Consolidation Financial Analysis

Since the last school board meeting, members of the AdvocateFHSD.org leadership team were able to meet with Rich Neumann of the Architectural firm Elevar to see the details of consolidation, and discuss the financial details of the consolidation plan with Andy Brossart, of the firm Bradley Payne, a registered Municipal Advisory firm with the SEC and the MSRB. 

​Following the meeting, the leadership team worked to collect questions from the community to pass along to the board, with the understanding that the board would review & work to facilitate a community forum, either virtual or in person, that they have not scheduled nor indicated they might schedule before the November board meeting planned for 11/16. 

The plan, which proposes to save the district money, reduce future levy millages and reduce the frequency of levies, indicates no reason to believe any of these claims are without significant risk if not completely unproven. The proposal also impacts every single student in the FHSD system through redistricting, reshuffling of grades to different sites, and transportation changes. In tonight’s blog, we’ll review the financial details. 

The plan as proposed will impact financial aspects of our district as well as students & staff and the community widely, tonight – because the content is so voluminous we will only address the financial impact as we analyzed it. 

The information provided below is based off of information shared mid-October, and, we recognize is likely to change with the final proposal expected this week or next. We also understand this is extremely complex, and to offer additional support to the community we will host a live Facebook Chat on Sunday, November 6th at 7:15pm to answer questions. 

Just Another Loan With New Debt to Service

The plan is complex, using the creation of a pseudo-municipal entity (New Community Authority) called an NCA allowed under Ohio Revised Code 349 to issue bonds, levy an income tax and potentially a sales tax inside the boundary of the current Anderson High School site. 

The NCA potentially enables the plan to avoid an auction, which would potentially invite other buyers or developers to engage, and in our opinion gives Elevar a distinct advantage over other potential competitors. Under ORC 349, the NCA is empowered to issue 37-yr bonds at current interest rates, which are the highest in 30 years. 

The responsibility for payment of the bonds would be shared between the future developers and the district. Andy Brossart of Bradley Payne advised the estimate (based on the plan we saw mid-October) for the annual service debt payment would be $9.6M, of which the district is responsible for $4.3M. The district’s portion of the payment would be generated through a Permanent Improvement fund of 1.87 mills (not yet approved by voters) and re-allocation of any savings the district might see from efficiencies, claimed to be between $1.5 and $3M. 

Devil in the Details

The NCA would issue bonds for $120M for building & renovations, and $24 to $42M of “other”

• $60M is planned for new building which would house the additional 9-12 graders, positioned in the current parking lot between THS and Mercer, eliminating parking in that area.
• $25M was noted as the funding required for the addition at Nagel, to house all 6th graders; this is the equivalent of adding an elementary school (Summit has 600 kids, for example)
• $15M was earmarked for updates to the stadium to hold up to 8,000 fans, including “club” type seats for paying Boosters. 
• $10M was estimated for updates to the theater and natatorium
• $8M additional classrooms at various elementary schools (may be eliminated from plan)

The “other” category is where we see the most financial risk for the district 

• $16.2M is incorporated to pay off the remaining value of AHS in our 2014-approved bond
  • This action extends the payoff by another 12 years and at an increased interest rate
  • Estimated payoff value is around $40M (assumes interest at 6% over 37 yrs)
• $4.0M is incorporated to delay the need for a levy, as we understand it
  • Loans for operating costs never suggest a solvent entity
  • Estimated payoff value is nearly $10M (assumes interest at 6% over 37 years)
• $4.8M is incorporated to cover the cost of interest on the bonds (referenced as COI @4%)
• $16.1M is incorporated to cover the cost of capital interest (referenced in the plan as CAPI)

What Are TIFs and How Would They Fund Consolidation?

TIF stands for Tax Increment Financing, and the World Bank website does a great job of explaining how a TIF  works in detail. For our purposes, one needs to know that the bonds issued need to have the debt service paid annually, and a portion of that debt service is to be paid by the revenue generated in the land designated inside the TIF boundary.  Slightly more than half of the debt service payment is intended to come from the TIF, the remainder must be paid for by the district. 

The TIF boundaries will be set by the township, following a vote by the school board. We were told the TIF boundaries would likely house a hotel, a potential medical facility, “high-end” one-bedroom and studio apartments or condominiums as well as retail all surrounding a common green-space or park as well where Anderson High School currently exists on just under 50 acres.  

As shared, the TIF intended to fund the $5.3 million debt service payment doesn’t have a lot of details.  

Below, we outline the sources that represents the funding for the payment of the debt service by the developer. 

• $1.1M to be raised via a 1% income tax on workers & residents in the TIF boundaries
• $144,000 to be raised via a 3% hotel tax
• $400,000 to be raised by some other tax (this wasn’t made clear)
• $20,000 from a sales tax for revenue generated at retail sites within TIF boundaries
• $1.5M from a source yet to be determined.  

Can We Trust These Assumptions?

We can’t subject any scrutiny to the $400,000 “other tax” or to the $1.5 million “yet to be determined” because there isn’t anything to analyze yet, but we evaluated the numbers – and they simply don’t stand up to reasonable scrutiny. The two we’ll get into detail on below are the TIF Funding on a 1% income tax within the NCA and a 3% hotel occupancy tax do not appear to produce the amount of money the plan says they will.  Both merit further inspection.   

The Hotel Assumption

A hotel has long been discussed, but to date, no commitments from any chains have been made, and, the trustees have reiterated over and over their desire is to see a hotel be positioned on or near the Kellogg avenue sites, for many appealing reasons to hotel chains and consumers alike. Proximity to a highway for one, and proximity to attractions like the racetrack and Coney Island and Riverbend make for a more appealing location. 

In order to achieve the stated $144K for the hotel tax, the site would need to generate $4.8M in annual room revenue.  Assuming a 100 room hotel operating at 65% capacity, the hotel would need to charge $202/night to reach that target.  $202/night for a hotel in Anderson when comparable nearby hotels in Milford and Eastgate charge around $120/night is unlikely, and if the Anderson hotel needed to be competitively priced to sell anything it would only generate $2.85 million in room rental revenue per year, yielding only $85,500 in tax, $60,000 short of its target.  For perspective, even if the hotel was 100% occupied from day one it would still be almost $13,000 short of its target.​

1% Payroll Tax

The other known component of the TIF is $1.1 million per year from the 1% payroll tax on employees and residents.  The plan shows 5 sources for this revenue: the hotel, the restaurants, bars and retail shops in the complex, the medical facility and the residents.  in order to generate the estimated $1.1M in TIF from income, we need nearly $110M in income – and the estimates we believe are unsupported by real data and fall short by 52%. 

• Hotel Income Tax – Industry data assumes 12% profitability and labor costs of 46% of operating costs, a hotel generating $2.85 million in revenue would have an estimated  total payroll of $1.2M and at 1% that would yield a tax of $11,540.   (Link to Township Hotel Study here for reference)
• Bars, Restaurants and Retail – We estimate this only achieves $22-23K in tax revenue. Assuming 12 bars and 12 retail sites, National statistics tell us the average bar and restaurant in the US does about $330K in annual revenue, we assumed $400K.  Average employment costs are about 30% of revenue meaning each bar will have a payroll of $120,000 or a total of $1,440,000.  At a 1% income tax that would then yield $14,400.  Assuming 12 small retail shops, each with $75,000 annual payrolls yields  $9000 in taxes. 
• Any Medical Facility – We assume that the medical facility generates twice as much as the hotel/bars/retail, resulting in $69,700 in taxes, requiring a $7M payroll 
• Resident Income Taxes – The new Vantage Apartment Complex already under construction a mile away on Five Mile Road that will not have a local income tax will have 224 new units. Average annual household income in Anderson is $138,168.  Assuming new apartments going into TIF boundary is the same as 5 mile, and they have 100% occupation and the same current average household income, total payroll would be $30,949,632 and yield $309,496 in income tax.   

Assumptions in Plan Don’t Hold Up

Generously, those sources only sum to $518,000,less than half of the $1.1 million shown by the architects of the plan. Combined with the estimated gap in the hotel tax, the known portions of the TIF look to be some $640,000 or 52% short, and since we don’t even know the planned sources of the almost $4 million of TIF funding, at a minimum we need to call to question the ability of the TIF to routinely deliver it’s part of the annual debt payment without other plans. 

The main reason that the previous effort to sell Anderson High School to a developer and rebuild it on Beech Acres property using a similar TIF was that the TIF could not produce nearly enough revenue to offset the borrowing costs of the new high school.  This proposed project, and the debt it proposes to take on, is much larger. 

How Would FHSD Cover the Rest?

The district is responsible for around 45% of the debt service, or $4.3M. Andy Brossart, the financial advisor working the numbers, advised the TIF will definitely not cover everything. The plan relies on a Permanent Improvement fund from the district being passed, and, projected operational and facilities savings that would be re-directed to pay the district’s portion of the service debt annually. 

What are PI Funds?

Permanent Improvement (PI) funds are levied the same way operating levies are for school districts, but these funds are dedicated to general school maintenance as outlined by Superintendent Hook in the October 19th board meeting. 

Today, the district would need to pass a levy to generate the 1.87 mills (generates around $3M in revenue) needed to pay the service debt. Taxpayer money sent to this PI would not be available to serve the needs of the district but instead would be dedicated to paying off a portion of the new debt.

Additional PI funding would still need to be levied to maintain the district’s buildings, and, the district still needs to generate $1.3-$1.5M to close the gap on it’s portion of the debt service.

Unproven Savings From Downsizing

Plan creators suggested that efficiencies created by consolidating two high schools and reducing the district by one  elementary school would generate around $1.5M in savings. This though, would not be felt in district finances, as those savings would be redirected to pay debt service.

The premise itself is also unproven, as there is no reason to believe fewer administrators would be needed for the same number of students if we are to sustain  reasonable workloads for administrators and safe practices for student to administrator ratios. 

In addition, we don’t significantly reduce the square footage of buildings when to execute the plan, we add on the equivalent of an elementary school building at Nagel to house 600+ 6th grade students and, an additional building plus a proposed skywalk at Turpin. 

The assumptions of savings simply do not align with reasonable educational practices, and, taking steps to execute the proposal in this way could put students at significant risk as well as make working environments unsustainable for staff. 

For these reasons, we do not believe the estimated savings are real nor reasonable to assume that they are practical to implement nor based on a safety-focused construct. 

What Else Will Impact Financials?

The proposed plan showed a construction site at both Nagel and THS, which impacts the community significantly, and, likely would require additional busing for all middle-school and high school students. Gas prices are up, the cost of bus maintenance and replacement is also a significant source of cost for the district, and requiring fewer individual drivers and more buses hits the district hard. 

What’s Next?

As we offer in our next blog post a summary of the construction plan, we can explain in more detail, but we hope you’ll all reach out to the board first, to share your thoughts at board@foresthills.edu, and our trustees to let them know what your thoughts are on this plan, as they too will be involved if the school board plans to proceed. 

We hope you’ll stay connected and share this information with other residents, who may not even yet be aware that this is nearing a deadline for a decision to be made, in November or mid-December at the latest. 

As always thank you for Advocating with us for district excellence!