Critics attack $92M school bond as a ‘blank check that lacks accountability’

Cedar City's South Elementary School, one of two Iron County School District schools targeted for replacement under a proposed general obligation bond, Cedar City, Utah, Sept. 20, 2018 | File photo by Jeff Richards, St. George News / Cedar City News

This is the second of two stories to provide voters information on the impact of the $92 million general obligation bond proposed by the Iron County School District. This story outlines what’s at stake and some of the issues surrounding the bond.

CEDAR CITY — The Iron County School Board is asking Iron County voters this November to give the school district $92 million in general obligations bonds for security upgrades, facility improvements, two new/replacement schools, additional classrooms and to purchase more property.

Read more: Interest on proposed Iron County school bond projected to be $32M

The money would fund what administrators say are much-needed improvements throughout the district.

“These projects have been a long time coming and are much needed,” Iron County School District Superintendent Shannon Dulaney.

However, opponents argue that giving the district $92 million is like handing them a “blank check” with no accountability.

“I am uncomfortable in giving the Iron County School Board authority to spend $92 million of taxpayer money over the next 10 years based on a vaguely worded proposition that allows them maximum flexibility in how they spend it. It’s like giving them a blank check that lacks accountability,” Doug Hall, founder of Iron County Alliance of Taxpayers, said.

Here’s what you need to know before voting.

Impact to taxpayers

Retirement of old bonds

Without the $92 million bond, taxpayers in Iron County would be enjoying an additional $225 back in their pockets every year starting in 2024 when the district is set to retire some old bonds. However, if the bond passes that money would continue to be paid out by homeowners along with an additional estimated $16 on the same valued home.

While the district has stated that the bond will only cost an additional $16 a year, many argue that this information is not entirely correct.

“It’s not just $16 a year,” Iron County Commissioner Dale Brinkerhoff said. “It’s $216 a year that we will be paying for this bond, because if it doesn’t pass that $200 would come back to the taxpayers. If it passes though, we will continue paying $200 out of our pockets for however long, 20 to 30 years, that the district is paying off the $92 million bond.”

Brinkerhoff is retiring as county commissioner in January and is currently vying for a seat on the Iron County School Board. His opponent is Harold Haynie, who is serving as vice president of the school board. Cedar City News reached out to Haynie for an interview but received no response as of publication of this article.

Cedar City’s East Elementary School, one of two Iron County School District schools targeted for replacement under a proposed general obligation bond, Cedar City, Utah, Sept. 20, 2018 | File photo by Jeff Richards, St. George News / Cedar City News

Brinkerhoff leaves office with the county debt free of all general obligation bonds. He feels passionate that the school board should work to spend less money and argues the district should not be given a “blank check” of $92 million.

The school district currently plans to issue the $92 million bond in three phases beginning with $24 million in 2019, the second for $35 million and the final phase in 2025 for $30 million. Brinkerhoff argues the district should be required to hold another bond initiative every time they need more money.

“I don’t have a problem giving them the $24 million they are initially asking for, but I think approving $92 million all at once is irresponsible,” Brinkerhoff said. “There are too many variables that can change. Building costs could go up, they could go down, interest rates could go up, the economy could tank and then what? Too many things can change in the next 10 years and I’d like to see the board have to come back and ask for the money every time.”

District administrators argue bonding is very costly both in time and dollars. Currently, the district has paid out nearly $20,000 for the bond with several invoices still outstanding Dulaney said, adding that it has taken more than two years for the district to prepare for this bond election.

Iron County Auditor Dan Jessen echoed Dulaney’s sentiments and pointed to the recent bond the county just did to remodel the Parowan courthouse.

“Every time I turned around I was paying the lawyers, the architects, the newspaper for legal notices,” Jessen said. “It really is a very costly process and takes a lot of time to do, so I can understand why they want to do it once and not do it each time.”

While some opponents of the initiative have argued for the district to seek voter approval each time they need the money, others want the district to fund the projects “as they go.”

In his opposing argument as shown on the ballot, Cedar City resident Dorian Page argued the district should retire the bonds and pay “as they go.”   

“Authorizing the issuance of bonds for a laundry-list of projects over a period of years is not what I would call ‘fiscally responsible,’ nor would I call extending bonds for another 15 years responsible. Those old bonds should be retired, as the voters back then were told, not rolled into new financing,” Page stated.

That option, however, would mean taxpayers would pay a higher tax levy, Iron County School District Chief Financial Officer and business administrator Kent Peterson said. It would cost taxpayers more than $100 more a year as opposed to the $16, according to a video produced by the district about the bond issue. Peterson called that approach unrealistic.

“It would take years before we could raise enough money to even do the basics, like the security upgrades, which are needed now,” Peterson said.

What voters are really agreeing to by voting ‘yes’

Under the current bond tax rate of .001881, property taxpayers pay about $225 per year on a residence valued at $217,0000 and around $363 per year on a business property having the same value.

The ballot initiative seeks to increase that rate by 7.39 percent, which the district has stated will increase taxes by about $16 on a $217,000 home. That increase will be seen upon the issuance of the first bond in 2019. After that first year, property taxes will then begin to decrease over the next few years as the school district retires the old bonds, bringing the new payment down to just below the current levels of $225, according to a pamphlet produced by the district to explain the proposed bond.

However, the legal language in the bond initiative conflicts with the district’s literature stating that the tax on a $217,000 residence within the district would “incrementally increase by $16.60 per year above the current level of $225.”

Jonathon Ward, vice president of Zion’s Public Finance, worked with the district to put the financial numbers together for the bond.

Ward said that the information produced by the district showing a decrease is what the financial advisers are “anticipating” given the current market and financial data they have in front of them. However, the numbers are not set in stone.

“There are so many variables to this. Do we think that property taxes will decrease? Yes. Given the growth in Iron County and the current housing market we are anticipating a decrease. But things can change – and change fast, as we know from 2011,” Ward said. “When we put these figures together, it is what we can anticipate is going to happen based on the data in front of us.”

In addition, the bond initiative states that under Utah law there is “no limit on the tax rate the district may be required to levy to repay the bonds,” meaning if necessary, property taxes could even go above the anticipated $16.60.

Unlike a typical tax levy, bond levies are not limited in how high they can go, Ward said. Similarly, the school board does not have to come back to the voters to raise a bond levy because they have already approved it by voting yes to the initiative.

Interest rates

Interest rates are another factor that could change the payment amount the district is required to pay each year.

The financial advisers estimated the interest rates for the bonds as follows:

  • The first phase – 3.56 percent;
  • The second phase – 3.84 percent;
  • The third phase – 4.13 percent.

Assuming the interest rates come in as projected, the total interest for the bond will be around $32 million, putting taxpayers on the hook for a repayment of $124 million.

These interest rates are determined by the financial advisers using historical and financial data to project where they believe the interest rates will fall. However, the district is not locked into these rates, and as such, they could go up or down at the time the bonds are issued.

Whether the district decides to issue all three phases of the bonds will in part be influenced by the interest rate at the time.

“We don’t want to issue the bonds if the interest rates are high,” Peterson said. “We want to get the best interest rate we can.”

Building costs

Under the district’s plan, the bonds will be issued in three phases beginning with $26 million in 2019, $35 million in 2022 and $30 million in 2025.

The bulk of the bonds will cover construction costs for additional classroom space, new or replacement school buildings and facility upgrades.

Part of this includes two new elementary schools for around $26.7 million, nearly $13 million more than the recently new North Elementary school that cost the district $14 million.

The difference in price is caused by escalating construction costs that have skyrocketed since just last year.

“We did North Elementary at around $175 a square foot. If we were to build that school today we would be paying closer to about $275 a square foot,” Peterson said.

Cedar City’s South Elementary School, one of two Iron County School District schools targeted for replacement under a proposed general obligation bond, Cedar City, Utah, Sept. 20, 2018 | File photo by Jeff Richards, St. George News / Cedar City News

The soaring building costs have been caused by a thriving housing market desperately in need of contractors, many of whom quit during the 2011 recession, trading in their hammers for more secure jobs.

However, as the industry continues to grow, the market will demand more contractors in turn, driving overall construction costs down.

“The estimated costs for the schools are based on current construction costs, which is all we have to go on so that’s what we have to use,” Peterson said. “But yes, if the building costs were to go down, then we could pay less for the construction of the school buildings.”

Likewise, if building costs go up the board could decide not to issue the bonds since they are not required to do so once voters pass the initiative. They could also elect to pay the difference out of the district’s capital projects fund.

If replacement of the buildings is too costly, the board could opt to use the funds for a similar project so long as it falls within the description of the ballot initiative.

However, opponents say the language in the initiative does not provide enough guidance as to how the bond money will be spent.

“They do not have to spend that money on the proposed projects they have outlined in their literature,” Hall said. He continued:

The description on the ballot initiative says it can be used for the ‘construction or acquiring of buildings, facilities, sites and related improvements and equipment and to improve existing buildings, facilities, sites and equipment.’ That language gives them broad discretionary powers to use that money, without any public process, in other ways besides the way they have said they will use it.

Dulaney disagrees, stating that under Utah law, the district must go back to the school board for approval if they decide to change how they want to use the money.

Cost of bond for primary residences versus second homes and business properties

According to a pamphlet the district mailed out to voters, if passed, the bonds will increase property taxes by around $16 on a home valued at $217,000.

While not stated on the ballot, this tax increase is based on a primary residence, which Jessen said is taxed at just 55 percent of its assessed value. However, a second home or business property assessed at $217,000 are taxed at full market value. For these properties, the tax increase would be closer to $30.

Outside factors to weigh before voting

If the bond initiative doesn’t pass, taxpayers may be surprised to find their property tax still slightly higher than in years past thanks to state lawmakers who passed legislation this year to temporarily freeze the basic school levy.

The measure, labeled “Tax Rebalancing Revisions,” was an effort by legislators to head off a ballot initiative that, if passed, would have executed the biggest tax increase in the state’s history meanwhile generating $800 million new dollars into education. Pushed by Our Schools Now, the initiative would have increased both sales and income tax rates by .45 percent.

Under state law, schools can’t collect more revenue from year to year without a truth in taxation hearing to raise taxes. To maintain the same amount of money coming in, taxes offset the difference by decreasing when market values rise. The new legislation, however, freezes the basic school levy of .001666 for five years to garner an additional $400 million for Utah schools.

In Iron County, property values are increasing by an average of about 7 percent per year, with some far above that and others falling below, Iron County Assessor Cindy Bulloch said. If the current market levels continue this same pattern, taxpayers who own a primary residence with an assessed valuation of $217,000 in 2018 can expect to pay an additional $14 more next year, Jessen said.

In addition to this tax increase, the ballot also asks voters to support a 10-cent gas tax hike on the state’s 29.4-cents-per-gallon gas tax, another move by Our Schools Now to produce more money for education.

Iron County School Board is one of four in the state asking voters to authorize general obligation bond initiatives this election.

From Ogden to St. George, the boards are looking for a total of more than $600 million to build and renovate schools, which for some include security measures. Nebo School District’s ballot initiative makes up half of the total with board members asking for $298 million in bonds.

Iron County’s bond initiative has earned the support of the Utah Taxpayer’s Association.

State Sen. Howard Stephenson, the taxpayer’s association longtime president, said he supported the proposal because of the security measures being implemented and the cost-effective manner the county is seeking to get the lowest construction costs.

The association has since issued a supporting statement.

“The Utah Taxpayers Association has met with Iron County School District officials and reviewed the District’s bond proposal. Due to the District’s efforts to increase school safety throughout its system and its decision to use cost efficient construction methods, the association endorses the proposal. We encourage voters to vote in favor of the $92 million bond.”

Email: tsullivan@stgnews.com

Twitter: @STGnews

Copyright St. George News, SaintGeorgeUtah.com LLC, 2018, all rights reserved.

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