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D86's Flat Levy Shows 'Fiscal Responsibility': Letter

A letter to the editor from Clarendon Hills resident Stephen Paul Weiland supports District 86's to-be-finalized flat levy.

Patch file graphic
Patch file graphic

The following letter was submitted to Patch by Stephen Paul Weiland of Clarendon Hills:

Over the past few weeks, I have read and listened to the arguments and unjustified personal attacks from those against the District 86 flat tax levy.  In this letter, I have taken the liberty to summarize (imperfectly, I’m sure) their arguments into six main points, which I then address in turn. In my opinion, their arguments use the worn tactics of fear and misinformation—typical among the “tax-and-spend” crowd—and purposely avoid engaging in civil debate. It is quick and easy to appeal to the masses with fear and emotion, seeking to tarnish the good name of this district’s citizens with conservative views on spending and education. To engage in fact-based, analytical argument is more time consuming and lengthy, so I apologize in advance for this lengthy note.

Before diving in, I think it worthwhile to establish a high-level, baseline understanding of D86’s financial condition, as I have come to understand it over the last few days while forming my opinions regarding this issue.  I implore you to please consider/explore the following, before forming yours as well:

  • D86’s most recent treasurer’s report, which I found here. The balance sheet (p. 3) and time analysis of reserve balance (p. 17) are particularly illuminating.  We have $64.6 million in reserves as at Oct. 31, and at no point over the last four years have we dipped below approximately $25 million in reserves (reflecting the tax June/September collection vs. more steady expense cycle). The reserve balance is earning something like a paltry 0.25 percent. Page 17 also illustrates that for each respective month of this fiscal year, D86 has set a monthly all-time high in its reserve versus each corresponding month over the last five fiscal years.
  • In addition, there is currently about $22 million of bonds at 3.5 percent interest rate (not reported in the interim, but can be found in the annual report). Important observation: we are paying banks 3.5 percent interest on $22 million while we are only earning 0.25 percent on a substantial cash position. Unfortunately, the bonds aren’t callable.
  • According to district consultant PMA Financial Network, D86 ran an approximate $1.9 million surplus in FY13 (June 30), a net increase to reserves. A $1.4 million surplus is projected in the current FY14, and in FY15, with the flat tax levy, D86 still estimates generating over a $1.3 million surplus.
  • D86 has an additional approximate borrowing capacity of at least $30 million without a referendum in addition to using short-term tax anticipation warrants.  With referendum, I understand that the district can borrow at multiples of tax revenue.

The above takeaway is that D86 is in excellent financial position today to pay for anything it needs, has ample current liquidity, ready access to additional capital if needed, and at no point is expected to have less than TWENTY TWO MILLION dollars, according to PMA projections, through the cycle—all without additional tax levy.

OK, thanks for bearing with me. Now that we have that out of the way, let’s dive into fevered argument (the fun part). As mentioned previously, I will summarize and then respond to the opposition’s six main points regarding a flat levy:

1. A flat levy weakens the balance, leaving D86 financially vulnerable and unprepared for unforeseen events such as potential aid decline, pension reform, or the sky falling.

D86, as evidenced above, is in an enviable position of extreme financial strength.  At its lowest point in the year, D86 will still have at least $22 million in readily available, cash-on-hand reserves to fund any unforeseen needs or improvement opportunities. In addition, it can borrow an additional $30 million before access to many more millions through referendum. Why should taxpayers use a municipal school district as a savings vehicle (earning only 0.25 percent) when it is already on sound footing with ready access to capital? If we don’t need the money now and can get more in the unlikely event that it is needed, then why take it now? Government entities, condo boards, and even corporate bank accounts are not savings vehicles for citizens or investors. Excess cash is best held by the individual, whether the individual is the tax payer or the stock holder. This is sound finance theory, and tax-and-spenders like to make folks think that there should be a different set of rules—it’s a smoke screen.

For example, lets imagine (and it does take some imagination) that in a few years’ time D86 requires extraordinary funding from the tax base. Would you have rather had D86 sit on your money for few years earing only 0.25 percent or would you rather have directed its use—invested, spent, whatever? We aren’t going anywhere, so why accelerate payment for future unknowns?

2. A sub CPI tax levy increase necessitates sacrifice (i.e. cuts).

Can I ask why? If I had savings of $1,000 at the beginning of the year and earned $50 over its course, can I not still spend $60 without sacrifice? But wait, we aren’t even in that scenario. Remember, the budget forecasts over a $1 million surplus with a flat levy. To make it more interesting, let’s assume (though unlikely) that the forecast is materially incorrect and instead of a $1 million surplus, we run a $1 million deficit. Guess what? We still have a $22 million cash cushion at the lowest point in the cycle. In addition, specifically what sacrifices or cuts is the opposition concerned about? My understanding is that proponents of the flat levy believe none to be required. Are our elected volunteers and neighbors so evil, that they can’t be trusted?

In addition, why do people think that CPI is some sort of magical number that actually represents every reality? Doesn’t basing an argument around CPI presuppose that the CPI is an actual reflection of the increased cost of D86 conducting its business? (Let’s also not forget the surpluses and enormous reserve.) This isn’t a fact, and to the contrary, many people think CPI is not the best measure, and it certainly is not a one-size-fits-all measure. CPI is supposed to represent the average change over time in the prices paid by consumers for a market basket of goods and services. Is D86 an individual consumer of retail goods and services, or is it a sophisticated, large organization with purchasing and negotiating power? In other words, it is not a price-taking human consumer.

3. No one else is doing it, so why should we?

The frequency and strength with which this argument is used is matched only by its emptiness. I prefer to call this the lemming argument. If my son told me that “John’s parents let him watch R-rated movies, so you should let me too,” wouldn’t the appropriate (and very apt) response be, “If John jumped off a cliff, should you as well?” We are jumping off a cliff, a fiscal cliff. And yes, everyone is doing it, but that doesn’t mean it’s the correct answer. It takes bravery and conviction to stand apart from the crowd. Who knew, the world was round after all, I guess that guy wasn’t so crazy!

4. A flat levy is an irresponsible decision that threatens the value of our homes.

I agree that the value of our homes is extremely important. For many people, the home represents the family’s most significant investment. However, if there is one thing that impacts the value of our homes (whether residents have children in D86 or not, our officials represent them too), it’s increased taxes. Increased taxes have a multiplicative negative impact on home values. All else being equal, higher-taxed districts have lower property values. The present value of increased taxes is negatively priced into the home value. This is fact. Trust me, people will still want to move to Hinsdale with a flat levy, and I would argue, even more so.

It still remains to be shown how not taking unneeded money when D86 is already adequately financed and with ample reserves will cause the quality of D86 instruction and student outcomes to suffer. There is no iron-clad correlation between increasing spending and increasing student outcomes. In fact, the exact opposite trend is well documented over the last two decades.

I know what we can do to increase our property value—we can build 10 new fire and police stations in D86. Maybe even one on every block? Sure, it will cost a little money, but we will be safer and many lives will be saved. Our property values will skyrocket! If we don’t do it, think of all the scary bad things that might happen.  Sound familiar? The unfortunate reality in a world and economy of limited resources is that every public and private good or service—whether your currency is a U.S. dollar or a bag of rice—has a value, cost, tradeoff, etc. Yes, extra fire stations save lives, but there is a very real financial and opportunity cost. We are talking about education here, but every day governments, insurance companies, car manufacturers, etc., put actual dollar values on actual human life. We have to put prices and measurements around education, like everything else. We don’t have a money tree or bottomless well. More, more, more has to stop. This is responsible decision making. 

5. A flat levy is unfair to the middle class, because it depends upon public schools, while the wealthy have options.

First, let’s return to planet earth—D86 is not middle class. (I strongly dislike that terminology, by the way, as I have a goodly number of the classiest friends and family of humble financial means). I note 2009 data indicating that D86 median household income is ranked 54th out of 871 Illinois school districts. Numbers 55 through 871 think us to be wealthy, and we are wealthy (we being the statistical median that is). We're wealthy in many ways other than income, as well. Rich people who want to be richer, or who are trying to keep up with the Joneses, think of themselves as middle class here. We have options and we choose D86 because of its excellence. One who always wants more never feels full.

This argument also makes a subtle presumption that the wealthy have options because they can send their children to private school, which presumably costs more (because it spends more) and therefore must be higher quality. The argument again sneaks in the idea that spending more always results in better education. Well, perhaps it results in a fancier, navy blazer education, but better? The jury is definitely still out on this. A Range Rover certainly costs more than a Toyota Land Cruiser, but most explorers trust the Toyota to drive them into the jungle.

In addition, many studies also show that public schools spend more per pupil, not less, than private schools. For example, a CATO study analyzed public versus private school spending for the five largest U.S. metro areas and D.C.  It found that in the areas studied, public schools are spending 93 percent more than the estimated median private school. I also noted a Wall Street Journal analysis that analyzed public school spending and outcomes for 2008 versus 1975. While funding more than doubled, the WSJ found that just about every measure of education outcomes remained stagnant since 1975, NAEP scores remained flat since the mid 1970s, and high school graduation rates barely moved. While I’m confident that anyone can find a statistic or report to support an opinion (and I’m sure tax-and-spenders start rolling their eyes when they hear CATO and WSJ), the point that I’m trying to make is that at a minimum, the jury is still out. The idea that more spending equals better outcomes is not a fact. Why can’t we have real debate here versus rhetoric and scare tactics?

6. Implies a lack of community support and hurts our standing versus other districts (i.e. New Trier).

If my daughters asks for a raise in their allowance, which I don’t provide, do I not still love and support them just as much as I did before (especially if they have a generous savings account)? If employees are denied raises that are not supported by the overall economic environment, the company’s earnings, or improved performance outcomes, does it mean that the employer doesn’t support and value them? Quite to the contrary, this level of debate and personal investment indicates a strong level of community support for D86 and its excellent educators. Apathy is indicative of a lack of support. My wife tells me I’m fat because she loves me (please don’t tell her I recognize that).

And again, our courageous board members are not trying to cut back on D86.  What I hear is that we have enough money already and we just don’t need any more to achieve the mission. See again the $1.9 million surplus last year, $1.4 million surplus this year, and exceptionally strong reserves, liquidity, and access to additional capital.

Also, who cares about New Trier? If you want your children to go to New Trier, then move to the North Shore—there are plenty of neighborhoods and towns to choose from that feed into it. I grew up on the North Shore, but I chose to move here with my family because it wasn’t for us. I don’t want D86 to be like New Trier. I want it to be different and better on our terms, the way that we define it. We should care about being the best we can be in our individual ways, and not worry about what the Joneses are doing. Sure, comparisons are useful management tools, but why the fixation? Again, no one is talking about cuts here, simply not taking money that isn’t needed. It’s a HUGE difference.

I ask, what is the end game for those in opposition to fiscal responsibility and in favor of “never leaving anything on the table?” Is it to always take as much as one can, to increase taxes anytime one has the opportunity to exclusion of all else? Is it a wise practice to always take as much as one can here or in any other aspect of life? When is enough, enough? Fiscal responsibility to the taxpayer can co-exist with educational excellence.

Check out other letters to the editor on the District 86 flat levy:

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