Martin County Taxpayer’s Association Review of Martin County School District’s Sales Tax Increase
The mission of the Martin County Taxpayer’s Association (MCTA) is “To monitor and review all fiscal and tax matters affecting Martin County. To engage public officials, community leaders and private sector organizations who may influence the economy and efficiency of the County of Martin, the School District, municipalities and other taxing authorities in the matter of taxes and the financial resources of the County.”
In accordance with this mission, a review was undertaken by the MCTA of the Martin County School District’s ballot proposal to enact a ½-cent increase to the sales tax rate in Martin County.
We should note that earlier the District, through a ballot initiative in August 2018, received a ½-mill ad valorem tax increase for 4 years. The initiative on the November ballot will be a ½-cent sales tax increase for 7 years to fund capital projects. This MCTA report will only deal with the ½-cent sales tax increase that is appearing on the November ballot.
A subcommittee of the MCTA Legislative Committee met with School Board Chair Christia Li Roberts to discuss this proposed tax increase. We also attended several school board meetings, community presentations, studied the proposed ballot language and the financial information supplied by the District to help inform our review.
To comprehend the reasons why the School District is requesting the increase, the voter must fully understand how school capital budgets are funded in Florida. Tallahassee specifies how much and what proportion of the millage raised within Martin County can be spent on the capital budget. Currently 1.5 mills of the total ad valorem tax collected can be used for capital expenses.
Using the mandated formula, Martin County’s capital budget is determined as follows: Total Taxable Property Values ($21 billion) is multiplied by the state specified millage rate (1.5 mills) equals the maximum allowed amount which is $31.6 million. The District has no ability to change that maximum allowed rate either through rearranging other parts of their budget or through an increase in the millage rate. The only way to increase capital funding is with voter approval of an increase to the sales tax.
Beginning in 2008, Tallahassee has mandated millage reductions, this has reduced Martin County’s capital fund by $91.6 million to date. There is currently a $98 million backlog in what the School Board has categorized as critical capital needs. The state has prevented many actions that local school boards can institute to provide for better fiscal solutions to both capital and operational needs through the state’s unfunded mandates or preemptions.
Florida approves or mandates the size and capacity of each type of school (elementary, middle, and high school). The state further specifies how schools are to be built, which specific components are to be used, which systems that are necessary to include and construction cost limits. This results in higher costs. As an example, because schools must be built to be disaster shelters in emergencies, construction cost increase. Those additional mandates have nothing to do with the education of students.
In determining whether to build new schools, the Martin County School Board must take into account other mandates. One such mandate is allowing any student from any district in Florida to attend any Florida public school in any district, as long as there is an open seat. Once an out-of-district student is enrolled, that student will remain at the school at his/her option until promoted from the highest grade that school provides. The mandate does not apply to resident students of that district. This means that a Martin County student can be sent from their neighborhood school to another if there is no longer room due to increased enrollment. The out-of-district student will remain.
The capital budget is shared on a per-student basis with charter schools after debt service. Currently, Martin County has a sales tax rate of 6%. Palm Beach County is at 7%, as is Indian River County. St Lucie County is currently 6.5% and they are asking for an additional 0.5%. Local sales taxes are used for capital budgets only. In 2017, Martin County residents rejected a penny increase in the sales tax rate with 63% of the voters against the increase.
According to the District, there are currently 12 elementary, 5 middle, 3 traditional high schools and 2 alternative schools. Martin County has 18,719 students with 1,172 teachers and an additional 1,059 employees for a total of 2,231 full-time employees. This report does not consider any operational needs such as salaries or programs. The MCTA is solely concentrating on the capital needs as outlined by the Martin County School District.
The Martin County School District estimates that the ½-cent sales tax increase will generate $16 million per year. The ballot initiative is for 7 years, which will result in $112 million being raised for capital expenses. For illustrative purposes, if you do not factor in any increase in the cost of expenses to the capital budget or additional ad valorem assessed values, the school board will have $221.2 million ($31.6 million per annum in ad valorem taxes times 7 years) plus the $112 million from the sales tax for a total of $333.2 million.
The only debt that the Martin County School District currently has is a mortgage for Anderson Middle School with debt service of $2,544,907 per year. This equates to 7.87% of the annual income of the District. Both St Lucie County and Palm Beach County have pledged 35.98% and 62.5% of their capital budgets to yearly debt financing. In the past, Martin County School District has been averse to using leverage to fund their capital projects.
The capital budget not only encompasses the one mortgage and new school construction but also repairs to existing infrastructure, equipment replacement, school buses and technology including computers. The School Board is not permitted by Tallahassee to shift these budget items into the operating budget. The School Board must make certain enhanced security changes to the schools to comply with legislative mandates because of Parkland.
The Martin County School Board has already committed $3 million toward engineering and design of replacements for Palm City and Jensen Beach Elementary Schools. Both schools are physically and functionally obsolete. The cost per school is $32 million. The School District has $8.5 million of ongoing repairs and maintenance, $6 million needed for technology, which includes computers, and $3 million in buses and classroom equipment. There is more than $20 million in additional major projects, including a new classroom building (in the literature provided MCTA don’t know where it would be constructed), renovations, new chiller, and kitchen renovations.
The School Board estimates that there is $98 million in deferred maintenance besides the $64 million for the two replacement schools. In this budget, the District has not anticipated any future population growth or capital needs. There have been apparently no reserves set aside for repairs and replacements of capital items. A prudent Board and Administration should have instituted such a reserve long ago. The capital needs of the Martin County School system have been neglected by the current and many past School Boards. It further appears that the District has not considered long-term borrowing in the form of mortgages and or bonds to build new schools and other capital expenses.
When asking for the additional ½-mill increase in August, the Board was very specific in how the funds would be spent. In asking for the sales tax funds, the School Board, has not defined the specific uses as well as they did for the operating increases, except for the $64 million for the two new replacement schools. If they decided to, the School Board could opt to use the additional funds generated to modernize the Martin County High School pool or the weight room at South Fork High School rather than purchase new computers. The School Board in the ballot language has not ask the voters to approve a ½-cent sales tax for any specific capital items except for the two new schools.
Instead the Board could have asked the voter to pledge the money specifically for constructing the two new schools, bondholder interest and to pay off the existing mortgage at Anderson Middle School. The sales tax could then be used as the income stream to pay back the bonds. This would succeed in giving taxpayers some certainty and result in the District having the necessary funds for construction immediately. The $31.6 million dollars that the District collects yearly could then be used for other capital projects, including beginning a capital reserve fund.
The MCTA is providing this report to assist the voters and taxpayers of Martin County to determine whether an additional ½-cent sales tax increase is warranted. We do believe in the validity of the data provided by the Martin County School District. It is not that the District does not need an infusion of capital fund dollars. Rather, the taxpayer must decide if the current plan as outlined on the ballot is best and if taxpayers have enough trust in the School District to execute their promises with the new stream of income.