Truth, taxes and other things

Loren Martell

The school board is off and running for a new year, but don’t expect anything new. Jill Lofald is still the dominant figure in the room, along with her closest ally: Rosie Loeffler-Kemp.

Lofald will be the chair for a third year in a row and Loeffler-Kemp her vice-chair. We can only hope no more big-ticket, expensive items are put in front of these two rubberstampers, or taxpayers better hold onto their wallets.  

Kelly Durick-Eder will be treasurer and Alanna Oswald will be clerk. I don’t know if Oswald wants more clout, but she’s been on the board for six years and certainly was due to be the Big Cheese. On the other hand, maybe she likes playing second fiddle. Some people do.

At any rate, with Lofald in the lead, member O will be playing fiddle to a medley of pep rally tunes, filled with lots of cheering and happy “thankyous!” to administrative staff (“our leadership,” as Lofald refers to them.) The accompanying percussion will be a relentless up-tempo beat of rubberstamping.      

Board officer positions were all decided by acclamation in this year’s election: unanimously, with no contest. Readers can decide if this smooth, sweet harmony is synonymous with good government or just confirmation that all dissent and independent thought has been completely purged from the room.      

It’s called Truth in Taxation

When I first heard, several years ago, that the district was going to give a Truth-in-Taxation presentation, I immediately thought of the ameliorating memory hole in 1984’s Records Dept. of the Ministry of Truth. Given all the flimflam financing around the Red Plan, and a tax burden that was expanding by leaps and bounds, the title of the presentation seemed like an Orwellian joke.

The district’s tax levy has spiked an astonishing 361% since the Ministry of Truth’s Manager Keith Dixon first entered Duluth: from $11,940,873.81 at the end of 2005, to $43,085,879.83 now.
The levy went up nearly two and a half million more ($2,422,878,) or 5.96%, this year.

Readers can decide if the memory hole is still wide open and serving its purpose by reading the explanation of this year’s increase by the district’s Chief Financial Officer Cathy Erickson: “This year we have an increase of our levy limitation of about 5.96%…(but) due to the changes in the overall tax capacity of our school district, the average increase for a homeowner who doesn’t change their property wealth would be less than 1% or .7%. So if your property value stayed the same as last year…you’re barely going to see any  change in your property taxes … ”

You’ll barely even notice the $2,422,878 increase, Duluth. I’ve heard this “percentage” song for as long as I’ve gone into the boardroom, witnessing the tax burden on our town skyrocket 361%.

The county just did its property value reassessment, in an inflating real estate market. The only taxpayers who had property that “stayed the same” in value probably live in a cozy community under the sidewalk along West Michigan Street. The estimated market value of my own property jumped 14%. I can’t get the county to respond to what the average increase was for residential property, but presumably it all went up about that range.  

Whether the town’s “tax capacity” has increased or not, Duluth is paying nearly $2.5 million more to the school district this year. The total bill is mpore than $43 million, and the most important percentage to remember is not .7%. It is 361%.

Anyone who thinks he/she has gotten a good return on that investment, look around and think again.  Look at our district’s class sizes and enrollment numbers; go up on the hill and watch them tear down Central High.

CFO Erickson blamed some of the levy increase on a growing number of troublesome citizens who are challenging the assessed value of their properties and winning: getting a reduction in their property’s estimated market value and a subsequent drop in their tax liability, known in government parlance as an “abatement.”

Whatever money these citizens don’t pay, the district procures from the poor obedient dupes (myself included) who keep paying whatever they’re told without question.

“When a property owner contests the valuation of their property, and we were supposed to collect a certain amount from them,” Erickson lectured our attentive, ever amenable board, doing her best to ameliorate the point in the most saccharine terms possible, “and they are successful (in contesting)…then we have to go and re-ask the remainder of the levy from the (rest of) the property wealth base.”

Erickson, just getting warmed up, continued talking about truth and taxation: “A big component of the levy” she informed our ever-receptive representatives, “is the long-term facilities levy.”

She went on to describe “over 15 school buildings, plus other support buildings” the district needs to maintain. She didn’t mention the brand new multi-million dollar buildings taxpayers are being forced to pay for without a vote using the long-term maintenance levying authority; that cost will apparently come next year.

Erickson also did not mention the 2012a lease-levy bond payments that came due last February. The first payment was more than a half million ($519,534.75,) and will continue to go up year after year for the next seven years, to more than $2 million ($2,047,707.00) in 2028, as taxpayers shoulder an abominable interest payment of 84% on a Red Plan bond that hung moldering in the air for a decade after the fast-talking verbal contortionist named Keith Dixon slipped out the back door.

The only thing that surprises me about the revolting 2012a bond and a 361% levy increase since the cotton-topped hustler’s entrance into our town is that this massive screw job hasn’t sparked a revolution.

Erickson asked for a show of hands from people who own property in ISD 709’s taxing district. She encouraged these lucky people to “go home tonight and look at your proposed property tax statement: It’s going to be exciting!”

Maybe looking at what we in Duluth have to pay in taxes is an “exciting” experience for the district’s CFO. The last time I checked, she still lives in Two Harbors.    

Her journey toward truth-in-taxation continued unabated however, eventually leading away from the levy, to the district’s budget, where another revelation popped out at me. The figure was so hard to believe I initially thought Erickson’s voice had been picked up wrong and the subscript of her words on my computer screen was inaccurate. I requested clearer copies, paper or otherwise from the district, so I could actually read the charts.

Video footage containing the charts I received from the district allowed me to verify that, sure enough, the subscript was correct: The cost of employee benefits jumped more than $2.5 million.

I don’t know if anyone in Duluth’s cheery rainbow-land even reads my articles, but my last one about the current teacher contract negotiation pointed out that in two years the cost of employee benefits had jumped $2,513,651.

This presentation revealed that the cost jumped another $2,529,455 in ONE year – a total of more than $5 million in three years.  

Total benefit expense rose to $30,387,587.66 in 2022. It was $25,164,518.00 in 2019. During a three-year time-span – 2020, 2021, 2022 – the cost has increased an average of $1.7 million a year, while also rising from 23.22% of General Fund expenditures, to 26.43%.
This expenditure is out of control. It is also exhibit A, showing the flawed government that results from one-party rule, where all the rulers are in bed together. If nothing is done to cope with this issue during the current round of contract negotiations, it will be tantamount to a dereliction of duty by our public representatives.  

Onward, to the audit

If you’re eager to watch the video of the district’s annual audit presentation (generally more popular than any Hollywood release,) look for the 1/18/22 meeting on youtube.

One of the most important indicators of the district’s fiscal health is the reserve fund balance, and a good part of this year’s presentation dealt with that number.

“We (have) 8% as a fund balance policy.” The CFO said. “Auditors will tell you that they’d like to see even more than that. (She looked at the auditor and laughed.) But we felt like that – when we came to the district – and asked the board to revise it (the fund balance policy,) we felt that 8% was reasonable…”

I assume CFO Erickson was using the royal “we,” because I don’t know who else came to the district with her. Not long after her arrival, however, the reserve fund policy was revised. The percentage of the fund to be held in reserve was reduced from 10% to 8%, and another significant change was made.

The original policy contained ironclad words: “The District SHALL establish and maintain” the 10% fund balance. The new policy equivocated that the school board would “strive to maintain” the 8% fund balance.

“As we continue to create financial sustainability for the district,” Erickson continued her spin-laced lecture, “we will probably review that (8% requirement) and ask for additional recommendations from our auditors to what an appropriate fund balance percentage should be (like, maybe, back to what was before we watered down the policy: 10%.)”

“Our growth in General Fund revenues and expenditures, due to the ESSER (Elementary and Secondary Schools Emergency Relief for the COVID pandemic) is tweaking up,” Erickson said, tweaking up and on, “to over the $120 million mark…so it’s close to ten million dollars is what our new target would be as an (8%) fund balance goal.”  

The auditor informed the board that the district’s reserve was “about $4 million,” which is about 3.3% of $120 million – still pretty far from 8% and about 40% of the board’s $10 million “fund balance goal.”
COVID relief funding has actually helped the district climb a bit out of the hole, especially compared to the shape the budget was in four years back. 

The 2017 audit revealed that the restricted reserve had plummeted to barely more than a hundred grand ($111,418,) and the unrestricted to -$485,864 in the red. The restricted reserve was more than $12 million before Keith Dixon came to town; the unrestricted more than $18 million.

The auditor told the board that “payments of all your debt for the year was $33,810,000,” a figure I have to look into more. 

She said total remaining debt is “coming down” to a mere $171,118,000. She also made a comment in regard to specific expenditures that likely flew past everyone but me.

The auditor pointed out that part of the taxpayers’ money was being used to pay “a portion of the 2012a (bond) – that $12,800,000, plus interest.”

She neglected to tell our incognizant board the gross amount of interest ($10,793,673 on a $12,801,327 bond) taxpayers are saddled with, and only mentioned, in passing, some of the appropriated bonds.

Three Red Plan bonds are not being directly paid for by taxpayers. Annual payments are drawn (appropriated) straight out of the district’s budget.

The biggest relief for our public schools will come on the day when these millions of dollars are no longer being robbed from ISD 709’s general operating fund – i.e., the classrooms – to pay Red Plan debt, based on phony savings figures and failed property sales.

That celebratory day was put off even further in March, 2019, when four members of our school board – including the current chair and vice-chair – approved extending the largest bond payment out of the district’s general fund – the 2009b debt – until 2034, twenty-five years from when the bond was issued.

This debt extension reduced the annual burden, but will rob even more money from the district’s operating budget in the long haul.

Erickson confirmed that the board-approved extension to the Red Plan – demolishing Central High and constructing two new facilities on the Central campus – “which will be $31 million” of additional debt for more bonds, recently sold, “is going to be on our next year’s levy report.” (More excitement to look forward to next year, Duluth.)

Doing her best to make lemonade out of lemons, the CFO went on quite a bit about using “our tools to be able to refund (bonds)…We’ve done multiple refundings to try to help lower our obligations to the taxpayers.”  

“And that’s seen as a good thing (by the) auditor person?” Board Chair Lofald asked, displaying once again how far out of her depth she is in these matters.  

“Yes,” the auditor person answered.

“Yeah, yeah,” the chair answered. “I mean, I think, it would – it’s saving us money, and it’s downloading but – just want to know if it kind of counts against us, almost like when you refinance something else in our home, our own personal lives?”

The auditor person responded: “No.”

“Okay. Good.”

Most general obligation municipal bonds have a “trust indenture,” that specifies when the bond can be “called” and refunded – paid off by new bonds purchased at a lower interest rate.

It is standard practice to refund bonds, and the district had done some refunding before Erickson entered the scene – primarily because of the watchful eye of the only board member who’s ever truly paid attention to this part of the district’s financing in all the years I’ve been watching from the sidelines – Art Johnston.

Johnston was a much more diligent fiscal watchdog than the person who replaced him on the board. That person, currently chair, frankly declared that the budget and finance “would not be my strong suit,” when she ran for office.

A party machine town elected her anyway, however, and put her in charge of a $120 million budget.  
The current gargantuan size of the tax levy should focus attention on all these financial matters.
What happens when the COVID relief money dries up and the district has to deal again with problems that have remained somewhat submerged under pandemic concerns, such as enrollment numbers? As Erickson put it during this presentation: “We had budgeted for higher pupil counts than we are experiencing … ”

Hold on to your wallets, Duluth. This part of the money game IS the chair’s strong suit. The citizens of our town made a $50 million commitment to the district the first year she got elected ($5 million/year for 10 years,) but the soon-to-be Madame Chair was not impressed. One of her first statements in the boardroom was: “I want to think BIG and go for another levy in two years!” 361%? Barely buys chicken feed, these days.