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2020- The Flawed Revenue Formula

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Factguy View Drop Down
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    Posted: Feb 15 2016 at 10:46am
I have said many times I like and respect Doug Adkins. However, the rudimentary revenue formula provided in the Journal News and Mr. Adkins blog has serious flaws. Let me explain.

By 2020, the plan is to have roughly $3.9 Mm is sustainable new revenue to be used for street repairs. I n his most recent blog, captioned below, Mr. Adkins admits about $ 1 Mm in revenues for 5 years, will go back to street maintenance. That is exactly the amount, actually slightly below, what has been provided the past years for the streets. Therefore, for five years, the additional $800,000 collected from street lamp funds taken from the General Fund and billed to taxpayers, provides no added benefit. And, it may perceived sufficiently negative to outweigh any benefits Mr. Adkins lists in his model for new jobs, new home owners, and higher property tax valuation.

Moreover, the formula doesn't take into consideration the impact of lost revenue obtained by the city when the AKS RD and Innovation center moves to Warren County. There is a direct loss of property tax and I believe in an annexation, there is revenue split between the two cities on payroll tax. Middletown is beginning with a loss therefore.

Lets look at the formula for new jobs and new residents. Approximately 950 jobs paying on average, $45,000, is the equivalent, of a corporate headquarters of a major Fortune 500 company, or two, or at the very least, a major division. The effect of AKS's move will reduce these types of positions in city tax contribution, by nearly 50%. Its highly unlikely this goal will be obtained. If that were true, wouldn't that movie theater have been built already on the east end, that backed out associated with lack of anticipated traffic off 75.

Next, lets review 1400 $10.00/hr jobs. Walmart is closing stores and rumors are the Middletown site is targeted for closure. If there was such great demand for retail sites in Middletown, why did Target close? Using a wholesale store as an example, the average Costco store employs 200 workers paying on average, 27.50/ hr. Imagine then, a project 7 Costco stores (outlet stores, Old Navy, Macy's, etc) would be required to meet this objective. The local trend shows the opposite, by retail closing. It is possible  more tenants will move to The Towne Mall, but the jobs might approach 100-150, no where near 1400.

Finally, the 425 new residents making $40,000. It is unclear if the calculation is based upon property tax or income tax, but lets assume its property tax. For years, the trend in Middletown has been more sellers than buyers. Then, what will cause such a large growth in the Middletown market? Clearly, the formula is based upon an assumption 1400 jobs come in, 950 jobs arrive paying on average $45,000 a year, creating a need and purchase of 425 homes. But, that is based upon the possibility these occur.

The 3.00 monthly charge is a mistake. It will be detrimental to bringing in new business and residents, mainly because there is already planned rates going up with other infrastructure needs. For five years, the street fund allocation is no different than it has been. The odds are awfully long, the new jobs and new residents modeled will come close to being accurate. And during that period, the city collects $4 Mm in new revenue from street lights which have no impact to the taxpayer in the increase of street repair being provided.

If I were an employee of Economic Development, it might be beneficial to have on hand, an updated and current resume. 

_______________________

Mr Adkins

What if, by 2020 we could accomplish the following:                                    Annual Increase

1,400 New Full Time Equivalent Retail/Service Jobs averaging $10/hr.           $509,600

350 New Full Time Positions averaging $50,000 per job                                      $306,250

600 New Full Time Positions averaging $40,000 per job                                    $420,000

425 New Families Moving to Middletown averaging $40,000/House             $297,500

Property Taxes Restored to Prerecession Levels by 2020                                    $750,000

Assess for Electricity for Public Street Lights                                                         $800,000

Pay off the Debt on the Downtown Mall in 2019                                                   $800,000

Total New Revenue:                               $3,883,350

 

Let’s get the easy two out of the way.   We deconstructed the downtown mall about 17 years ago.  We borrowed money to pay for the project.  Each year since then we have been paying over $800,000 a year out of the general fund to retire the debt.  The final payment on the bond is due in 2019, which means that in 2020, that $800,000 annual payment can be redirected to paving and other needs.  No one has to do anything or pay anything new, just let the bond get paid off and that money frees up in 2020.

The property tax goal is to restore property tax receipts to pre-recession levels by 2020.  That doesn’t mean I intend to raise the rates you pay on property taxes.  We can get there in two ways.  First, I hope as the city continues to improve, that existing property values start creeping up again, meaning your homes finally start increasing in value.   That’s good for you and generates a small piece of this overall goal.  The second piece is based on the new jobs and families.  As we build power plants like NTE ($600+ million) and Nicholas Place Apartments on Towne Boulevard and add new economic development projects to meet our job and family goals, the new property taxes generated by those projects, should, over the next five years, get us back to pre-recession levels, which is all that we need in this model.

There has already been a misleading article in the Journal News about assessing street lights.  I’ll get back to that, but for now, I’m going to start at the top and work my way down the list.  We’ll get back to street lights eventually and I’ll explain what I’m thinking and why.

 

Paving

So we now have a plan to completely maintain water and sewer infrastructure into the future.   The pieces haven’t been finalized, but we know what needs to be done.

So let’s move on to the other elephant in the room.  What is it going to take to get our roads properly paved?  In 2015, I asked Public Works to upgrade the listing of road conditions and then to estimate the cost of returning our roads to proper paving standards.   The estimated cost is $161,993,629.00.

How do you eat an elephant?  One bite at a time.  If you look at $162 million, you could easily just sit down and give up.  “We’ll never get there.”   If we are going to get serious about paving, the key is to break this down into realistic pieces that would move us forward towards catching up on years of neglected paving.

If you want paving completed in 10 years, then we need to spend $16 million a year in paving and I’m going to have to raise taxes, assess stuff, raise fees, and hit everyone hard.

I told you I didn’t believe in that approach, so I approached this another way.  “How could I break this into pieces that significantly moved us forward with paving without taxing the residents further for the process?”   Here’s what I came up with:

Total Repaving Cost:  $161,993,629.

We estimate that 15% of the total cost can be covered through state and federal grants for state routes, etc., (Route 4, 73, 122, etc.).  That equates to $24,299,044 covered by grants.

I estimate that we will complete $5 million in paving between now and 2020 (Remember, this is a five year plan).  We have Central Avenue, Yankee Road and Oxford State Road projects already on the books for 2016-2017.  We will also do some local paving during that period and it seems reasonable that we can complete $5 million during the next few years.

Back in the water and sewer plan, remember that we have $25 million in paving being completed as part of replacing old water and sewer pipes.

Backing all of that out leaves us a new balance of $107,694,585.  Put us on a 30 year program to get caught up and we need $3,589,819 per year, every year, to move forward.

I’m sure some of you are groaning that it takes 30 year to catch up?  Well, look at it this way.  First, as we lay this out over future posts, you’ll see that I’m not asking you for most of the money, I have other plans to get it.  Second, if we go from doing almost no paving to completing $ 4 million a year in new paving between the water/sewer projects and this new $3.5 million, and we can sustain it each year into the future, we are way ahead of where we are now.

So… to that $3.6 million (rounded up) for annual paving, I added $100,000 for park renovations, $100,000 for neighborhood improvements, and $50,000 for trees, beautification, wayfinding signage, etc., annually.   That brings the yearly total needed up to $3,834,819.

We need that each year, every year, in new revenues, to be able to accomplish paving, park renovations, neighborhood improvements and beautification in a sustainable fashion every year moving forward.

We now have a real number to hit.  Now the question becomes, how do I raise city revenues by $3.8 million over current collections without taxing our residents?  Hang with me… and I’ll show you how we get there, piece by piece.  I think when you see it all, you’ll believe that it is realistic to hit that number by 2020.

Finally, if we can pull this off, I firmly recommend we reinstate the charter provision requiring capital expenditures on infrastructure that was repealed in the 1980’s.  If we can get back on track, let’s make sure we can never undo it again.


        

      
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Vivian Moon View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Vivian Moon Quote  Post ReplyReply Direct Link To This Post Posted: Feb 15 2016 at 1:00pm

Ahh…Factguy
You really do need to drink more City Hall Kool-aid and buy a pair of rose colored glasses to read these reports.
Then you must ask yourself if any of these people ever look at the stock market reports.

What is the current debt load of Middletown?
Don’t forget that Miss Judy rolled a bunch of bonds together right after she became City Manager. What was that amount?
They paid off the bond for Weatherwax when it was sold. How much money did that free up in the budget?
How much do we owe on the airport debt?
We also got a 1.2 million dollar bond for the demo of the garage and Swallens building.
We now only have 15% in our city reserve rainy day fund.

We have lost property taxes on every home in Middletown because of market values. 
We have lost property taxes on the downtown buildings.
We have lost property taxes with the demo of more than 350 homes. Then we are spending thousands of dollars each year maintaining the empty lots located all over town.
We have also lost all the revenue from the Section 8 Program that once flowed through the coffers of City Hall. (they reeeally don’t want to talk about this little number)

As I and Nelson Self have discussed many times on this blog, City Hall has wasted millions of dollars of HUD funding over the years.

And then we have the DOWNTOWN MALL debt. Do you realize that for the past  20 years City Hall has been pumping money into their DOWNTOWN DREAM? How’s that been working out for the taxpayers of Middletown

Ahh yes...Trust them and everything will be just ducky…They will never rape and raid the the funds again...(but first they need to do this little deal for Mr. Robinette)

 

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409 View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote 409 Quote  Post ReplyReply Direct Link To This Post Posted: Feb 15 2016 at 2:32pm
Speaking of demo, HUD, taxes, buildings, etc...
This was in the MJ today:



http://www.cityofmiddletown.org/docs/commsvc/FY2016_REAL_ESTATE_AGENT.pdf

Every morning is the dawn of a new error...
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Cooper View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Cooper Quote  Post ReplyReply Direct Link To This Post Posted: Feb 15 2016 at 2:50pm
An observation. When a city uses federal funding to buy foreclosed property to sell or destroy on the back end with county land bank money, it isn't a sign property values are rising. It shows they are falling, excess capacity, and a significant reliance in the federal government associated with blight.   
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Vivian Moon View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Vivian Moon Quote  Post ReplyReply Direct Link To This Post Posted: Feb 15 2016 at 2:50pm
OOOO...I can't wait to see how this will all play out...
As Dougie once said "Give me the power and I will make it happen"
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Analytical View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Analytical Quote  Post ReplyReply Direct Link To This Post Posted: Feb 15 2016 at 5:07pm
One industry counterpart has the inside track on this newly-created city position. Instead of hiring another staff person or consultant, why not allow the proven, professional local real estate community to collaboratively market properties through free enterprise?  The record of government involvement and intervention is a rather sorry one!
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Mike_Presta Quote  Post ReplyReply Direct Link To This Post Posted: Feb 16 2016 at 4:11pm
Originally posted by Analytical Analytical wrote:

One industry counterpart has the inside track on this newly-created city position.
Instead of hiring another staff person or consultant, why not allow the proven, professional local real estate community to collaboratively market properties through free enterprise?  The record of government involvement and intervention is a rather sorry one!
Simple, really.

Lawrence P. Mulligan Doesn't believe in the free market. He believes in government control of all aspects of business, just like his brother Joe.

That's why it is important to VOTE FOR CANDICE KELLER for State Representative in the March primary!
“Mulligan said he ... doesn’t believe they necessarily make the return on investment necessary to keep funding them.” …The Middletown Journal, January 30, 2012
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Factguy View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote Factguy Quote  Post ReplyReply Direct Link To This Post Posted: Feb 16 2016 at 9:58pm
Have heard many good things about her. Have seen many signs of major player locals supporting her, including doc on Rosedale who usually rides with the M brothers. Fear her endorsements within cty GOP are weak. Carpenter. Mulligan pulls it off, every TD sign in town has a JM sign next to it. Bedfellas,
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