Now that we have a formal proposal for the new Pulaski County Middle School, I thought it was time to explain some of the numbers and try to address some of the common questions I’ve heard about the school.
First, it’s important to understand the financing arrangement that the School Board has recommended to the Board of Supervisors. Currently, Pulaski County spends about $3 million dollars a year to service outstanding school debt (construction bonds for Pulaski and Riverlawn Elementary, plus renovation/refinancing for the other elementary schools and high school). The School board has recommended a wrapped debt service instead of a level one. A Wrapped Debt Service means that the funds from the $.08/$100 tax increase should first be applied to paying down the outstanding debt while only using minimum funds to pay off the middle school bonds, instead of simply paying off our debts at the same rate under the Level model (like a normal car or house payment). That will dramatically decrease the interest paid on the current bonds, while slightly increasing the debt paid on the middle school bonds ($66 million vs. $72 million on a twenty year term). Overall, it’s essentially as if we are re-financing all of our debt and paying off our smaller debts first which should mean a much smaller tax increase for everyone.
Second, what does this mean for the local property owners here in Pulaski County? For those whose homes are around the median assessed value (I’ve heard anywhere from $120,000 to $140,000) an $.08 increase in tax rate means approximately an additional $96-112 per year. For me personally, its about $100 per year based upon current assessments. Note that for those whose agricultural lands are part of the land use program, that means an additional $0.42 per acre of land owned (since currently the land use value is set at $520). Our largest landowner, Randall Kirk, will be charged an additional $1,100 for his 2,610 acres in the program. A more modest landowner, like Mr. Charles Bopp, will pay an additional $70.56 for his 168 acres. In addition, Pulaski County provides tax relief in the form of a reduction in assessed value for those above 65, or permanently disabled, and whose income is below $25,000, and whose liquid assets are below $55,000. Therefore, the tax increase will be less for those groups.
Third, I’ve read and heard a lot of questions about funding options and several other issues related to the middle school. I’ll try to address a few of the most heard here, but if there are any other questions in the comments I’ll try to answer those as well, either through my own research or by reaching out to the various bodies (County, School Board, etc.) that may have the specific information.
What are the next steps in the process?
The School Board’s proposal is sent to the Board of Supervisors, who then have two options. One, vote to approve the proposal, increase taxes for next year, begin the process of issuing the bonds and put out the proposal for bidding by construction contractors which could happen in the fall. That’s right, the Board of Supervisors has all of the authority to do that without a referendum. In fact, it would likely save us money since interest rates are steadily increasing and will continue to do so in 2018 and 2019. The second and more likely option, is for the Board of Supervisors to put the proposal on a referendum during the November general election. That means we could be looking at an additional six months of time during which interest rates could increase by up to .75% (and thus costing us all more money in interest).
Why does the middle school have to be financed through a property tax increase? Technically speaking, the County could finance the middle school through any number of means. All local tax revenue is pooled into the general fund and the County may spend it on almost anything it desires. Local Real Estate taxes make up about $25 million out of about $35 million in locally controlled funding (the rest is from various use and consumption taxes i.e. meals, sales, etc). The County has previously requested the revenues from taxes on cigarettes, but those are sent to the State treasury. Most of the remaining $53 million in funding that makes up the County’s budget is required to be spent on things like schools, social services, and capital improvements according to the state and federal laws which provide those funds. The Board of Supervisors could use other funds to pay for the bonds, but that would require substantial cuts to other programs or tax relief programs. The Board of Supervisors can only impose taxes on specific areas which have been identified by the General Assembly, thus any suggestion of a “school fee” would be illegal in Virginia. Simply put, real estate taxes are the largest single source of revenue that the County actually has any control over.
Will the County reduce the tax after the school bond is paid off?
The County is under no obligation to maintain the tax increase in any particular year, the proposal is merely a suggestion by the School Board of an amount that would cover the payments on the construction bond. If property taxes rise substantially at the next assessment, or a substantial number of additional homes are built, the County would be fiscally able to reduce the tax rate in any year. Some counties reassess property every year, my understanding is that Pulaski County engages in the process much less frequently. The County simply needs to ensure that the revenues cover our yearly expenditures. They could reduce taxes in 20 years, or opt to continue them in order to fund a capital improvement fund that would be applied to additional school renovations or construction. Again, if they approved the proposal now, there might be an attractive enough rate environment to put some money into the current $5.4 million backlog of capital projects for our schools (see page 7, excluding projects for the current Middle Schools). Over time, construction projects such as these only get more expensive.
I should note that the County is spending $419,000 on building upgrades to the County Administration building, which has $147,00 in new windows from 2012-14 compared to the original single-pane windows in both middle schools. I’ll be following up with some more information about how the County spends our tax dollars, when I get more information that I have requested pursuant to the Freedom of Information Act.
Here’s a Summary of the Financing options from the School Board Presentation Meeting.