Debt and taxes: Portland faces limited options for school revenue

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Second of two stories on Portland’s financial outlook.

PORTLAND — A clear majority of city voters – 78 percent – backed the $110.6 million education budget June 12.

Getting that budget to the polls was more difficult.

Superintendent of Schools Xavier Botana’s original $113 million budget request was trimmed to $112 million by the School Board, before city councilors further reduced the amount presented to voters.

The divergent opinions on spending and its effects on local taxes could be played out again and again in the future. Botana and Alicia Gardiner, budget and finance director for the Portland Public Schools, said a 6.5 percent spending hike is expected next year.

Tax increases projected through fiscal year 2023 are at least 5 percent annually, from $88 million now to $113 million.

This year, supporters of Botana’s budget included Mayor Ethan Strimling. Proponents were vocal and visible in hearings throughout the budget process.

“While I appreciate being given credit for the grand vision,” Botana said last month, “I was trying to continue the supports we have in place.”

A majority of city councilors remained worried the tax increases were too high. they are empowered to set the budget amount, but have no say on how the money is spent.

Yet as the council Finance Committee of Strimling and Councilors Justin Costa and Nick Mavodones deliberated, Costa’s suggestions on where spending could be trimmed became the template when the full council cut $1.4 million from the budget.

The result was a budget that increased the school side of the property tax rate by 53 cents per $1,000 of assessed value, from $10.61 to $11.14 of the entire tax rate of $22.48.

“I think we are certainly facing challenges, but the biggest piece of it is just giving an honest accounting of how we will deal with them over time,” Costa, a former School Board member who also led the board’s finance committee, said. “If you are not doing that, you not effectively dealing with them.”

With fewer options for local funding, the school budget requires a greater proportion of property tax revenue than municipal spending. This year, property taxes provide 79 percent of the education budget; the municipal budget needs 45 percent.

With more than half of city students eligible for free or reduced lunches, Gardiner said activity fees for revenues would largely be waived, collecting maybe $40,000.

About 200 students are homeless, Botana said, and getting them to school as required by federal law is “a logistical undertaking and a cost.”

Botana suggested the state use taxes from the hospitality and tourism industries to alleviate the strain on local property owners paying for education.

“Communities that are the driving forces for that type of revenue coming into the state don’t get to use any of the revenue,” he said.

In the total property tax rate, education funding is now smaller than municipal funding. From fiscal years 2005 to 2015, education spending was the larger share of the tax rate, even in years when the rate declined.

That changed in 2016, when city schools received $1.7 million more in state education aid than expected and the city grappled with a loss of state reimbursements for homeless shelter operations and general assistance benefits.

The result was a 62-cent increase in property taxes on the city side, and a penny increase on the school side. In the two ensuing years, municipal tax rates increased 53 cents, while education rates went up 49 cents.

Then, in November 2017, voters by a 2-1 margin approved borrowing $64 million to renovate four city elementary schools. 

The $64 million question

The funding is actually a staggered series of bond purchases for repairs, renovations and upgrades at Lyseth, Longfellow, Presumpscot and Reiche elementary schools.

A competing $31.6 million bond to fund the same work at just two of the schools got 50 percent support, but the referendum question generating the most support won the day.

Approval of the $64 million bond also automatically took all four schools out of consideration for any future state funding.

With work beginning first at Lyseth, bond debt service will add $972,000 to school budget beginning July 1, 2020.

In ensuing years, the debt service increases more than $900,000 annually, reaching $3.75 million in fiscal year 2023.

City schools are also paying $1.9 million in debt service on the local share for replacement of Fred P. Hall Elementary School. The state is paying $29 million of the construction, after a 2012 fire at the school. Now named the Amanda C. Rowe Elementary School, it will open in September.

On May 15, the School Board resolved to study its facilities, enrollment, transportation and other cost data, based in part on a Sebago Technics report that estimated $320 million of future maintenance needs will require $12 million to $15 million of annual funding. 

Subsidies come, go

With the limited local revenue options come routine uncertainty regarding state funding.

As each new legislative session convenes, it is not uncommon for school districts to have no idea what the state allocations in the first year of the state budget will be until after local budgets are passed by voters.

“It is so stressful to have to build a budget when you don’t know what it will look like,” said Gardiner, who worked for Westbrook schools before shifting to Portland.

At the same time, the School Department forecasts are gloomy regarding the state Department of Education’s Essential Programs and Services formula. In fiscal year 2023, those are projected to be $6.35 million, reduced from the $12.6 million budgeted this year.

Yet there will be full sessions of the Legislature that will be completed by fiscal year 2023. State funding could be increased, and formulas tweaked.

What clearly hurt funding this year were reductions in state aid due to revised funding formulas, an increase in the tax rate the DOE uses to determine how much districts will get in state aid beyond suggested local funding, and the valuations of city property made by the state.

Botana said the combinations came to light as budget preparations began.

“By the time December and January rolled around, we were thinking we would be lucky to break even,” he said .

Gardiner said state formulas are weighted to account for the number of students who receive free or reduced lunches, and the number of students requiring additional instruction in English. But $7 million in additional funding was absorbed by the higher tax rate and valuations.

Botana said legislators did increase funding this year, but in targeted areas that became costly to local districts.

“They added $111 million, but they committed to doing things that cost $150 million,” he said.

A $1.9 million hit came when revised rules prevented the city School Department from collecting tuition from other communities sending students to the Portland Arts & Technology High School.

The tax rate used by the DOE increased from $8.19 per $1,000 of assessed value to $8.51. The rate is not directly assessed to city taxpayers, but is the guideline, when multiplied by the number of students in a district, of how much the DOE expects districts to fund locally.

Gardiner said officials had expected the rate to decrease.

Another change requires the DOE to calculate local valuations using the average of the last two years of Maine Revenue Service data, instead of the last three.

This year, the valuation used for EPS was $8.2 billion, or $300 million more than the city valuation used to determine tax rates. Next year, the state average increases to $8.7 billion, Gardiner said, as the state valuation this year is $9 billion.

The revaluation of city properties expected to be completed for fiscal year 2020 will help provide some certainty because it will place the city and state on a more even par for valuations.

City assessor Chris Huff said last month he expects the valuation to reach $11 billion. The May projections on future school budgets barely surpass an $8 billion valuation, and then only in fiscal year 2023.

With the $113 million in tax revenue expected in 2023, the School Department estimated the city’s valuation at $8.02 billion. The resulting school tax rate would be more than $14. At $11 billion in valuation, the rate is $10.29.

“The tax levy is not going to change, but it makes it easier for us to compare and the for the city to compare Portland to other places,” Gardiner said.

David Harry can be reached at 781-3661 ext. 110 or dharry@theforecaster.net. Follow him on Twitter: @DavidHarry8.

Debt service on construction of the new Amanda C. Rowe Elementary School is part of the Portland school budget this year. More debt service will be added in the future to pay for a $64 million bond to repair and renovate four more schools.

Alicia Gardiner, Portland schools finance director, left, and Superintendent of Schools Xavier Botana are expecting property tax increases of at least 5 percent in the near future to fund school budgets.

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Portland City Hall reporter for The Forecaster. Baltimore native, lived in Maine since 1989. A journalist since 2005, covering much of Cumberland and York counties. I joined The Forecaster in 2012.