Last week in Part I, I took issue with the board’s tentative decision to fund parts two of Imagine OPRF’s sequences entirely with existing cash, totally about $53 million. No one ever does that — it leaves the generation that will benefit from these new facilities entirely off the hook from paying for any of what they will use. Yet it makes no sense to borrow when the district has outrageously high balances from past over-taxation.
My solution: A “Tax Swap.” For every dollar borrowed, reduce taxes temporarily by the same amount — $53 million can be done in two years, under the way the county sends out “estimates.” The deal can be enforced by having board members place large amounts of their personal funds in escrow, payable to the Red Cross if they fail to reduce taxes after the voters allow the bonds. If the board members live up to their pledge, they get their money back. If the voters fail to approve the bonds, the board members also get their escrow money back. There’s no risk if people are honest.
Let me answer some questions, which naturally arise:
What about interest? Yes, there will be interest, and under normal circumstances there always would have been. The only reason there would be no interest under the board’s scheme is that it expropriated the taxpayers’ money starting circa 2006. We should look at this as a system, counting the taxpayers as part of the group being served. They could have $32.6 million back in their pockets in the first stage, to invest or spend as they please. That’s the offset, and that’s the opportunity cost we’ve been ignoring.
Why return taxes only to re-tax later? It’s two different sets of people, and two different time horizons: It’s matching costs and benefits, and paying attention to inter-generational equity. I’m simply suggesting that we undo the past exploitation, and restore things to what normally would have happened.
What about the $20 million that was already transferred to the Capital Projects Fund? That money is not allowed to be transferred back, but a simulated transfer can be made: Sell $20 million in Working Cash bonds (under the Escrow Safety feature), loan the Education fund that money and forgive the loan, and lower taxes by $20 million. That has the same final effect as bonding the expenses.
What about the CPI adjustment loss during a year of tax reduction? That’s not real money in terms of the community since it can be regained, if needed, in the next operating referendum. In any case, look at it as another temporary tax reduction.
District 200 gets the money it wants, the taxpayers get much of their money back, and the people who will benefit get to chip in. What’s not to like?
In Part III, I will address some additional concerns, and suggest how the school can get its financial house in order for the future.
Kevin Peppard has an MBA in Finance from the University of Michigan. He actually once had a friend from Ohio State.