BY JUDY SHERIDAN
Aledo Independent School District trustees are considering a 12—13-cent tax rate hike — from $1.4252 to $1.5475 per $100 assessed valuation — for the upcoming school year.
The new rate, recommended by school administrators, would add about $300 to the tax bill of the owner of a $250,000 home.
The current rate has remained unchanged since 2008-09. It is composed of two parts, a debt service rate of $25.52 cents and a maintenance and operations rate of $1.17.
In a budget workshop Aug. 5, school board members informally agreed to publish the proposed rate in a public notice Aug. 16, as the law requires, and asked administrators to assemble a committee to compose a message explaining the board’s rationale for the increase to the public.
Once the rate is published, trustees might choose to approve the entire increase or some lesser amount, but they cannot approve a higher rate.
Trustees could still decide to mitigate or postpone a tax rate increase by using monies from the general fund balance.
Last year the board decided to deplete both general fund and debt service fund balances to increase pay for teachers and avoid a tax increase.
However, the general fund actually increased over the year due to higher-than-expected revenues and lower-than-expected expenditures.
Debt Service Fund
Administrators say the proposed increase would restore the debt-service portion of the tax rate. That portion was reduced in 2010 when voters approved a Tax Ratification Election, allowing the portion of the tax rate that fuels operations to increase. The swap preserved staff and programs threatened by state funding reductions without increasing the overall tax rate.
Since then, the district has tapped the debt service fund balance to meet bond payments, according to budget figures presented by Chief Financial Officer Earl Husfeld, who now estimates that the fund balance will reach $552,000 — the minimum recommended by financial advisors — by Aug. 31.
The proposed 2013-14 rate increase stems from the difference between estimated revenue and debt payments.
“In 13-14, we’re estimating revenues at $6.4 million and pretty well know our payments are almost $9.6 million, so there’s an almost $3.2 million difference we need to derive from one of two sources,” Husfeld told the board, “increasing the debt service portion of our tax rate, transferring funds from the general fund balance, or some combination of the two.
“Based on the numbers here, it would take a $37.55-cent [debt service] tax rate to cover that $3.2 million difference.”
In the general fund the increase in revenues in 2013-14 is projected to cover the increase in expenditures.
Total revenues are expected to go from $35.1 million to $37 million, mainly due to an increase in local property values.
The district’s certified property values are up by $121 million this year — a 5 percent increase — to $2.55 billion.
Expenditures are projected to grow from $34.1 million to $36.9 million, with more than half of the increase due to classroom instruction: a $1 million pay raise for teachers and 13 new staff positions.
Without the tax increase, Husfeld’s figures forecast a general fund balance of $20.7 million in 2013-2014.
“I’m estimating that this time a year from now we would close the books adding $92,000 to the fund balance,” Husfeld said, “essentially a balanced budget when you’re looking at almost $37 million worth of revenues and expenditures.”
The district anticipates a slight increase in attendance in 2013-14, about 76 students, according to demographers.
Circumstances offer the district “the best of both worlds” next year in terms of local and state revenue, Husfeld said, because the calculations the state uses to determine the district’s wealth per student, and resulting payments to the state, are based on the values the comptroller certifies, and there is a one-year lag in the numbers.
“In the state’s eyes we’re less wealthy per student because the values were less last year,” he said.
The lag will result in a smaller payment to the state and a little more state revenue, he said. In addition, the district will collect more revenue from taxpayers because property values are up.
The $1.17 operations (general fund) side of the rate is at the statutory limit due to the TRE, so the increase would be on the debt service side, bringing that portion of the rate to $37.75 cents.
Trustee Bobby Rigues suggested raising the debt service side of the tax rate by 13 cents but reducing the operations side from $1.17 to $1.13 to “lessen the sting,” a decision that would require a vote from taxpayers to reverse if needed in the future.
Husfeld, however, said he was uncomfortable with lowering the operations side, explaining that the community might not recognize the need to go back up. He asked if the board wanted to address teacher salaries again next year.
The CFO recommended instead that trustees increase the tax rate 13 cents and use monies from the fund balance to pre-pay bonds rather than mitigate the tax rate, thereby achieving greater taxpayer savings in the long-term. District financial advisers recommended the strategy in an earlier budget session.
Trustee Johnny Campbell suggested phasing in the increase.
“One possible scenario might be something like, raise 6.5 cents this year on the [debt service] side, use $1.5 million out of your $20.7 million in the general fund balance, watch and see what valuations do again next year and raise again if you need to,” he said.
He was not in favor of using the fund balance to pre-pay bonds.
“I like the idea of retiring debt,” he said, “though I’m less stimulated by that during lifetime low interest rates because after all, as a taxpayer, I have to sit here 25 years to realize the benefit of that. ... I’m in the camp of maybe a stair step because I also think it allows us time. We’re low on time to get all that message out.”
Board President Jay Stringer asked about the adverse effects of subsidizing the tax rate with the general fund balance, and Husfeld replied that the impact would be long-term, possibly affecting the district’s bond rating or flexibility for future teacher raises.
“I’ve heard this from a couple other board members,” Stringer responded. “It’s not the final nail in the coffin if we pull a little money out of the [operations] fund balance and maybe inch the [debt service] tax rate up a few pennies to get through this next year to afford this board time to communicate this more.”
Rigues said the proposed tax rate increase and the TRE election of 2010 stem from the same concerns and should be explained to the public the same way.
“If we don’t do the 13 cents or a big portion of it, the [operations] side is going to be affected because we’re going to draw from the [operations] side. We don’t want to do that.
So, the selling point is the same as it was in 2010. Do we want to protect the classroom, student achievement? Do we want to protect our teachers and make sure we pay them what they’re worth? We want to continue to provide as many opportunities as possible for our kids.”
Trustee David Davis said the rate increase needs to be explained, not sold, to the public.
“Nobody is going to like it,” he said. “We’re not talking that if we raise it 6.5 cents that there’s a possibility that we may not have to go to the full 13 cents. We don’t want to offer up hope for something that we really feel will not happen.”
Husfeld agreed that a few pennies on the tax rate would not be enough.
“Somebody has raised the question, ‘Can we grow out of this,’” he said. “I can’t envision a way that our values are going to go up enough to recoup that 13 cents.”
As trustees wavered on a plan of action, Husfeld remarked that although the budget must be approved prior to Aug. 31, the tax rate could be set in mid-September, allowing time to communicate with district taxpayers.
Trustees then discussed modes of how to do so, including the use of a mailer, newspapers, the district’s website and a town hall meeting.
They then asked administrators to appoint a committee — to include Rigues and Davis — to draft a message and talking points for board review.
“The message would simply be a matter of communicating to our public that this effort must be $3.2 million’s worth, give or take,” Superintendent Dr. Derek Citty said, “and here are the options the board has right now to effect it.”
The board will meet Aug. 19 for a regular board session and budget update. A public hearing on the budget and its adoption is set for Aug. 26.
Currently, Aledo ISD’s tax rate is slightly lower than the average of most of the school districts in Parker and Tarrant counties, which is $1.45 per $100 assessed valuation, according to Husfeld’s research.