Hoover City Tax Extension?
Last night we went to our daughter’s future school for information on enrollment for next year. We were extremely impressed, and are really looking forward to our daughter’s experience there.
During the presentation we were asked several times to vote for a tax extension on April 27th.
The tax extension will extend a property tax from 17 to 36 additional years, which will enable them to refinance debt that was originally used to build a substantial chunk of very advanced (and apparently effective) educational infrastructure. They talked about the cash flow, and that refinancing would free up 6 million dollars for new teachers, etc.
So it seemed like a great idea as presented, but this is not the freewheeling, borrowing times of the 1990′s or early 2000′s where debt was no big deal. As our effectively bankrupt county illustrates, refinancing debt can get a municipal governments in a heap of trouble. The City of Hoover is obviously a tighter ship than the county, but it’s still a dangerous world for governments and debt.
There are plenty of things a government can do to raise cash and hire teachers. But are they all good things? I wanted to find out exactly what the numbers were with this refinancing. Are we being asked to make great short term choices at the expense of long term flexibility? Or is the rate environment so favorable that this is a no-brainer? Are we shoveling more debt on future residents or is it a wash?
Unfortunately there’s not much of information out there. The only number you see consistently is the increased cash flow (approximately 6 million dollars per year), and that’s troubling. In the world of debt you can easily make a boneheaded long term decision for increased cash flow.
The only numbers I saw were these from this article:
The school system spends about $16 million per year making payments on that debt. On a per-student basis, Hoover schools spend more on debt service than any other system in the state, Craig said.
The school system’s debt now is scheduled to be paid off in 17 years. With an extension of the 24-mill tax, the system could stretch out that debt over a 30-year term, lowering payments to an estimated $10 million to $13 million per year during tough financial times.
(first of all, that 10-13 million dollar figure illustrates some spin of the message. It looks like saving 6 million per year is the high estimate and 3 million is the conservative estimate).
Other than the sample ballot, I can’t find any further info on the tax at the hoover web site.
Using this info as a blunt estimator, the cost of refinancing is as follows:
Current total payments (17 years X 16 million) = 272 million dollars
Optimistic extension estimate (30 years X 10 millioin) = 300 million dollars
Conservative extension estimate (30 years X 13 million) = 370 million dollars
So there you have it….extending this debt will cost anywhere from 28 million more dollars to 98 million more dollars over the term. Assuming this info as presented is reliable.
One thing should be clear, the city wouldn’t be saving any money. They’d be lowering the payments.
The problem I have is that this is a pretty broad range of figures. And it’s a large amount of additional money at the conservative end of the estimate. I’m also not comfortable with the presented 6 million figure (which seems variable), since we really don’t know what the final cash flow will be.
Lastly, the assertion that the money will be used for teachers is questionable…it’s my understanding that the money can be used for anything the city wants. As I said, we were very impressed with the school and staff and clearly we should give them every tool we can to educate our chillun’s.
But are we taking tools away from future generations with this decision? I realize dumping junk on future generations is the American way, but if that’s what we’re doing we should at least know how and how much before we vote.
I guess this is just a large amount of money to be throwing around in a small municipal vote during a severe recession. It could have significant implications down the road, and I don’t think we’re being given complete information. We see the catastrophic results that can occur. I hope this choice is being made in an intelligent way.