How much will school bond proposal cost you?

New bond issue won't raise tax from one year to next, but still comes with a price

How much will the Dearborn school bond proposal cost you? By my calculations, the proposal will cost the average homeowner roughly $100 next year if it is approved Nov. 5.

Many homeowners will pay above and below the average, so the number will vary widely for individual taxpayers. I will explain the formula later so you can figure it out for yourself.
 

This information is not meant to encourage support for or opposition to the proposal. I think it’s fair to know what it’s actually going to cost. Also, note to bond supporters: Please don’t take that $100 figure and say it’s under $2 a week for the average taxpayer. Until they start billing me for property taxes weekly, I don’t care.

Despite the selling point that there will be no tax increase if voters support the proposal, I think most recognize that isn’t true, even if it is technically accurate. Common sense indicates you can’t sell $240 million in bonds and pay them off, with interest, for free.

The proposal is structured so that the tax rate (millage) will stay the same as we have been paying.  It’s a simple formula: As the costs to pay off bonds voters have previously approved go down, the costs for the proposed new bonds have been calculated to precisely fill that gap. We paid 4.82 mills for the school district’s outstanding loans this year (and last year), and if the new bonds are approved, we will pay 4.82 mills next year.

Presto!  More borrowing, no tax increase.

But there’s no magic at work here. By now, most residents who are following this issue realize that the millage for previous bonds will decrease if the new bonds aren’t approved, so we will pay less next year than this year if voters say no to the new proposal.  What really hasn’t been discussed is, how much less.

Exact numbers have been a little difficult to nail down. The district has mentioned a couple figures. I have a chart, provided by a district official, showing the estimated millage needed each year for the currently existing bonded debt, but those numbers don’t line up exactly with what the district has been putting out.

 

For the sake of this discussion, then, let’s go right to the ballot. The actual ballot question includes this informational language (with minor editing): “The estimated millage that will be levied for the proposed bonds in 2020 in 1.67 mills … for a zero mills net increase over the prior year’s levy … the estimated simple average millage anticipated to be required to retire this bond debt (over 20 years) is 3.7 mills.”

 

Most voters will look at that statement and have no idea what it means and how it affects their own property tax bill. Unless you go into the voting booth armed with a calculator, a statement showing your home’s taxable value, and a working knowledge of how property taxes are calculated, the “explanatory language,” while probably satisfying legal requirements, is little more than gibberish.

Let’s look only at next year, even though this proposal is a long-term annual obligation that will fluctuate and grow over up to 20 years.

The ballot language says this proposal will cost 1.67 mills next year. Even though you won’t pay a higher total rate from year to year (4.82 mills), you will pay 1.67 mills more than if voters defeat this proposal. I suppose that means subtraction shows that, without the new bonds, the cost of bond debt next year would be 3.15 mills, a tax cut of 1.67 mills.

Now, how much will that cost you?

A mill is $1 of tax for $1,000 of a home’s taxable value, which is roughly one-half its market value.  The average home in Dearborn is worth around $120,000, meaning the average taxable value is $60,000 (again, these are rough numbers, but illustrative).

If your house is worth $120,000, your taxable value of $60,000 means you’ll pay $60 x 1.67 mills. That comes to $100.  So, returning to my opening statement, the average taxpayer will pay around $100 more next year than if the new bond is not approved.

Now, if there’s an average figure, there are lots of people whose costs will be higher and lower. If your house is worth $240,000, the new bond will cost you $200 next year. For those who have built fine, new, very large houses (good for the tax base), their home values can be $500,000 and upwards. Their costs for this bond go up proportionately.

HERE'S THE FORMULA: To determine what the new bond will cost you next year, get out your calculator and this year’s tax statement, and multiply your home’s taxable value by 0.00167.

It gets more difficult to figure precise numbers in future years, but this may be the most important point: What the new bond will cost you next year will only go up as the years go by.  As previously approved bonds get paid off, and our millage rate stays the same, the blended cost for this year’s proposal will rise. By 2023 and beyond, your annual cost for an average taxpayer will be three times higher for the new bonds.  This is because the cost of the previous bonds will go way down by then, so most of the 4.82 mills we’ll still be paying each year in 2023 and beyond is because of the bonds we may approve in 2019.

According to a chart provided to me by the school district, if there are no new bonds approved by voters, and existing bonds continue to be paid off, our existing bond debt is estimated to cost us around 1.15 mills each year from 2024 until 2033. Compared to the current tax levy of 4.82 mills, that’s a savings of 3.67 mills, around $300 per year for the average taxpayer. (Again, these are rough numbers, not knowing what the “average “ home value will be in five years, or factoring that taxable value goes up by the rate of inflation each year.) These numbers are in keeping with the ballot explanatory language stating the average annual millage needed to retire this debt over 20 years is 3.7 mills.

 

But, the notion that older school bonds will continue to be paid off with no new bonds approved over the next five years is unrealistic. It is unlikely district voters will cut off new building repairs and upgrades from here on, even if this year's bond proposal is defeated. History indicates Dearborn almost always approves school millage proposals, and that we realize these are our school buildings and we are responsible for their upkeep.

The information I have presented here focuses on the cost to taxpayers.  There’s another very important aspect to this discussion: What taxpayers get in return for their payment, namely, $240 million in improvements in the coming years to our school buildings, beyond the new buildings, additions and other improvements already done with previous bond issues this century. 

 

That part of the equation is covered extensively in information put out by Dearborn Public Schools. I think they’ve done an excellent job in providing information to the public, both in documents online and in a series of neighborhood meetings held at local schools. They make the point that many of our school buildings are old and in need of repairs and upgrades.  You can go to iblog.dearbornschools.org/bond/ and get loads of  information, including a school-by-school breakdown on projects that are planned.

The question voters need to ask, in determining whether they’ll vote yes or no, boils down to this: 

Are the improvements enough of a benefit to the community to be worth what it will cost me?

Don’t just cast a vote. Cast an informed vote.

I hope the information I’ve presented here helps.

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(Still haven't had enough?  For an explanation of what exactly a "school bond issue" is and does, and for a look at Dearborn Public Schools' recent history of bond proposals, click here.)

This is language from the actual ballot that describes how much the school bond proposal will cost taxpayers