School Levy Discussion

My view:  The Beavercreek School District's history over the past several years of excellent academic performance combined with excellent fiscal responsibility speaks for itself.

• Of Ohio's 611 public school districts, 74 earned the state department of education's highest rating ("Excellent With Distinction") for the 2007-2008 school year.  Of those 74, Beavercreek is one of only 32 which also earned the highest possible ratings in each of the seven previous years.
• The district significantly improved its financial credit rating, enabling it to refinance the remaining debt on the 1995 construction bond at a lower interest rate, directly reducing both the short-term and long-term taxpayer costs for that bond.
• The district spent significantly less per student, with a higher proportion spent on direct education and a lower proportion spent on administration, than local and state averages.
• The district kept total spending below total income with no changes to operating levies since 2003, even though student enrollment has continually increased.  (Sooner or later, of course, it will be impossible to continue serving a growing population without also increasing income, and an additional operating levy will be required.  Tax laws prevent existing levy income from keeping pace with growth in student enrollment.)
• Click here for a table comparing 13 Dayton-area school districts.

Income Tax Discussion

My view:  The concept of replacing city property tax levies with a city income tax is a good one, because (if implemented with wisdom and simplicity) it would lower the total tax burden on most Beavercreek residents and still increase the quantity and stability of the city's revenue stream.  But it's politically unlikely because many people assume anything with the word "tax" in it is a sign of government mismanagement or will cost them more money, and because for one segment of Beavercreek residents (those who work in Beavercreek or on Wright-Patterson) it probably actually *would* cost them more money.

Having different rules for different groups inevitably creates inequities in how the members of those groups are treated.  Right now Beavercreek's tax rules are different from those in any of the surrounding cities--and that causes inequities between Beavercreek and the other cities, and between Beavercreek residents who work in any other city and those who work here in town or at WPAFB.

• Beavercreek as a city gets the short end of the stick, because many of our residents pay local income taxes to surrounding cities but no residents of other cities pay local income tax to Beavercreek.  The other cities are getting a good deal, because they collect income taxes from Beavercreek residents and from their own residents who work in Beavercreek.

• Everyone who pays property tax in Beavercreek, either directly or through their rental payments, pays extra to make up for the tax revenue not collected from residents of other cities.

• Beavercreek residents who work in any surrounding city get the worst deal of all, because they pay that city's income tax and Beavercreek's higher property taxes.

• Beavercreek residents who work in town or on Wright-Patterson have been getting a good deal, since they pay no local income tax.  They still have to pay Beavercreek's higher property taxes, but since all the other residents are paying those taxes also, many don't have to pay as much as they save on income tax.  (For the record, I am in this category).

If Beavercreek adopts an income tax, it would eliminate those inequities.  If you're currently one of the people getting a bad deal, you'd be better off.  If you're currently getting the good deal, you could be worse off.

• If you live in Beavercreek and are retired, work in a city with an income tax, or are in the military, a Beavercreek city income tax would cost you zero additional dollars and lower your property tax bill.
• If you live in Beavercreek and work in town or on Wright-Patterson as a civilian or contractor, a Beavercreek city income tax would cost you 1.5% of your earned income and lower your property tax bill.  Your income tax bill would likely be higher than the amount you save on property taxes, depending on your income and the value of your property.

My questions:  Do people who oppose the concept of a city income tax believe that the inequities discussed above do not exist?  Or that they exist, but aren't serious enough to need to be resolved?
 
I support the concept, but believe there needs to be careful debate and complete public visibility over the details of how the concept would be implemented:

• What would be the actual wording of the tax ordinance?
• How exactly would the dollar value of income taxes collected compare to the dollar value of property taxes reduced?  
• What is the specific procedure by which property taxes would be reduced? 
• How exactly would income tax revenues be allocated between the various city obligations (streets, police, etc.)?
• What specific procedures would the ordinance require of city officials, concerning public visibility and accountability over budgeting and spending income tax revenues?
• How specifically would an individual report his or her earned income, without being required to report investment income, pensions, Social Security, 401(k) or IRA distributions, military pay, or any other exempted category of revenue?
• For individuals who are already paying local earned income taxes to another community, what would guarantee their ability to have their Beavercreek income tax withholding set to zero, so they wouldn't have to wait for a refund of what should never have been collected in the first place?

My bottom line:  I opposed the concept when I first heard about it, then came to see that it could actually have some real benefits (click here for a detailed discussion).  If city leaders ever decide to advocate for replacing property taxes with a local income tax, and develop (with lots of public review) a good ordinance that answers the concerns listed above and contains no self-serving or special-interest provisions, I'd support it as a good thing for the city and for most residents.

My view:  Local governments, school officials, or any other organization using public funds must demonstrate good management backed by public visibility over budgeting decisions, spending decisions, and assessments of how well the organization provided the expected levels of service.

In most public organizations, just as in most personal households, the vast majority of expenses are required for routine, recurring obligations, and are very constant and predictable.  They're costs of doing business, and aside from the managers' responsibility to minimize costs over the long term, they're largely beyond the control of the organization.

• For example, the city can choose where, when, and how to maintain the streets, but cannot choose whether to maintain them (assuming that voters want the streets to generally be in decent condition year after year).  The school district can choose when to replace textbooks and when to replace school buses, but cannot choose whether to do so.  There is almost always a very predictable life cycle for these kinds of things, with a reasonable and predictable way to optimize the service life of the asset and minimize the life cycle cost, and it usually involves continual routine maintenance and an ongoing, phased replacement schedule.  Public officials should plan for, budget for, and carry out that kind of thing, with full public documentation of the life-cycle cost analyses underlying their plans and budget requests--and the public should require them to do so, and be willing to pay for it.

• Costs of fuel, heating, cooling, water, sewer, trash removal, insurance, and so on are just as large a part of a public organization's budget as they are of your personal budget, and they are just as difficult to control.  Public officials should negotiate with suppliers to the extent allowed by law and market forces, and should include these types of costs in all decisions about long-term capital investments in more-efficient equipment or better-designed facilities.  The public should require them to do so, and understand that in the short term those costs are almost always must-pay bills.

• Costs of labor make up another big chunk of any organization's budget, and again the organization has only partial control over it.  Public officials should limit hiring to only those positions truly required, and should work to keep costs in line with the desired level of performance.  The public should require them to do so, and understand that collective-bargaining agreements, state-mandated student-teacher ratios, market forces, and other external constraints limit the organization's control.

Discretionary expenses usually cost only a small fraction of the total budget, but generate most of the controversy.  Personal household budgets often work the same way:  There's likely not much debate about whether to pay housing, utility, insurance, and grocery bills, which may add up to thousands of dollars every month, but spending the last $50 on a new power tool instead of a nice dinner out might generate some real discussion.

A public organization's periodic budget development and spending reviews should be detailed and accessible to the public.  Reviews should include assessments of how well the organization provided the expected levels of service, and of any external events which caused expenses to be significantly above or below the planned amount.  Financial data should be presented in comparison to planned life-cycle cost benchmarks, and in comparison to appropriate benchmark data from other cities, and in comparison to past Beavercreek data.  For recurring, predictable requirements, as long as satisfactory service is provided within the budgeted cost I would not expect much controversy.  For any discretionary use of public funds, I would expect a rigorous internal review and approval process backed by clear and publicly visible accounting.