Tough email 1

I have been challenged in some recent email. Here is one email with my reply. My comments are Bolded:

You’re the numbers man! This is why more people should be listening to you!

So, another way to word the question: Why sell a valuable asset to pay for operational expenses, when the land isn’t going to depreciate and is subject to rises and falls in market value?

The land costs us nothing but an empty building costs $170 grand a year to maintain. It will cost either a buyer or us, the seller, to demolish it as it is only useful as a school. That could be up to $2 million.

When I served on the Board before I learned we had scads of land from the baby boom days that had been acquired, often through tax forfeiture, that we held in reserve for future building of schools. That land cost us nothing.

But remember, the Red Plan financing was based in part on selling old schools. We were to raise $23 million to offset bonding expenses. So far we’ve sold $3 million leaving us $20 million short.

Worse, we predicated our spending on savings of $5 million a year. That has been a fantasy. So we are supposed to be realizing savings and selling off old buildings to pay for the bonds and it ain’t happening. Something has got to give and so far that something is big classes and fewer courses.

Sure we could sit on the land but we are being sat on by heavy duty bond repayments. We don’t have the luxury I enjoyed as a Board member before the Red Plan was adopted.

Nobody sells their land to pay their daily expenses. That’s what I was getting at. You’ve got the best land in the city. Why sell such a valuable asset to pay operational expenses when that money is simply going to be poured through the existing “hole” in the general fund “bucket”?

People who are bankrupt sell their land. Besides, no one is nibbling. Hardly anyone has nibbled for five years. We are so desperate that Rep. Simonson is pushing legislation to save any developer of the Central land by scraping their sales taxes on building supplies.

In fact one of Mike Mernicki’s selling points is under threat – selling the land to put back on the tax roles. But we have already talked about setting up TIF’s which would defer all property taxes for perhaps 20 years. Goodbye property taxes.

School District’s are just not set up to realize big profits on land sales.

It’s not solving the problem any more than if I sold my house to buy bread. Nobody does that. Sure, this is the best offer you’ve gotten and maybe the best you’ll get for a while. But considering the reserve fund was depleted to pay for the Red Plan, isn’t that land your new reserve fund (so to speak)? What will that land be worth in 10, 20, 30 years?

If the land could be sold for $50 million in 25 years that will do us little good now. Besides it won’t be all that momentous in the future either because the same thing will be true of that sale then as a sale for $14.2 million today. It will barely cover a single year’s operating expense which presumably will be a lot more in a quarter century.

We should put some of the sale’s proceeds in to a reserve fund but only to avoid unnecessary future borrowing and the attendant interest charges. We don’t need to put all of it in the Reserve. When I was on the Board we set up a policy mandating a 10% reserve which made sense at a time when we could earn interest. In fact, for a few years we were earning a million bucks a year off our reserve and it all went back into our operations budget. God knows when we would be able to earn interest like that again.

I guess in a way my objection is more to how the money will be used than to the sale itself. If the talk was selling and investing that money, then using the interest to begin repairing the hole in the general fund….well, then, I might feel differently about it, even though I’m sure there are counterarguments to that too, and maybe it’s already even been discussed.

One point about investing……public bodies are limited. We all operate under laws of “arbitrage” which forbid our raising taxes and using the proceeds to invest in the stock or bond market.

Here’s another question that might sway me over to the pro-sale side: What are you (or, more properly, WE) going to do once the money from the sale is gone? How will those teachers be paid and those classrooms maintained once the money from the sale of Central has been spent? And then what happens the next time there’s a crisis and the piggy bank has already been smashed and emptied?

It is true that this is one time money but its one time money that couldn’t fall in our lap at a better time. We just ran out of a recent legislative cash infusion and are facing several years of fiscal draught. We have cut so much lately that we are driving even more students away from our District. We need to assure our voters that we have a handle on things before we go to them asking for more operational levy referendums.

Our turning down this sale puts any future referendum at grave risk. A failure to pass a renewal of the last referendum plus the ongoing costs of Central and not using the sales proceeds as the Red Plan promised spell very tough times for us.