Source: Sherman Publications

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School district taxes to increase
Brandon to jump from 8.24 mills to 13 mills

by Susan Bromley

August 21, 2013

Residents in the Brandon School District will pay nearly twice the amount of school bond taxes next year— going from the current 8.24 millage to 13 mills.

"The analysis tells us that we have to legally," said Superintendent Lorrie McMahon. "Due to Public Act 437 of 2012, we will have to increase property taxes to 13 mills, the maximum to satisfy the law for the State of Michigan. This is something the voters do not get a say on."

When voters in the district passed a $73 million bond for school improvements in 2006, property values were at their highest.

The same year, the housing bubble burst and property values began their tumultuous fall.

While foreclosures rose and many homeowners were unable to sell their homes or even found themselves underwater on their mortgages— owing more than what their homes were worth— the one bright spot they may have seen in all the gloom was that the taxes they were paying decreased.

That bright spot will be extinguished here next year as the fallout continues from the housing market crash.

During the school board's Aug. 19 meeting, Jesse Nelson, a certified public accountant with H.J. Umbaugh & Associates, gave a financial presentation to the board in which he announced the district will need to raise the current bond levy of 8.24 mills to the maximum of 13 mills in order to pay off loans from the state by 2032.

"The maximum mills allowed is 13," said Nelson. "Using assumptions does not show we will be able to make the mandatory repayment date (of 2032). You have to raise (the levy) to 13 mills next year. This is what is going to happen. Brandon is not unique. This is dramatic to go from 8 mills to 13."

The district requested Umbaugh, an accounting firm based in Okemos, to do a millage study as a result of state legislators passing Public Act 437 of 2012 (Senate Bill 770). The new law will take effect July 1, 2014 and requires school districts to pay off loans from the state within six years of their last bond payment. With the current millage rate of 8.24 mills, the district would not pay off the loan until 2046.

The district has had to borrow from the School Bond Loan Fund every year since 2006 in order to make their annual bond payments. This year, the board approved borrowing up to $4 million to make a payment of more than $7.5 million in principal, interest and fees for the bond.

With the new borrowing, the district now owes about $42 million to the School Bond Loan Fund.

District Executive Director of Finance Jan Meek said that while many districts have had to borrow to make their bond payments following the housing crisis, the new law impacts Brandon more than most, as the district is in the top 10 in what is owed to the state. She has previously estimated the district could end up borrowing up to $100 million in total from the state to make bond payments.

When the district asked voters to approve the bond in 2006, the millage and length of time to repay was predicated on a previous 5-year taxable value average growth rate through 2005 of 6.29 percent, which was allowed to be assumed for the next five years per state law. The millage study that Nelson presented to the board Monday night shows that in 2006, the district experienced only 4.86 percent growth. Taxable values continued to fall, with the biggest drop coming in 2010 when the district showed a negative 14.62 percent in taxable value growth.

This year, the district found itself on the positive side again, with 2.90 percent in taxable value growth. Since 2011, the district is using a maximum taxable value growth rate of 3 percent on existing homes, but this is a best case scenario, as Board President Kevin McClellan pointed out Monday night.

Nelson agreed with that assessment. The district's ability to meet the state mandated pay back date of 2032 is based on levying the maximum 13 mills, as well as property values growing at a rate of 3 percent annually for the next 20 years.

"With the 13 mills, we have to see 3 percent growth for it to work," said McMahon. "On average, over the course of the past 5 years, property values in the district were decreasing about 4.85 percent per year. The 3 percent is an industry standard projection of growth. If we don't get that, I don't know what will happen."

"I don't know whether we can lower the mills if we have better projected growth," she continued. "It will be 13 mills for the next 20 years unless something changes. The state changing rules after the ship has sailed is once again making the local taxpayers carry the burden of the state and when our voters supported the school bond they expected the State of Michigan to keep the rules the same. Twenty years at this rate could make property here unattractive."

McMahon also agreed it is very unlikely voters will pass another bond, leaving another question— how building repairs and improvements over the next two decades will be funded— unanswered.