Lindbergh School District officials project a nearly $1.17 million loss in operating revenue for the 2009-2010 school year as a result of the revised assessed value of commercial real estate within the district.
Chief Financial Officer Pat Lanane told Board of Education members last week the assessed value of commercial real estate fell more than 10 percent from March.
The timing couldn’t be worse, he said, noting the board voted last month to adopt a 2009-2010 operating budget that projected a deficit of $3 million.
On March 10, commercial real estate within the district was assessed at slightly more than $432 million, 18.8 percent more than the previous year. But Lanane said the commercial valuation dropped to roughly $387.5 million July 1, a 10.33-percent decrease from the $432 million projected in March. While the majority of local taxing districts can roll up their tax rate through the Hancock Amendment to regain lost property-tax revenue, Lindbergh cannot roll up its operating tax rate be-cause it’s set at $2.75 per $100 of assessed valuation — the state minimum.
“… It’s really bad news for Lindbergh,” Lanane said. “Other districts, other than Ladue, will not have the problem that we have. They will simply be able to roll up their commercial tax rate, and I suspect all of them will do that. We do not have that luxury …”
Of the March projection for the assessed value of commercial real estate, Lanane said, “… That was a pretty nice increase in that and then that offset the very large decrease in terms of dollars in the residential (assessment). I mean quite frankly the residents of the Lindbergh School District will see a decrease in their property tax. Many other districts will roll up that loss and they won’t see it. But in Lindbergh, they will see that. So we needed an offset to that, and we got it in the form of an increase in our commercial real-estate assessment.
“But low and behold, in the middle of this past week, we get notices that: ‘Well, those figures were incorrect, and now we’re dropping that assessment by $44 million in assessed value, which is a 10-percent reduction from their (county officials’) original March number. Well, the timing couldn’t be worse. We’ve had our budget workshops. We’ve adopted a budget for next year. We’ve contracted with our teachers … We’ve never had a drop like that …”
The financial impact of the drop in commercial valuation is “huge,” he said.
“… In terms of the operating levy, that’s a loss of $1,169,089,” Lanane told the board July 21. “That’s just huge. It’s almost beyond imagination that we could have a change that quickly from the numbers in March, and we count on those numbers … We absolutely live and die by those numbers. So are they telling us we can no longer trust the numbers that we’re going to get every March? If that’s the case, I’m not quite sure what to do. It really has me thinking: Do you underestimate it just beyond reason? … That’s what you would have had to have done to get anywhere near this number …”
In the past, the numbers have changed slightly, he said.
“But that’s never happened like that. Is it a result somewhat of the recession? Absolutely. But again, we have to have a number — we meaning the administration — when working with you all, the board, that we can all trust. So I haven’t resolved that question in all of this yet …,” he said.
The chief financial officer said provisions in Senate Bill 711, adopted by the Legislature last year, were the reason why the change in the commercial valuation was so dramatic. The bill’s provisions closed tax-increase loopholes, required earlier notice with more information and expanded tax relief for seniors and the disabled.
“… The problem is the timing of all of this, and the timing changed this year because of Senate Bill 711,” Lanane said. “These financial bills that are passed are often good things in theory, but sometimes in the nuts and bolts of it there are changes that really do not work very well …”
Based on his conversation with St. Louis County Director of Revenue Eugene Leung that day, Lanane told board members the earlier notification provision is what caused the problem. In the past, the commercial valuation number was provided to the district in late May, he said, noting SB 711 requires that number to be provided in March. To do so, he said, numbers from the third quarter of last year were used instead of the fourth quarter.
“… In between that time that they had that third-quarter 2008 information in March and now in July they have the fourth-quarter information … The Missouri Growth Association provided them a lot of information on things like income-to-expense ratios. Part of the assessment for commercial property is based on income, what it produces, and we all know that has fallen through the floor …,” Lanane said.
“… So basically, Mr. Leung’s explanation to me is it’s the difference between the third-quarter 2008 numbers and the fourth quarter. I have no way — I have to accept that explanation. There’s no way for me to independently know all those pieces …,” he said.
Cognizant of the financial difficulty residents and businesses currently are experiencing, district officials pledged last November not to seek a tax-rate increase for at least 24 months. Though Lindbergh also faces financial challenges as a result of the current economic recession, the district’s reserves of roughly $24.6 million are the reason why the situation is not a crisis at this point. The district’s long-range financial plan calls for a planned spend down of those reserves with a deficit-spending cap of $3 million per year.
However, the projected deficit for 2009-2010 now could range from $4.1 million to $4.5 million as a result of the drop in commercial valuation, Lanane said, noting the $3 million deficit was reached by making more than $2 million in reductions for the 2009-2010 school year.
“… The problem that we have is that we went through the budget process. We made $2 million in reductions. We didn’t know it needed to be $3 million, and so at this point, we have to look at what we can do …,” Lanane said. “We have to look at adjusting our financial plan …”
He later said, “… Obviously, we’ll be looking at ways to try to make reductions, but as I sit here today after going through our budget and literally at times, the blood, sweat and tears of reducing $2 million, I don’t know where I tell you to begin on finding another million (dollars) now that contracts are set and we have commitments in place.
“The system under Senate Bill 711 is broken. There’s going to need to be a fix for that … We’ll be talking to all our legislators to let them know that there’s a definite problem with the bill that needs to be addressed because we have to have numbers from the collector of revenue that we can trust whether it’s March — I don’t really absolutely have to have it in March. I can wait until April, even May again if that would help. So we have some flexibility on our part. I don’t want early numbers if they’re bad numbers …”
In his conversation with Leung, Lanane said the director of revenue expressed his concerns about further declines in commercial valuation next year.
“… It is really just some of the worst financial news I could have imagined getting at this point in the year,” he said.
Board President Ken Fey said to Lanane, “I know it was agonizing this time and we cut out $2 million, but I will have to ask you to do your due diligence and you will have to go back and I want you to look at every line item again, and I would like a report back to the board on if there’s any possibility anyplace of saving any money because any way we can chip away at $4.1 million is going to help. And then all I can say is this is going to be horrible for next year …”
Lanane interjected, “It really will be.”
Fey continued, “If we thought the cuts that we did this year (were bad), this is going to be very, very unpleasant next year.”
Noting the district will seek a tax-rate increase at some point in the future, possibly 2012, Lanane suggested board members give some thought to placing a Proposition C rollback waiver before voters, perhaps this November.
Proposition C is a 1-cent statewide sales tax dedicated to education funding. Half of the revenue collected is divided among the state’s public school districts and the other half is returned to taxpayers in the form of a property-tax rollback unless district voters have approved a waiver of that rollback. However, because Lindbergh’s current operational tax rate is the state-required minimum of $2.75 per $100 of assessed valuation, voter approval of the Proposition C rollback waiver would not have any financial impact at this time.
“… We’re going to talk a lot more about what that means, but it really means in the simplest sense that when we do have the need — and we’ve already said we really can’t think about even going to the voters in this next year — but at that time when we go to the voters, it means we’ll only have to ask them for the amount of tax-levy increase that we really need,” Lanane said. “Right now, Prop C would cause us to ask for — this last tax here would have been 16 cents more than we really would ever get the benefit from because it would go on and immediately be rolled back …”
During an interview with the Call, Superintendent Jim Simpson said Lindbergh officials were “taken aback” by the change in the district’s commercial valuation.
“We were knocked off our seat with those. This is something unprecedented for us,” he said. “We build our budget based on numbers that aren’t supposed to wildly change — and yes, a little bit of up or down, a half percent this way or that, yes — but this idea of a double-digit nosedive is so destructive for school budgets, incredibly destructive for school budgets, that we are certainly taken aback by this … $1.2 million vaporized; $44 million of our tax base vaporized and we’re going to have to — well, we’re just going to have to go through more pain because of that, more downsizing pain.”
Board members and administrators believed the goal of a $3 million deficit was reached after $2 million in reductions were approved with the adoption of the 2009-2010 budget, Simpson said.
“… Now we’re at a $4.2 million deficit. We’re going to have to do more pain and find a way to stabilize back to $3 million …,” he said. “One of the things about school downsizing … it’s not a good mid-year thing. To do that effectively and humanely, you need to do that in early spring and really have all that in place then when your new (school) year starts. Once you get all your staff in place, you get all bus routes in place, you get all your supplies ordered, you get all of this in place, it’s very difficult to undo that and cut some of that out, especially after you’re already done $2 million …
“I don’t think we can find $1.2 million in the middle of the year. I just don’t think so. We’re going to try to find as much of that as we can, every little bit helps. But I think most of that’s going to have to be shifted to the 2010-2011 budget,” Simpson said.
For the 2009-2010 school year, he said, “… That would force us to dip more into reserves (beyond the goal of $3 million) …”
