Friday, July 1, 2016

A Question of Priorities (Sort Of)

Police Station was derided as "too big"; Town Hall renovation "too expensive."

The picture of what four major building projects looming on the not so distant horizon will look like is quickly developing -- like one of those classic Polaroid instant photos -- and the results are nothing less than shocking.

At the Finance Committee meeting Wednesday night members engaged in a one hour discussion of the BIG picture i.e. an overview of all four projects, something that has not been done to date.

 Finance Committee.  Kay Moran's final meeting (out with a bang)

Co-acting chief financial officer Claire McGinnis filled in the Town Meeting financial advisers with the latest dollar figures that Amherst will need to come up with exclusive of the state money involved with the Library expansion and new Mega School.

The projected grand total is a whopping $105.5 million dollars, or one-tenth of a BILLION:  $33 million each for the new elementary school and DPW building.  $22 million for the new South Fire Station.  And $17.5 million for the Jones Library expansion.

Although Library Director Sharon Sharry puts the number at $20 million of town money with the Library attempting to raise $5 million in private fund raising.

Finance Committee member Steve Braun lamented the current state of affairs saying the process has been "skewed" by the state grants and the two projects (Library & School) involved have -- almost unfairly -- gone to the head of the line.

Others joined in, complaining that "affordability for the average taxpayer" has not been an overall priority and each individual project seems to act like they are the only project.  Kind of like those college professors who piled on work like they were the only course you were taking.

Outgoing Finance Committee Chair Kay Moran said, "It will come down to which projects the people wish to pay for."

That supposes of course that all four will be put to the voters as an Override, but that may not necessarily be the case.  Town Meeting twice approved Overrides for Town Hall renovations 20 years ago and both times the voters said "no".

Town meeting then went ahead and did it anyway by use of borrowing, which also required a two-thirds vote, but bypassed the voters.




27 comments:

Anonymous said...

How much will $105 million add to the tax bill of a homeowner with a $350K house? $450K, $550-$650K? In the first year?

Larry Kelley said...

That's one of the things the Finance Committee will do: create a spreadsheet that shows the impact on the average taxpayer for each of the four projects.

Preliminary figures bandied about at the meeting were between $1,200 and $1,500 per year for all four but that's a pretty rough draft.

Anonymous said...

That's a 30% increase in property tax right off the bat!

And future overrides for school budgets will only compound that.

Gold-plated projects like the new DPW need to be nixed. They have a want, not a need.

You are always saying our property tax is too high. We'll it will get a whole lot higher!

Dr. Ed said...

What will it do to the rent of, say, a Puffton 3-bedroom apartment? A dramatic increase in rents well may be pin that pops the UM bubble.

kevin said...

Thirty years ago, a million bucks was a lot of money. Now it's a hundred million. What would be relevant is the impact on taxpayers by age group. The total cost over 30 to 50 years is much different for the young than the old. The elderly will cry, but the will young pay the bulk. That is why we have "fiduciary duty" in government. Oh, I'm sorry, Town Meeting does not have fiduciary duty? Oops! My mistake. Never mind.

Anonymous said...

Kevin are you ed's twin brother?

Anonymous said...

Ed, you've always got the hope that UMass collapses because of a lack of hot air now that you are gone.

Max Hartshorne said...

I am so glad I don't live there - a tax increase that high would really be tough!

Rick Hood said...

In the FAQ for the 2010 override it says: “How much could this override cost me? If the override is fully implemented, the property tax of an average home ($334,600 value) would increase by $264 per year – that’s $22 per month.” That override was $1.68 million. See: http://bit.ly/299A3ap Using those numbers, the property tax increase for an “an average home” is $157 per $1million of override.

Debt service on $100 million at 3% for 30* years is around $5,101,926, so perhaps that means we’d need a debt exclusion override(s) of around $5 million to cover that. If so, that would mean a 5 x $157 = $785 increase for “an average home”. My home happens to be right around average price. Knowing my tax bill, that would be around a 12% increase.

*note it could be there is a term limit of 20 years on one or more of these projcts (see: http://bit.ly/29cmYQe) and if so debt service would be $6,721,571.

But then we need to look at what long term debt is being retired over the next 10-30 years. A debt exclusion override(s) is meant to cover whatever increase in debt service occurs due to these projects, but debt taken on in the past will be gradually retired. If we were to do all of these projects, that would be it for “big” projects for the next 30 years, I would hope. The major town buildings would be new or recently fixed-up (e.g. town hall) and the new buildings would be more efficient in terms of energy use and maintenance, saving us annual operational costs. So while we have big bump up in debt service due to these projects, we probably ramp down over the next 10-20 years as existing debt goes away and we don’t need to add new debt, because there is nothing debt is needed for. Since maintenance is low or nonexistent for a while on the new buildings, the JCPC budget might be freed up to easily pay for whatever needs doing. I see that the JCPC budget shows existing debt service dropping from $2,129,429 in 2016 to $1,153,808 in 2020.

Perhaps they went over all this at the FC meeting.

Would I pay $785 extra for a new school + library + fire station? Probably. I would say “yes” if 30 year projections show we won’t need another override for many years, which I think might be the case. Although that depends on many other things such as the inflation rate and state aid.

Anonymous said...

I am hoping for some clarity on the numbers on new taxes for a $100 million debt exclusion override since this is so important.

I went to the Save Our Small Amherst Schools facebook page to the post where they have a tax calculator for a $31 million dollar override. The tax calculator shows how much a taxpayer will pay in year 1, year 2, year 3, etc. The new taxes start out highest in the first year, then slowly go down over 30 years.

Here's what I got for a $31 million override (not $100 million) in year 1:

$350K house value: $415 tax increase in year 1
$400K house value: $475 tax increase
$500k house value: $594 tax increase
$600k house value: $713 tax increase

How much would a $100 million debt override cost? If I multiply each of these increases by 3, that takes me to a $93 million override. So here is year 1 of a $91 million increase (without using a calculator so the mistakes are mine).

$350k--- $1245 tax increase
$400k---$1425 tax increase
$500k---$1778 tax increase
$600k---$2139 tax increase

These look like very different numbers than the one posted by Rick Hood. Which ones are correct? Is there something wrong with the Save Our Small Amherst Schools calculator? Rick, are you averaging the increase over 30 years? If you did, I'm guessing the numbers do look much lower. What will the number look like for your home in Year 1 of a $100 million override? I think taxpayers will want to know what these early numbers will be.

Janet McGowan


Anonymous said...

Rick's numbers appear not to include any repayment of principal.

In other words, no repayment of the money borrowed, only paying the interest on it.

Anonymous said...

Do you know what a 2and 1/2% override means? Every year after the override,the rate can go up 2 and1/2 percent, without having to revote an override. That's a lot of money. Has this been considered in these figures?

After receiving our tax bill yesterday, I believe we are paying more than enough now. And, I also believe that I am more capable of deciding where to spend my money than our town government is. Am I alone in feeling this way? I think it is time to learn to live within our means. All this proposed spending is way out of line.

Anonymous said...

These are huge numbers!

Amherst isn't exactly booming. School enrollments are declining and are likely to continue to decline as charter schools add more students, and as property tax rises families are priced out of the market.

Rick Hood said...

@anon 1:53PM No, it includes principal and interest: 30 years x $5,101,926 = $153,057,780, way more than the principal amount ($100 million) - the difference being the interest.

@Janet It’s not a “$31 million dollar override”, rather the override would be enough to pay the debt service (principal + interest) on $31,000,000 of debt, which is $2,016,594 at 5% interest and $1,581,597 at 3%.

Total property tax for FY17 is $48,639,640, so $1,581,597 is an 3.2% increase on that total, which I believe means the average taxpayer would pay 3.2% more (for 30 years) to pay the $31 million debt to build the school. If the average tax bill is around $6K then that’s around $192. If you use assume 5% interest, it’s a 4.1% increase which would be around $248 increase.

The spreadsheet at Save Our Small Amherst Schools uses a 5% interest rate, I used 3%. Bond rates are under 3% today. However, I see 5% is what was used in the spreadsheet given to us at JPCP - perhaps to be super conservative, since who knows what year the borrowing would take place and so rates could be higher then. That spreadsheet also had the formula for calculating the tax increase for the average ($333,000) home that is used in the Save Our Small Amherst Schools spreadsheet.

My numbers for $100 million are correct, if these two assumptions are correct:
a. 3% interest assumpiton - I think that is a good assumption for money borrowed today
b. the $157 per $1million of override from the 2010 FAQ is still good to use, which it may not be

At any rate, the FC is the one to come up with this stuff, so let's see what they say.

Laura Quilter said...

The SASS numbers are the formula that the Town uses in calculating.

Anonymous said...

Perhaps Rick would be kind enough to calculate out thr interest costs at wg=hatever interest rate he predicts??

Maria K said...

The formula used by SASS is the same one as that used by the district and is based on a 30 year debt at 5%. In their presentation at the public forum on October 26, 2015, the district was saying that the proposed 750 student Grade 2-6 school would cost $47-53M and that 68% would be reimbursed by the MSBA (see p. 100 at
http://wildwood.projects.nv5.com/download/presentations%20wildwood/2015%2010%2026%20Wildwood%20ES%20Forum%20Presentation%20ARPS%20Final%20REVISED.pdf?doing_wp_cron=1467506630.8629350662231445312500).

On page 102, they show the “Average Annual Impact on Property Taxes on Median Amherst Home” based on these figures (~$179 - $202).

Of course, since then the cost estimate for their proposal has risen to ~$65M and the actual MSBA reimbursement rate has been estimated at more like 52%. That’s why the figure for the average annual impact (given the 23-38% jump in building cost) is ~$278. But this figure is misleading because it averages 30 numbers that decrease every year as the interest decreases. So, you are actually paying a lot more than that every year for the first several years ($392 the first year, $384 the second year, etc). You have to get out past 15 years to see that “average impact”.

If the Town does a 20 year debt instead, the formula uses a 4% interest rate. This decreases the total interest paid at completion, but it does increase the yearly impacts in the beginning ($424 for the first year, $414 for the second year, etc).

Anonymous said...

The Jones Library needs to spend millions for a handful of teenagers? The children's room need to be expanded? This is ridiculous. My two children love the room just as it is. They'd rather that mommy and daddy actually have the ability to save some money to send them to college some day.

Rick Hood said...

I think I'm picking up bad habits from Ed or something; should just shut up instead of weighing in. ;-)
Larry had said way at the top of this post: “That's one of the things the Finance Committee will do: create a spreadsheet that shows the impact on the average taxpayer for each of the four projects.”
The right thing to do is just wait for that.
Have a great 4th all.

Anonymous said...

It's good to get information on these numbers and how people get to it. Not sure what the final numbers will be but I'm glad that the Finance Committee is taking this up. I know voters in Town Meeting and in the voting booth are going to want to know how much the projects will cost taxpayers. I'd like to know numbers based on different house values, so we all have a complete, realistic picture.

Janet McGowan

Laura Quilter said...

Yes, we don't have the Finance Committee's numbers for the other three projects. But we do have them for the school project. So people who want to plug in their home values to the Finance Committee formula for the school project, here it is:

https://saveamherstssmallschools.wordpress.com/tax-increase-calculator/

Anonymous said...

This is like a cat infatuated with a bright shiny watch dangling in front of it. What ever happened to being fiscally conservative? They dangle all these toys in front of everyone and now it's raise everyone's property taxes through the roof. We don't need all this.

Dr. Ed said...

ALL numbers are based on the town valuation remaining constant.

What percentage of the total are the apartment complexes>

Their evaluation is based on income -- rental rate & occupancy rate.
Apartments in complexes are taxed at a much higher rate (per unit) than homes because of the O/O exemption. All taxes are passed on to tenants.

At some point, the tax-inflated rental rates will make them too expensive to rent. UM students would either live elsewhere or attend college elsewhere. Section 8 has limits in what is payable, at some point these tenants get forced out too.

Then, regardless of what happens, the town collects a LOT less from these complexes.
That means the mil rate goes up and everyone else pays more.

When over half of your tax base is rental housing, any significant decline there will impact the O/O half. Just sayin....

Anonymous said...

How can all of these projects all of a sudden be must do priorities?

Anonymous said...

Ed, you live in Maine.

Anonymous said...

Looks like the school project is running full speed ahead prior to being fully approved!

Is it the only thing the Assistant Superintendent has to work on?

He really needs to be reined in!

Anonymous said...

Interesting post today by the Save Amherst Small Schools group.

https://saveamherstssmallschools.wordpress.com/2016/07/04/congratulations-amherst-we-will-have-the-most-expensive-elementary-school-in-the-state/

Based on the MSBA data they shared, if the Amherst school override is approved -
Amherst will have both the most expensive elementary school in Massachusetts ($65 million) &
the most expensive elementary school on a per student basis (almost $87,000 per student)

----------
ARPS already has some of the most expensive school districts in the state, both in terms of total per student costs (over $20,000 per student) & costs of the administration as a percentage of the budget.

& it is disappointing that even with all this spending, our students don't rank anywhere near the top in the state in terms of the education they are receiving (by some metrics, it's quite the opposite). & more & more students & families continue to leave the Amherst schools. An expensive new building will not by itself solve much of what ails the Amherst schools currently. Major other changes are needed.