Understanding Overlapping Numbers – Like Debt & Tax Rates

Introduction.

I have always encouraged MPA students to work hard on being able to visualize the magnitude of numbers they hear. Basic things. A single acre of land. A square mile. A football field. A water storage tank size in gallons and the cost per gallon to build. The cost of a lane-mile of roadway. Hip pocket numbers I would say. You will forever be in discussions about the size and cost of things. Be prepared to do a logic test.

At the same time, don’t shy away from putting big numbers in context. It is early and quite often you start hearing millions and billions. If you hear that the city uses 10 billion gallons a year, don’t immediately think waste. It might be. But for McKinney with a population of 155,142, that breaks down to 176.59 gallons per capita per day (gpcd). And since that includes commercial and industrial water use in the average, the residential portion would be less. But the point is that 10 billion is a large number easily misinterpreted unless placed in a proper perspective.

The perspective becomes more important when talking about dollars. There is an interesting principle involved here that I must pause to explain. If you want to place emphasis on a metric, you multiply it as high as possible. “We’re going to be using over 100 billion gallons of water over the next 10 years!” If you want to minimize the emphasis, you divide to the lowest possible level. I just did that with my gpcd calculation.

The principle can be applied to deliberately distort facts. Or to genuinely understand a perspective. I just want you to know that I know the game. At the same time, I want you to appreciate that I am trying to help. If you are interested in local government, you deal with a lot of numbers and some very large numbers. With the massive amount of growth in Texas (a million new people every 7-10 years just in the Metroplex), one must gird up to appreciate the task of grasping large numbers. The minute you hear, “we get 36,000 calls per year,” whip out your calculator and see how many that is per dispatcher per day or hour just to equip yourself with a perspective.

Let’s Play With Debt.

I am the first to be cautious about debt. And if there is a viewpoint I take, it is that of the bond rating agencies representing the concern of the bond purchasers. Why? Because in my entire career, rating agencies are the first (and for years the only) outsiders that care about the consequences of today’s actions on the future. They appreciate a good financial condition today, but can you repay your bonds for the next 20 years? They also know the importance of one governmental entity on the others. That starts at the state level. But the more granular local level rises to take center stage fairly quickly. From the taxpayers’ standpoint, the checkbook doesn’t care. What is the total tax bill? So, too, it is the bond rating agencies’ concerns about the overlapping impact of things like debt and tax payments that we focus on today.

OverlappingDebt

In the table above, you can see about 11 lines down that the City of McKinney has $263,424,127 in debt supported by property taxes. That is a significant amount of money by any yardstick. However, the story that often goes unnoticed is that there is an additional $824,470,845 in overlapping debt from Collin County, Collin County College District and the School Districts inside McKinney.

Clearly the County and CCCD are not overly burdensome. However, the ISDs make up $760,891,739 of the debt carried by the taxpayers inside the City of McKinney. In total, it all adds up to $1,087,894,972. Now you can get a sense of the magnitude of debt and the sources? By the way, these numbers come from required financial disclosures to the public – wonderfully informative data often ignored by local government leaders and citizens.

In an effort to place over $1 billion in debt into perspective, I have shown the number as:

  • $7,012.25 per capita.
  • $20,966.64 per household.
  • 7.10% of the taxable values in the City of McKinney.

The next obvious question is How does McKinney compare with Plano, Frisco, Allen and other area cities? I’m going to give you that answer in a future blog, but that is not the point here. In one sense it doesn’t matter. The objective is to understand our own and how local governments impact each other. And when we can carry no more?

Another perspective is to appreciate the direction we are headed with debt. These numbers do not include the approximate $110 million recently approved for the City and the $220 million for McKinney ISD. After those bonds are issued, along with other authorized bonds but unissued bonds, there will be some bonds that will have been paid off. Therefore, these metrics change often but generally trend upward.

In any case, whether viewed as total absolute dollars or on a per unit basis (capita, household or tax base), it’s a lot of money. Every elected official and appointed money board member needs to have these hip-pocket numbers in their head or in the cell phone notes.

What About Overlapping Tax Rates?

Again, when viewed in total, the numbers are quite high. The City of McKinney has not raised the tax rate in years; in fact, they have been lowered slightly. However, the bill that the taxpayer gets is based on the total of all taxing entities, and that number is about $2.48 per $100 of value broken down as follows:

  • City of McKinney $0.583
  • Average¬† ISD $1.590
  • County/CCD $0.307

Conclusion.

It’s hard not to be the Master of the Obvious, but clearly almost 70% of the debt carried within the City of McKinney boundaries is related to school districts. ISDs also account for about 64% of the tax rate.

MISD is supposed to be lowering their rate by 2-cents next year, and the FISD is talking about raising theirs considerably. FISD can by law go up to $1.67.

This blog is one of many planned to take a spoonful of local government finance items at a time. I encourage you to study the selected numbers and the associated perspectives and stories.

The City of McKinney voters took a menu of bond propositions and said yes to most but no to $millions of others. McKinney ISD gave the voters an all or none proposition that included $50 million for a football stadium to add to almost $12 million authorized in past years and yet to be issued.

It is imperative that citizens and all taxpayers look at the entirety of the burden placed by county, city and ISDs collectively. It’s all coming out of the same pocketbook.

There is also a finite amount of debt and taxes that can be placed on the public without there being some repercussions. We aren’t there yet from the bond rating agencies’ standpoint else we would be seeing some downgrades. But we must understand that the rating agencies look at both 1) ability to pay and 2) willingness to pay.

Collin County is a very wealthy sub-region in a wealthy region in a relatively wealthy state. Citizens keep allowing bonds to pass and tax rates to increase. Therefore, we keep passing the ability and willingness tests. For now.

However, we aren’t paying sufficient attention to big-ticket liabilities coming down the road. I have blogged about many of these and will continue to do so.

When the McKinney City Council sat passively and listened to the pitch for the MISD bond program by their superintendent, I was thinking, my goodness, the City just winked at $62 million of future roadway needs that would have been the exact some impact on Joe Sixpack (me). But that concern would only come up if people really thought about the sustainability of the community for the long-term future.

Also, near Houston, the Katy ISD 12,000 seat football stadium was reported just four days ago to have increased from $57.6 million to $62.0 million. The increase was for add-ons and unforeseen infrastructure requirements.

MISD has yet to go our for, receive and award a bid. It’s a long time before the kickoff whistle blows. LFM

 

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