last year. That assumption, which inflates the expected revenue numbers, would also come as an unpleasant surprise to many citizens!]
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The city originally poised $3 million for a one-time project in Feb. Now May FOR has poised the city with $8 million for the same project. As I see it, next election the city will have 10.5 million poised for a retail project. Great post Ellen; hard work for this city is your forte.
I agree the city’s use of funds by FOR are unreasonable assumptions for taxpayer’s money. What I am further worried about is the sales tax reliance burdening citizens with the continued hikes in property taxes. The risk is very high to rely on stores to stay in those buildings for 20 years. Furthermore, this assumption accounting practice is blurring the efficiency and usefulness of all taxes. A simple ward collection for schools as used by Thomas Jefferson has been lost. This makes me wonder if the schools are performing as well as we want to support them? As you can see the charts are expanded and color-coded improperly to make important statements of payments and collections a laboring task, and another issue with schools collecting sales tax monies in part with property taxes of this project is the financial risk of the schools all fall on a city where over a third of its residents are seniors. Is that much money being stored away in Oak Ridge? And if so, is FOR being greedy by not paying the city back with interest that is associated with a correct rate?
Comment by Ray Kircher — May 16, 2007 @ 12:06 am
The amount of money just falling out of our council must be checked. I cannot help to believe our council is allowing Mr. Jenkins to spend the money great grandchildren will be obligated to pay in the form of taxes. Mr. Jenkins needs to learn the possessive power of greed before making statements about the city having $8 million to provide as a gift. Maybe the council is being greedy by raising our taxes?
Comment by Ray Kircher — May 17, 2007 @ 1:39 am
Why on earth do you think every expense from the reserve funds should be paid back into the reserve funds? Have you forgotten that sometimes you just pay for something to get it? The citizen needs as expressed in the Citizen Satisfaction Survey and the ongoing expense (not to mention the environmental and social impact) by citizens forced to travel to shop in Knoxville to find things for their families more than justifies the one-time $10M participation by the city. For reliable CrestPointe information please see: http://www.forOakRidge.org/info.html
Comment by Cracker — May 23, 2007 @ 4:37 am
Cracker, the answer to the question “Why on earth do you think every expense from the reserve funds should be paid back into the reserve funds?” seems pretty obvious. F.O.R. (the owner of that website you cite) and City officials are telling Oak Ridge taxpayers that Crestpointe is an “investment” that will not only pay back the public’s money but also will generate significant new revenues. Many of us are not accepting those claims at face value, but instead are seeking a complete and responsible accounting for the full public costs and benefits of the project. You apparently want a Target store at any cost, but that does not justify a failure to accurately account for the true costs to the city of the proposal of you support.
Comment by Ellen Smith — May 23, 2007 @ 8:21 am