Granville Township Trustees are sitting on record-breaking cash surplus. Vote "no" on their tax hike

Editorial

Does Granville Township need a property tax increase to fund road maintenance? Based on the township’s audited financial statements, the answer is a clear “No.”

 

Granville Township Trustees are asking voters on Nov. 3 to raise a road and bridge property tax levy from 2.5 mills to 2.75 mills starting in 2011. This is a relatively small tax hike that would cost about $20 a year to the owner of a $300,000 house. But is the tax hike needed? Is the Trustees’ strategy of asking repeatedly for small tax levies — nine requests since 2005 — an effort to stay under the radar while becoming Granville’s high-tax government?

 

The Township’s financial position is remarkably strong by any measure, courtesy of the many voter-approved tax increases. Township revenues have consistently exceeded expenses in recent years. That’s allowed the township to build huge cash reserves — $1.2 million available for roads and $7 million overall as of Dec. 31, 2008. The township’s financial condition is today far superior to that of the Village, the school district, the library or the recreation district.  Yet the Trustees want $40,000 more annually, to pad the surplus, in a recession. Is that responsible?

 

Let’s take a close look at Granville Township finances.

 

Granville Township’s broad financial condition is presented at the end of this editorial and will be discussed later. For now, let’s consider the Township’s General Fund, which is money the Trustees may spend as they see fit.

 

	General Fund
Year	Revenue	Expenditure	Surplus
2004	440,125	354,012	86,113
2005	413,111	397,457	15,654
2006	417,091	336,635	80,456
2007	505,023	394,040	110,983
2008	626,980	517,535	109,445

 

The Township has enjoyed General Fund surpluses every year since 2004, ranging in size from 4% to 22% of revenues. This result has been “profits” of $316,538 since 2005 and $402,651 since 2004. These “profits” stay inside the General Fund, increasing the fund’s balance, sometimes called a “budget reserve” or "rainy-day fund."

 

General Fund
Year-end of	Cash balance
2004	237,078
2005	192,982
2006	249,164
2007	343,991
2008	604,069

 

 In other words, the Township had $604,000 in its general fund bank account on Dec. 31, 2008. That’s more than the fund spent in any of the last five years, probably more than has been spent in any year in Granville’s history.1

 

This large fund balance is a good thing. It acts as a “rainy day fund” that can be used to offset sudden revenue loss or finance one-time spending needs, planned or unexpected. The Township has a rainy day fund equal to more than a year of spending.

 

By comparison, Granville Village has a general fund balance equal to about one-third of spending. The Granville school district has an operating fund balance equal to about one-fourth of its operating budget. The average central Ohio school district maintains a fund balance equal to 12% of revenue. Bond rating firms generally consider a balance of one-quarter to one-half of a general fund to indicate strong financial health for a local government.

 

Let’s not oversimplify. Local governments perform different functions and operate under varied laws, so comparisons of townships to school districts or municipalities are imperfect. Under Ohio law, townships are a weak form of government. Relatively little money flows through the general fund to be used at the discretion of Trustees. Townships rely heavily on “earmarked” funds — that is, funds with specific, voter-approved purposes. An open space fund is supported by a specific property tax levy and can be spent only on open space. A fire department fund is supported by a specific tax levy (or levies, in the township’s case) and can be spent only on the fire department. By comparison, nearly all money that flows into the Village and, to a lesser extent, the Granville school system is spent at the discretion of elected officials.

 

From a practical standpoint, Granville Township and Granville Village perform many of the same functions. The Village maintains roads, a police department and other general government functions. The Township maintains roads, a fire department and other general government functions.2 Excluding the public safety function of the two governments, the core of everyday local government is maintaining roads and general government functions, such as planning, overhead, etc. The Village and the Township each spend about $600,000 a year maintaining roads, give or take $150,000 or so in any given year.

 

The Village pays for its roads out of its General Fund. The Village staff recommends how much to spend and what work to do. The Village Council has a public hearing as part of its budget process and votes on the road projects.  The Township has a separate Road and Bridge Fund. Trustee Fred Abraham oversees road work. Elected Fiscal Officer Norm Kennedy watches the money.

 

The Trustees’ request for a road maintenance tax hike would make you think the road fund is running short on cash. It isn’t. To the contrary, the township’s Road Fund is in remarkably good financial health. Its budget reserve account is overflowing. The road fund has benefited from an increase in its (unvoted) property tax rate from 2.0 mills to 2.3 mills in 2004 and in its (voted) road levy from 2.0 mills to 2.75 mills in 2006.3 These tax levies apply only to properties in the unincorporated portion of Granville. Village residents don’t pay road levies, although they do pay all other township taxes, such as those for the fire department and open space.

 

The Road and Bridge Fund has taken in more revenue than it’s spent in every year since 2005 thanks to the 2004 and 2006 tax increases.4

 

	Road and Bridge Fund
Year	Revenue	Expenditure	Surplus
2005	583,597	534,724	48,873
2006	726,448	557,882	168,566
2007	775,870	755,287	20,583
2008	801,700	718,531	83,169

 

The Road and Bridge Fund surpluses have ranged from to 3% to 23% of revenue, since 2005, for a total profit of $321,191. The effect of the 2006 tax hike on revenue and spending is apparent. These annual surpluses more than doubled the size of the Road Fund’s budget reserve from about $200,000 on December 31, 2005, to $475,000 on December 31, 2008.

 

Road Fund
Year-end of	Fund balance
2005	203,763
2006	372,329
2007	393,412
2008	475,832

 

In addition to $475,000 in its Road Fund budget reserve, the Township has two smaller rainy-day funds dedicated to road work. The state provides the Township with more than  $100,000 a year from Motor Vehicle License Fees and the Gas Tax. This money can be spent only on roads. Again, the township has received more than it spent most years.

 

	Revenue			Expenditures
Year	Motor Vehicle License	Gas Tax	Total	Motor Vehicle License	Gas Tax	Total	Surplus/Deficit
2006	16,513	92,261	108,774	20,089	50,737	70,826	37,948
2007	16,195	87,249	103,444	17,883	62,211	80,094	23,350
2008	17,794	94,089	111,883	27,931	98,624	126,555	(14,672)

 

The surplus cash in this vehicle fee/gas tax fund provides a back-up to the $475,000 budget reserve discussed above. This fund is a sort of rainy-day fund for the rainy-day fund. The back-up road fund has about $85,000 in it, up from $53,000 in 2005.

 

	License/Gas Tax Fund
Year-end	Motor Vehicle License	Gas Tax	Total Fund Balance
2005	34,097	19,248	53,345
2006	30,521	60,772	91,293
2007	28,833	85,810	114,643
2008	18,686	66,692	85,378

 

Let’s combine the Township’s two road funds, so we can get a broader picture of how much the Township has in its rainy-day fund for roads. To be blunt, it’s a lot.

 

Total Road Reserve Fund
Year-end	Fund balance
2005	257,108
2006	463,622
2007	508,055
2008	561,210

 

In other words, the Township’s budget reserve for roads has more than doubled, from $257,000 on December 31, 2005 to $561,000 on December 31, 2008.5

 

What have we learned today?

 

The Township generates a very stable $900,000 per year in revenue for roads. That’s been more than enough to handle maintenance on Township roads in recent years. These surpluses were enlarged by the 2004 and 2006 tax hikes. The tax increases have helped build a large budget reserve equal to 66% of what the Township spent on roads last year. This is a very comfortable safety net. It does not need to be increased.

 

And let’s not forget the General Fund. The General Fund provides yet another back-up for road maintenance. Many townships spend their General Fund on roads as a matter of routine. Granville last did so in 2001. With a large surplus in its road funds, it’s unlikely the General Fund would be needed for roads. But it’s there as protection, so it’s helpful to consider all funds available to fix roads.

 

	Total Budget Reserves
Year-end	General Fund	Road Funds	Total
2005	192,982	257,108	450,090
2006	249,164	463,622	712,786
2007	343,991	508,055	852,046
2008	604,069	561,210	1,165,279

 

Granville Township’s cash-in-the-bank, available to maintain its 36 miles of roads, has swelled from $450,000 at the end of 2005 to nearly $1.2 million on Dec. 31, 2008. In addition, revenue dedicated to roads has soared from about $650,000 annually in 2005 to more than $900,000 in 2008 — and that’s not counting the General Fund’s revenue growth.  The Township generates about $450 per household annually for its roads and has additional rainy-day funds of more than $500 per household. That’s enough.

 

Since the Township does not need more money to fix its roads, why are the Trustees asking for another tax increase? The official reason is the price of asphalt is up, so the township needs more money. The trouble with that explanation is the price of asphalt is actually down from last year. The township, village and school district all did extra paving this year to take advantage of low prices.

 

What’s the real reason the Trustees want more money? We’re so glad you asked. Here’s our theory: The real reason the Trustees want more money is to pay for their new $700,000 garage.

 

Why don’t they just say so? Because the new garage is “the expense that must not be named,” to twist a phrase from the Harry Potter books. The garage is a very sensitive subject to the Trustees. Here’s a refresher course on why.

 

The Township used to rent garage space from Fred Abraham, before he was Trustee, for a little over $20,000 a year, a fair price. When Fred ran for Trustee in 2007, he assured voters that he’d gotten clearance from the state that this financial conflict-of-interest was just fine. But once he was elected, the Attorney General told the Trustees (twice) that the lease was a prohibited conflict, and Fred would have to resign or the Township would have to move its road operation. So the Township built a $700,000 garage on Columbus Road.  "Fred’s garage," as locals call it, is nicknamed such because Fred oversaw its construction (under budget), ably runs the road operation from the garage and the garage’s very existence was necessitated by Fred’s conflict. But the garage is a sensitive subject. The Trustees are loath to speak the truth: We want a tax hike to pay for a $700,000 garage we had to build because Fred had a conflict of interest.

 

Why don’t the Trustees use their rainy-day fund and borrow the rest of the money? That seems reasonable. The Trustees are sitting on a pile of cash, the township is debt-free, it has a $15 million debt limit, and interest rates for local governments are at record lows. Cash and borrowing — rather than a tax hike — is the sensible strategy. But Fiscal Officer Norm Kennedy hates debt. That’s a good thing. We hate debt, too. The Township is debt-free thanks to Norm’s fiscal caution and voters rejection a $10 million bond issue for the overpriced Kraner land deal. That’s a good thing.

 

To build the garage, Norm got a $750,000 credit line from Park National Bank. The credit line was arranged during the peak of the credit crunch last year, and the terms were unfavorable to the Township. Norm renegotiated the credit line on somewhat better terms a few months ago. Because the Township was flush with cash, it did build the garage with cash, never tapping its credit line. Norm used cash from the road fund and the general fund. But a $700,000 building is a drain, even on the Township’s healthy bank accounts. So in August, Norm said he planned to tap up to $600,000 of the credit line. Payments will be about $60,000 a year. The interest rate is 4.8% for five years, then resets.

 

But, as we said, Norm hates debt. He wants to pay off the garage as quickly as possible, maybe in three years, instead of 15. The levy generates $40,000 a year.

 

So that’s why the Trustees want a tax hike. It’s not a nefarious reason. It’s kind of quirky. Norm hates debt, so he wants everyone in the township to throw an extra $20 bill into the hat every year to help pay off the township’s only loan. The Trustees’ fairy tale about needing a tax hike in 2011 because of asphalt prices …well, that’s just the Trustees being the Trustees. Whom are you going to believe: the Trustees or their audited financial statements?

 

Bottom line: You don’t raise taxes in a severe recession to avoid the inexpensive financing of a capital expense. Even after spending $100,000 for a down payment on the garage, the Trustees should have in excess of $1 million in rainy day funds at year-end 2009 to cover any shortfall in road maintenance costs. This $40,000 is better left in the hands of residents, who are trying to pay down their debts, too.

 

The Township’s strategy of repeatedly asking for small tax hikes is Big Government by a thousand cuts. The school district is perceived as the high-priced government because it asks for tax hikes in large increments, most recently in 2003.  The Village income tax rate and property tax rate have not changed in more than two decades. The Village Council is unpaid. Yet it is perceived, inaccurately, as a high-priced jurisdiction. The Township has been responsible for virtually all property tax hikes in recent years. Trustees and the Fiscal Officer are paid, the only elected officials in Granville to earn salaries. It is a myth that the Township operates frugally while other Granville governments spend wildly.

 

The truth is, all Granville governments are well-financed. Only the library (due to state funding cuts) faces any serious, short-term fiscal threat. Financially strong governments are a sign of civic success. But, on this tax levy, the Township has failed to exercise good judgment. This is no time to pad cash reserves or make a crash effort to reduce already minimal debt. It’s a time to use the $1.2 million in cash reserves that taxpayers so generously provided during good times. Stay out of taxpayers’ pockets during hard times unless it is absolutely necessary. This tax hike should not have been put on the ballot and should be rejected.

 

Let’s end with The Big Picture — an all-inclusive snapshot of the Township finances. The chart below shows Granville Township’s unreserved fund balance for all funds — roads, open space, fire, etc. The cash balance grew from $1.9 million at the end of 2004 to $7 million at the end of 2008. That’s right — $7 million.

 

This is $7 million in tax money, mostly property taxes, that has been accumulated over the years by the Township taking in more than was spent. In 2008, the Township took in $5.4 million in revenue for all its funds and spent $4.3 million. Each fund has its own story. The Open Space Fund is particularly flush because the Township had been saving money for the ill-fated Kraner land deal. But no matter how you slice it, this is the balance sheet of a government that is financially healthy and loaded with cash.

 

 

Fund balance
Year-end of	General	Road and Bridge	Fire	Open Space	Fire (capital)	Other government funds	Total funds
2004	237,078						1,884,646
2005	192,982	203,763	46,811	558,510		536,577	1,538,643
2006	249,164	372,329	170,263	870,879		522,007	2,184,642
2007	343,991	393,412	509,824	1,963,974	1,283,500	663,030	5,157,731
2008	604,069	475,832	648,302	3,415,967	938,760	878,019	6,960,949

 

 

Why is a government with this amazing balance sheet asking for a $40,000 tax hike in a recession? A tax cut seems far more appropriate.  

 

¹ All numbers are from Granville Township’s audited financial reports, except for 2008, which is from an unaudited report, supplied by Fiscal Officer Norm Kennedy. In a few cases, the numbers vary slightly in different reports due to timing differences and accounting changes. The Township updated financial reporting in 2005, making some fund comparisons difficult with 2004.

² The governments also have other self-sustaining operations (a water and sewer utility for the Village, two cemeteries for the Township) that are important but not dealt with directly here.

³ The township unvoted property tax levy flowing into the general fund decreased from 0.3 mills to 0.1 mills at the same time its road millage rose from 2.0 mills to 2.3 mills. Voters approved increasing the other property tax levy for roads in November 2005, with the increase taking effect in 2006.  It has since to declined to an "effective rate" of about 2.5 mills to adjust for inflation.

⁴ The audited reports did not itemize the Road and Bridge Fund prior to 2005.

⁵ The money is held mostly in an Ohio STAR account, an ultra-safe money market fund for local governments operated by the state Treasurer.