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Finances

Patching relations between Council and schools

Sign in front of Oak Ridge High SchoolThe Progress PAC’s third question was about patching the relationship between Oak Ridge City Council and the Oak Ridge Board of Education. My submitted response is below. At the October 1 forum conducted by the PTA-PTO Council, I was pleased to hear several school board candidates make statements that suggest they are thinking along similar lines.

Question 3: The relationship between the Board of Education and City Council has been strained. What is your plan to help build consensus between the two bodies?

My response: The strain in the relationship between the city and the schools has the same cause as many breakdowns within loving families: poor communication about money.

To repair the relationship, we need to establish open, honest, and timely communication about budgets and money. Discussions should not be just between the Board and the Council, but also must involve staff of both organizations –- the people who develop budgets and can explain the details. Ground rules are needed for these communications before they begin. Among these ground rules, I would like to see the Board accept that Council must make decisions that balance between all of the competing priorities for city money (including city operations, schools, capital needs, and the desire to minimize property taxes), and that a full understanding of the “innards” of the school budget (and the reasons for various expenditures) may be necessary to help Council weigh the Board’s funding requests against the other competing priorities. On the other hand, Council needs to agree that it has no authority to direct or interfere with Board decisions on how it spends the school budget or on how the schools are run. Ground rules should also include strong admonitions not to make personal statements critical of other participants – or other remarks that personalize the discussion.

I support the Council’s plan to re-establish a budget and finance committee in which Council members can study and discuss budgetary matters related to the entire city government and the schools. I think that meetings of this committee (which are public meetings) will provide the right setting for the two bodies to begin new conversations about money. Even if all members of both bodies are in attendance, I believe that the setting of a working committee (rather than a formal meeting of the full memberships of both bodies) should help to minimize posturing and grandstanding by individual members of the Board and Council, which has sometimes impeded meaningful communication in the past. Early discussions (starting soon after the November election) are needed, so that neither the Council or the Board will be surprised by the other body at budget time in May and June.

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Where will the money come from?

citybillThe second question from the Progress PAC was about generating revenue for city services and schools.

Question: What is your plan to generate additional revenue to support or enhance city and/or school services? Give at least two specific examples.

My response:

1. At this time, it is critically important for the city to attract a new generation of residents to take the place of the city’s founding generations – and repopulate the homes and neighborhoods that they are leaving behind as they depart the scene. In particular, we need new residents who have both the financial capacity and personal interest to support our city services and our excellent schools. Success in this will require a coordinated strategy with many parts. To help ensure a successful strategy, I believe the city needs to get started with a third-party marketing study aimed at finding out what today’s younger generations are looking for in a community, why people who have located here recently have chosen Oak Ridge, and most particularly why some people who work here don’t live here. All of us have anecdotal information and pet theories on these topics, but I’m not aware that anyone has solid data. Consulting studies have a bad reputation (and, no, I don’t know where the money will come from to pay for this one), but I believe this is a study that we can’t afford not to do. It should go without saying that the community will need to follow up on what we learn from the marketing study, both with promotional efforts and with measures to enhance the attractiveness of the community.

2. User fees alone will not provide all the additional revenue we need, but they can help recoup the costs of certain city services. (more…)

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Sitting at another City Council meeting

cityseal I had an EQAB work session earlier, but now I’m at the City Council meeting, having arrived late. I’m not going to live-blog this one, but I can do bit of real-time reporting.

City Council voted 4-2 (Baughn and Garcia Garland opposed; Mosby arrived later) to give Habitat for Humanity a property on Hillside Road. Later they voted 4-3 not to give Oak Ridge Schools approximately $35,000 from  traffic camera revenues for repair of the sinkhole in the high school soccer field. (If I remember right, the four who opposed the soccer field money were Baughn, Beehan, Garcia Garland and Miller. Hensley, Hope and Mosby supported the funding.)

Now the item on the agenda is the FY 2014 budget — for the fiscal year starting July 1. First item of discussion is the school system’s request for city financial support for additional school resource officers (SROs). City Manager Mark Watson says the schools request doesn’t account for the cost of police cars for the additional officers that would be hired. Federal grants exist for school policing, and the city will apply for a grant that could help pay for new officers and equipment. Charlie Hensley suggests waiting until we know about a grant (in the summer) until making a decision on this item. Also, Chuck Hope wants the details of a Memorandum of Understanding (MOU) with the schools to be hammered out before making any decision on funding for additional officers in the schools. Chuck also wonders if the SROs need patrol vehicles. Police chief Jim Akagi says that it’s important to have a vehicle, but Chuck thinks it might be possible to outfit a vehicle that’s not fully suited for patrol use. Mark Watson agrees that several things, including the MOU, are pending and need to be sorted out before this is resolved.

Now, at 9:17 pm, there’s a vote on a motion by Trina Baughn to reduce the property tax rate by 1 cent. It fails by a vote of 4-2 (Baughn and Hope voted for), with Anne Garcia Garland abstaining.

The full budget passed without further discussion.

It’s 9:23 PM, and there’s a vote to fill an unexpired term on the Municipal Planning Commission. Candidates are Sheldon Green, Andrew Howe, Martin McBride, and Hugh Ward. Votes: Mosby for Green, Hensley for Ward, Miller for Green, Beehan for Green, Hope for Green, Baughn for McBride, and Garcia Garland for Howe. Sheldon Green is the new Planning Commission member.

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Thoughts on the school budget dilemma

Sign in front of Oak Ridge High SchoolAt Oak Ridge Today, I was asked how I would vote on the Oak Ridge Schools budget tomorrow evening if I were a member of City Council. The commenter requested a yes-no answer, but they aren’t going to get one.

I don’t have the same information that Council members have right now, so  I can’t be sure what I’d be thinking or how I’d plan to vote if I were on City Council. The only budget request I’ve seen from the schools is the board’s budget and I haven’t been privy to the messages that I know Council members are getting from citizens, school officials, and city staff. It’s a safe bet that Council members are hearing from folks who want them to increase the amount (by how much, I can’t say) that the city government transfers to the schools, and that this is being requested so that the schools can restore some teaching positions that would otherwise be cut under the schools budget for the 2013-2014 school year.

So what do I think? I’m distressed by news reports that indicate that school budget cuts will cut into some “meat and bones,” including laying off some teachers.  The reductions are partly justified by lower K-12 enrollment projections and interim superintendent Bob Smallridge says that impacts on the instructional program will be minimal, but I can’t avoid thinking that these reductions will reduce the school system’s ability to meet our kids’ needs.

However, I also have to assume that an increase in the city transfer to the schools would mean increasing the city property tax rate above the current rate of $2.39 per $100 assessed value. Because Oak Ridgers value our quality school system, many residents would gladly pay more tax to avoid cuts to the schools. At the same time, though, a tax increase would be a burden on some citizens and would make Oak Ridge a little less competitive with surrounding communities with lower taxes. Therefore, Council needs to look extremely carefully at what Oak Ridgers will get for their money if the city decides to increase property taxes in order to send more money to the schools.

Unfortunately, it appears to me from the Oak Ridge Schools budget (available at this link) that the school board and school administration may be putting a higher priority on management than on teachers and kids. This continues a disturbing pattern we saw in years past. Adding up the pluses and minuses in the summary of expenditures on page 25 of the budget, I find that “Instruction” (lines 71100 to 71900) would be cut by $424,809, “Support Services” for students and instruction (lines 72120 to 72230) would be cut $163,689, “Transportation” (mostly school buses) would be cut $76,787, but the combination of facility operations and various centralized administrative functions and services (lines 72310 to 72620 and line 72810) would get an increase of $270,087. Increasing the budget in that last category, while cutting budgets for functions that directly affect students, suggests that the school board and school administration don’t have the same priorities that I believe most of the school system’s advocates have — or possibly even that this is a deliberate strategy to put public pressure on City Council to increase the school budget. [Edited May 29: In email and at the Oak Ridge Daily Hoot, Angi Agle has explained  that the transportation reduction is not a cut in services, but is merely a result of shifting bus leasing costs from the Transportation line to the Equipment Rental & Replacement Fund line, which is a budget line that I didn’t include in the summary tallies above. She also notes an increase in the budget for water and sewer costs paid to the city. Both the schools and the city government must pay retail rates for these utility services, the same as if they were private businesses, so both budgets are affected by increased water and sewer rates. The increase in the water & sewer line in next year’s school budget is $67,127, so it accounts for about one-fourth of the administrative functions and services increase I noted above.]

Under Oak Ridge’s city charter, the City Council can’t amend the Oak Ridge Schools budget or tell the school system how to spend its money.  However,  if City Council is asked to increase property taxes to augment the school budget, City Council needs to ask hard questions — and get good answers to those questions — to provide assurance that any extra funding for the schools will go to address the needs of students, not the needs of administrators. Also, it’s high time for the school administration and city administration to get serious about something that Council members pushed for over the last several years — exploring opportunities to improve the efficiency of Oak Ridge’s public enterprise (that is, city government and the school district) by sharing resources in functions like facility maintenance and purchasing.

I know that all Council members value Oak Ridge’s schools and want the best for them, but unless better answers are forthcoming than I saw over the last several years, I’m afraid that Council will feel they must say “no” to a school system request for additional funds.

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Trying to set the record straight on property tax

citybillI want to set the record straight regarding a couple of misconceptions about property tax that I see being spread by public discussions about city and county budgets.

On the Oak Ridge Today website, citizen Andrew Howe posted a comment saying:

The property tax rate should NEVER have to increase. It is basically a percentage of the value of the home, right? And if the value of the home raises (as it should, in line with the cost of living), then the taxes will also raise.

I can’t quarrel with Mr. Howe’s logic, but his conclusions are wrong. This is because he makes an assumption that is valid in many states but isn’t valid in Tennessee.

Under Tennessee law, when properties are reappraised, state officials calculate — and publicize — the property tax rate that will give the local government the same total amount of property tax that it was getting from existing properties before the reappraisal. (This calculated rate is called the “certified tax rate”.) That’s the new baseline tax rate. If a local government in Tennessee wants to get more property tax revenue after a reappraisal, the governing body has to vote to increase the tax rate above the certified rate.

This means that property tax collections in Tennessee don’t automatically increase when property values go up (nor do they drop if property values go down). If the value of your home rises with the cost of living, your tax bill won’t automatically go up. (After any reappraisal, however, some people’s city tax bills do go up because their property values went up more than the city average.)

That law gives local officials an incentive to hold the line on property tax increases. Property tax revenues in Tennessee don’t rise along with property values — and probably don’t keep up with increases in the cost of living. In recent decades, property tax rates in Oak Ridge and across the state have generally trended downward — meaning that taxes are now a smaller fraction of property value than they used to be. After the last reappraisal in Anderson and Roane counties, in 2010,  Oak Ridge’s certified property tax rate dropped from $2.77 to $2.39 (per $100 assessed value). Our city tax rate is still at $2.39, so the only increase in property tax collections has been what came from new development. When you consider that the combined city-and-county property tax rate for the Anderson County part of Oak Ridge was $5.34 in 1997 but only $4.74 as of 2012 — 11% less than it was 15 years earlier, it should be clear that tax collections here don’t automatically track property values or the cost of living.

In another online comment, Mr. Howe put forth some more misconceptions about property taxation.  He said:

We also need to ensure that the appraisal values stay the same… If the city lowers the rate, but starts appraising higher, residents end up paying the same.

Those statements may have had some validity in the past and they may still be true in other  places, but they aren’t true in 21st-century Tennessee. As I explained above, because of the certified tax rate process in Tennessee, reappraisals don’t give the city more property tax. Furthermore, city government has no role in property reappraisals (appraisals are done by the counties, under the direction of the elected county property assessors) and nowadays the appraisal process is supposed to be done according to uniform statewide rules and procedures for evaluating fair market value. Any property assessor who tried to “ensure that the appraised values stay the same” would be violating state law!

The property tax appraisal process isn’t perfect (that’s one reason why appraisals can be appealed to a board of equalization that’s made up of citizens who own property in the county), but it isn’t arbitrary either, and there’s no call for blaming its imperfections on local city politics.

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Live blogging the May 16th City Council special called meeting

The special meeting is about proposed amendments to the city budget for FY 2014, which starts July 1, 2013. The agenda for the meeting, plus backup material about staff analysis of the different proposals by council members, is online on the City of Oak Ridge website. Mayor Tom Beehan has asked to have discussion of the ideas before motions are introduced. Other council members are asking to discuss the budget-cutting items before the items that would add to the budget. 5:23 PM

Trina Baughn says her goal is to reduce the property tax rate by 5 to 10 cents. (The total tax rate currently is $2.39, per $100 of assessed value. Single-family residences, farmland, and forest are assessed at 25% of appraised value; commercial and industrial property is assessed at 40% of appraised value. She wants other Council members to state their goals up-front, too. 5:28 PM

City manager Mark Watson said that the last 3 years have seen a lot of shuffling of personnel in the city organization, during which time the city has maintained the same tax rate. He’s been wanting to keep the tax rate level. He hears in the community that people like the way things are going and think they get a pretty good bang for their buck in city government. Good things that are happening include 20% reduction in crime, the upcoming dog park, new roof at Woodland School, traffic improvements paid for by red-light camera money, etc. Finance director is concerned about not reducing reserves. 5:33 PM

Mayor Tom Beehan says people are happy with the services they receive. He doesn’t want to cut services or raise taxes. Cutting services or raising taxes would send the wrong message to people who are considering moving here. 5:35 PM

Anne Garcia Garland says our tax rate isn’t a problem. It’s not egregious. It’s not a burden on most people. It’s lower than a lot of rates in other parts of the country. City manager has been making some significant changes, trying different things, and we need to give that process a chance. He’s proposed some changes in his proposed budget. We’re looking forward to growth there. There are setbacks now due to the federal government, but this is the wrong time to be making cuts. Focus on how the city’s organizations and services are managed, not on cutting what we spend. Keeping our tax rate level for several years has meant that we are cutting things every year because the budget isn’t keeping up with inflation. 5:39 PM (more…)

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Revisiting the property tax rate comparison

A comment on Oak Ridge Today has inspired me to update the comparison of property tax rates that I made back in January 2008. Using data from the Tennessee Comptroller, I am pleased to find that Oak Ridge made significant progress over the last 5 years in our comparative property tax burden (our rates in comparison with other places in the state) . The combined city and county property tax rates paid by Anderson County Oak Ridgers in 2012 are less than the rates in 19 other Tennessee jurisdictions, compared with just 6 other jurisdictions in 2007. Rates for Roane County Oak Ridge are less than those in 36 other jurisdictions, compared with just 14 in 2007. Since counties reappraise every 5 years, both data sets come at the same point in the appraisal cycle, so reappraisals shouldn’t distort the comparison.

As I noted in 2008, I compare the total of the local property rates paid because it’s not meaningful to compare just the city tax rates. Comparing tax rates in municipalities that offer a lot of services with rates in municipalities that leave these services to the county is like comparing the cost of a full-course meal at one restaurant with the price of the main course (or even just the appetizer) at another eatery. Comparisons should be based on he total property tax burden, which includes city and county property tax, as well as levies by the special school districts and other local taxing districts that exist in some areas.

The current combined property tax rate for Anderson County Oak Ridge is $4.74 (down from $5.33 in 2007) and for Roane County Oak Ridge it’s $4.36 (down from $4.92). Here’s the list of all the other Tennessee jurisdictions that equal or exceed those rates, led by six cities in Shelby County:

  • Memphis   $7.13
  • Bartlett   $5.55
  • Germantown   $5.545
  • Collierville   $5.49
  • Millington   $5.29
  • Arlington   $5.21
  • Humboldt   $5.19
  • Chattanooga   $5.0742
  • Chapel Hill (Marshall County)  $4.97
  • Bruceton (includes special school district tax)  $4.9624
  • Manchester   $4.9571
  • Oakdale   $4.9309
  • Goodlettsville  (Davidson County portion) $4.91
  • Ridgetop   $4.91
  • Lakeland   $4.91
  • Tullahoma (Coffee County portion)  $4.8725
  • Knoxville   $4.82
  • Tullahoma (Franklin County portion) $4.7552
  • Henning   $4.742
  • Oak Ridge (Anderson County portion)  $4.74
  • Ripley   $4.6874
  • Lewisburg   $4.67
  • Ridgeside   $4.6652
  • Nashville   $4.66
  • Dyersburg   $4.64
  • Trenton  (includes special school district tax) $4.637
  • Gates   $4.5674
  • Kenton (includes special school district tax)  $4.55
  • Bristol   $4.5207
  • Friendship   $4.504
  • Rutherford  (includes special school district tax) $4.45
  • Dyer (includes special school district tax)  $4.43
  • Signal Mountain   $4.4286
  • Lookout Mountain   $4.3852
  • Brownsville   $4.38
  • Clarksville   $4.38
  • Oak Ridge (Roane County portion)  $4.36
  • Medina (includes special school district tax) $4.3566

The next time someone says Oak Ridge has the state’s highest property taxes, let’s tell them how very wrong they are! It’s also worth remembering that many Tennessee counties add to the tax burden on their citizens by levying a wheel tax — something we don’t have.

Of course, Oak Ridge is still a long way from being one of the state’s low-tax jurisdictions. In case you’re curious, the lowest total property tax rates in the state are in unincorporated parts of Fayette County ($1.4781) and in Cumberland County outside of Crossville ($1.4975).

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TIF for Woodland Town Center?

People are talking — and asking me lots of good questions — about the proposed Tax Incremental Financing (TIF) plan for the development of Woodland Town Center on South Illinois Avenue. I have some questions, too, but I can share some information and thoughts.

Decisions are coming up fast: The Oak Ridge Industrial Development Board holds a public hearing Monday (12/5) at 4 pm (not my notion of an ideal time for a public hearing) at the Oak Ridge Chamber of Commerce. Approval also is needed from both Oak Ridge City Council and Anderson County Commission. City Council addresses it on Monday, December 12 (7 pm at city hall) and County Commission expects to vote on Monday the 19th.

If approved, this will be Oak Ridge’s first TIF. A TIF is a development incentive, similar to a property tax abatement, but with features and restriction that (in my opinion) make it a better deal for the public than the tax abatements that Oak Ridge has used in the past. The idea is that the increased property tax collections resulting from a new development are designated to pay for public improvements to be built in the development area. The city (through the Industrial Development Board) would borrow money to construct improvements in the development area, and any increased property tax revenue from a defined TIF district would be dedicated to paying off that loan. When the public improvements are fully paid for, the property taxes go into the public coffers. As with a tax abatement, there are clear benefits to the developer.  Unlike a tax abatement, there is an explicit contract-type arrangement that sets out both the costs of the TIF and the benefits the community is supposed to derive from it. Also, Tennessee law requires that any TIF  be specifically approved by the governing bodies of the affected local governments (in this case, both city and county) whose property taxes would be dedicated to the TIF. (In contrast a city could establish a tax abatement that affects both city and county property tax without any county say-so — or a county could do that to a city.) I see TIFs as preferable to tax abatements because of greater transparency, the requirement for a public purpose, the clear definition of public costs and public benefits, and the requirement for approval by the elected officials of the affected local governments. Also, they don’t put property owners in the ticklish position of having to deed their property to an IDB (notably, the developers of the Holiday Inn Express that’s now under construction had to relinquish the abatement it had negotiated because it was preventing them from getting a needed loan).

This proposed Woodland Town Center development, between South Illinois Avenue and South Purdue Avenue, across from the former Dean Stallings car dealership, was approved and rezoned as a planned unit development a couple of years ago. Although it’s on the edge of the Woodland residential neighborhood, residents seemed pretty comfortable with the proposal because the developers have been sensitive to their concerns. The developers acquired several properties and took down the houses on them, but the development stalled with the bad economy. Now Panera Bread wants to move there in order to have a bigger location and more parking (Panera is very popular in Oak Ridge) and Aubrey’s Restaurant wants to establish an Oak Ridge location. Those two restaurants would occupy about half of the buildable land in the planned Woodland Town Center area. The TIF district would include the entire Woodland Town Center area plus some nearby properties along South Purdue and the former Dean Stallings dealership.

As people  have read in the newspapers, the public improvements to be funded by the TIF are removing the part of Quincy Avenue between S. Illinois and S. Purdue, building a new road between Illinois and Purdue that would connect up with Phillips Lane (a short cul-de-sac) on the north side of Purdue, installing a new stoplight on Illinois at the intersection with the new road (which would serve as the entrance to Woodland Town Center), storm drainage improvements, and some electric infrastructure. These clearly benefit the development, but I also see some direct benefits for the public at large. The road relocation should mostly eliminate the use of Quincy Avenue as a fast cut-through across the Woodland neighborhood — a benefit to that neighborhood. The storm drainage improvements are needed to correct chronic flooding that affects residents on South Purdue near Quincy. Additionally, the whole package benefits all of us by helping to ensure a higher-quality development than we might see if the developer and the restaurants had to foot the whole bill for the infrastructure supporting their project. I’ve heard from residents who are dismayed by the idea of another stoplight; it bothers me, too, but I’m afraid that it’s inevitable.  I keep hoping for an “intelligent system” to control the series of stoplights on South Illinois to help traffic flow more smoothly — not only to reduce drive aggravation, but also to make it easier for people to get to these businesses.

City staff has estimated the overall TIF cost at $605,000, and they estimate that combined city and county property tax collections would increase by $46,000 per year (split 50-50 between city and county, including $6,000 in tax on “personal property” of the businesses) as a result of the two restaurants, which means it could take 20 years to pay off the TIF.

People ask me if a 20-year payoff is a good deal for the city and county. I can’t say for sure because I can’t predict the future, but I’d be surprised if it took nearly the full 20 years to pay this off. Staff estimates $4 million private investment in the project. If that full investment got reflected in the tax assessor’s appraisal (it probably won’t), I guesstimate that it would yield twice as much property tax as they are projecting, so I am pretty sure that staff is lowballing their estimate of taxes in order to be on the safe side. Furthermore, if the rest of Woodland Town Center gets built or there’s new development on the Dean Stallings site, property tax from those projects would help pay off the TIF faster.

Staff also estimates an additional $165,000 in “direct and indirect” local sales taxes to city and county each year, over and above what Panera collects  now, which sounds like a valuable thing for the city ‘s coffers. I’m not entirely clear, owever, on how much of that sales tax goes to city vs. county vs. schools, and I don’t know what staff assumed to come up with that number. I want to know more about what they are assuming, because I want to make sure it makes sense.

Other questions I’m hearing:

* Why involve the IDB? It’s my understanding that state law authorizes IDBs to “do” TIFs, but they aren’t allowed for city governments, but I want to verify this.

* What risk do the IDB and city face if tax collections aren’t high enough to pay the TIF bills? I’m not sure — this depends on the form of the security that must be pledged to obtain the loan. Attorney Mark Mamantov explained TIFs to City Council a few months back; if I remember correctly, he indicated that the lender assumes most of the business risk on these deals.

* Why can’t the city insist that these restaurants locate in some of the vacant buildings we have here in town? In general, a government can’t tell businesses where to locate (at least not in the United States) — and it does seem that the two restaurants were attracted to this particular site by the developers’ conceptual plans for the project.

* What will happen to the building where Panera is now? I hope it will be reoccupied quickly. Panera has done very well there, so the location should be attractive to another eatery.

* How will this affect the value of other property nearby? The conventional wisdom is that this project should boost the value of unoccupied commercial property close by. Interestingly, I’m told that it’s also likely to increase the property-tax assessments of other commercial property. I hope it doesn’t inflate the already-too-high asking prices of some of the properties that are currently being offered for sale or lease — excessive prices seem to be one reason why some sites in town are chronically empty. I’m told that it should not affect the tax assessments for residentially zoned property in Woodland. However, there may be some adverse effect on value of the houses closest to the development. That adverse effect can be minimized if the developer does a good job of screening the property to reduce its effect on the neighbors — and for some residents, being close to attractive commercial businesses is a plus.

* Why is the Dean Stallings property part of the TIF district? The new stoplight would improve access to the Dean Stallings property, and could even allow development of a road to connect to undeveloped land behind it.  Because the Dean Stallings property could directly benefit from the TIF improvements, any increased tax revenue from its future use is legally eligible for use in paying for those improvements.

* If the project pays off early, can the tax revenue from the TIF district be used on another project in the district instead of being added to city and county funds? I don’t believe revenues could be diverted to new uses without approval of a new TIF, but this is something I need to know more about.

*Doesn’t subsidizing these two restaurants give them an unfair  advantage over existing local competitors? Maybe… The restaurants will not directly benefit from the TIF improvements, as those improvements will only build the kind of infrastructure every business needs. In general, however, locally owned restaurants (which I generally prefer over chains) are at a disadvantage compared with chains, as the chains (even a fairly local chain like Aubrey’s) have access to more management know-how, as well as high-visibility advertising that builds brand awareness. However, the conventional wisdom says that when there are several restaurants located in the same area, they all benefit. I believe that — if the restaurant where I wanted to eat has a long line or is unexpectedly closed, I like knowing that there are other good options nearby. More restaurants in Oak Ridge increases the chance that people will choose to dine here, particularly in the evening.

* Aren’t TIFs supposed to be used to help with development of brownfields, low-income areas, and urban redevelopment areas? It is true that TIFs were originally conceived (this was decades ago) as a way to help facilitate development or redevelopment of areas that could be described as “social challenges”. The concept has been adapted for other situations over the years, so that’s no longer true. Also, the TIF rules vary a lot from state to state.  In the future, I think that Oak Ridge could use TIF arrangements to help make good things happen in older commercial neighborhoods like Grove Center and Jackson Square.

* How will this affect the “City Center” (former mall) property? I can’t say, but I think this development is close enough to that property that the City Center would share in the general benefits to local business that are expected to result from this new development.

* Why would the City subsidize restaurants, since this kind of business that doesn’t generate high-paying jobs? It is true that the 100-plus jobs expected to be generated by this development are mostly fairly low on the pay scale, but job-generation is not the only purpose of economic development. Retail centers are important to residents and visitors,  the sales taxes they generate are an important source of local revenues, and there are plenty of people who would be happy to get those jobs.  Also, comparative statistics indicate that Oak Ridge is unusually well supplied with good-paying “primary jobs”, but it lags in offering the kinds of retail opportunities and eating-and-drinking opportunities that help convince well-paid workers and their families to live in a community. Most of the people I talk with would like the city to have more of these kinds of businesses.

What questions have a missed? What else should I be thinking about? (Please comment below!)

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Choices on how city government manages debt

On Monday evening, August 8, City Council is being asked to approve issuing $10 million in bonds for wastewater and water projects (see agenda). We absolutely need to borrow this money, but I have doubts about the staff’s plan for structuring the debt — that is, how we pay it back.

This is part of about $19 million that the city needs over the next couple of years to pay for sewer system improvements mandated by an EPA administrative order (estimated cost $14,567,000) plus some water system improvements ($4,150,000). The EPA order means we’ll have to increase sewer rates. City staff has proposed to pay this off over 20 to 25 years, and to limit the increases in sewer rates by delaying the maturity of the bonds until after most the city’s existing sewer debt is paid off. For the first 10 years, only $100,000 in principal would be paid off each year, and most of the principal would not be paid off until the late 2020s or even the 2030s, when huge chunks (principal amounts up to $2 million or more) would come due in a single year.

Borrowing for capital improvements is necessary to spread the cost of improvements over time, which is responsible, but this staff plan would shift the cost of today’s improvements to future decades, which I think is irresponsible. Also, the long pay-off  greatly increases the total cost by greatly increasing the interest. Under the staff plans, $10 million in bonds now would cost $17.5 million over 20 years or almost $20.5 million over 20 years. In the 20-year payoff plan, $8 million in principal and interest would come due the last 5 years of the 20-year period. Considering that these are improvements that cost $10 million in the first place, it appears that this is a structure whose main effect is shifting the costs to another generation.

I’ve made some spreadsheet tables (PDF file) comparing the staff’s plan for 20-year payoff with a plan that pays off equal amounts of principal each year (not a recommended structure for borrowing money, but it was useful to help me understand the choices involved in structuring this debt) and a modified version of that plan that somewhat evens out the annual principal-plus-interest. Under my “semi-level annual payments” plan, $10 million in bonds would cost $14.7 million — about $2.8 less than under the staff’s 20-year plan. In the first few years annual debt service for this bond issue would be only about $200,000 higher than under the staff’s 20-year plan (about $720,000 per year versus about $520,000 per year), and annual debt service would always be below $800,000 — compared with $2.2 million bills in 2031 and 2032 (for our kids and grandkids to pay!) under the staff plan.

Amazingly, the resolution Council is being asked to approve doesn’t specify how the bond issue would be structured — not even whether bonds must be sold at fixed rates or if variable-rate bonds could be used (I don’t believe anyone would endorse variable rate bonds). The resolution does specify that the city should be able to pay off or refinance the bonds after 2021, but otherwise Council is simply being asked to authorize staff and the mayor to issue bonds at legal interest rates and for not more than 25 years. We also are being asked to approve the bonds without first seeing any analysis of how these expenditures will affect sewer and water rates.

In these days when people are acutely aware of the impact of public debt, and when I consider that EPA has been telling us that the current improvements are needed to catch up with deferred maintenance — and that in the future the city will have to maintain a higher pace of sewer work than in the past, I think that we Oak Ridgers are going to have to “suck it up” and accept and acknowledge a big increase in the cost of doing wastewater business. We can’t assume that our kids and grandkids will happily pay off our needs 20 years from new — they likely will be facing new capital needs in the sewer and water arena, and if they aren’t, they should seize the opportunity to cover more of the system costs on a “pay as you go” basis.

Based on recent city financial reports, it seems that our wastewater system receives about $6 million annually in customer fees, so a rate increase of about 20% should bring in $1.2 million, which ought to cover the capital costs of this bond issue, along with other cost increases since the rates were last adjusted 3 years ago. Fortunately, it appears to me that Oak Ridge’s wastewater rates are lower than those of many other communities (for example, the Knoxville Utility Board residential wastewater charge for the first 2000 gallons is $18 in the city and $20.90 outside the city, compared with the Oak Ridge charge of $13.50 for the first 2000 gallons), which should make increases somewhat easier for customers to absorb (even if we don’t like them).

I fully expect that on Monday evening my fellow City Council members will vote to issue these bonds (they are necessary!), but I hope they will also agree to begin asserting some control over this one aspect of the city’s financial policies by:

  • Insisting on receiving a preliminary estimate of the effect of the wastewater work on sewer rates before we vote on the bond issue (so we have some idea of the impacts of what we are deciding on), including an analysis of how the difference between an initial payoff rate of $522K/yr (the staff’s 20-year plan) and a rate of $720K/yr (my “semi-level” 20-year plan) would impact rates.
  • Directing staff to issue these new bonds on a fixed-rate basis that spreads the annual cost out in roughly equal installments over a 20-year period (similar to my “semi-level” plan).

As always, citizen input on this matter would be helpful!

Note: Permission is given to republish the above material and the attached spreadsheet, as long as these items are attributed to me.

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