Proponents for and against Orem’s Proposition 2 arrive at very different numbers to reach their financial conclusions regarding the proposed Orem-only school district. As independent public accountants with nearly 200 years of combined experience and residents of Orem, we want to set the record straight. Accounting for school district funds is different from accounting for for-profit entities and our attempt is to explain the numbers in a way that everyone can understand. All figures shown below are for the year ended June 30, 2021 and can be viewed on the Alpine School District website.
A new school district in Orem would bring in $113.7 million for school operations. This amount comes from property tax collections (22% of the total), federal funding (14% of the total), and state minimum school program (MSP) contributions (64% of the total). MSP is funded by Utah state income tax and is calculated using the Weighted Pupil Unit (WPU) multiplied by the value set by the state ($3,596). The MSP is designed to guarantee each school district a minimum amount of funding per student. If more property taxes are collected, the share of state support decreases and vice versa.
The cost of operating Orem Schools for FY21 was $129.1 million. ASD’s contribution to Orem to cover operations was therefore $15.4 million. (This number was adjusted by $21.5 million at the request of the pro-split group to remove the costs for Summit and Polaris schools and to add more Title 1 funds.) We believe this operating deficit will still be more important, as shown. below.
Consider that the ASD overhead is currently $1,930 per student. The economy of scale allows Alpine to achieve one of the lowest overheads in the state. Overhead costs for Utah’s six school districts are: Provo $2,956, Salt Lake City $3,113, Logan $2,541, Murray $2,278, Ogden $3,275, and Park City $4,810. These six cities have an average of $3,162 per student. Take out Park City SD and the average is $2,833 per student. It is likely that Orem’s overhead is more in line with these districts, so we used $2,800 per student as an overhead allocation. This would increase the operating deficit by an additional $13.4 million, bringing the total deficit to $28.8 million.
It should also be taken into account that the schools in Orem are aging and that more maintenance will be required in the future. The number of students is decreasing in Orem. Common sense tells us that overhead costs per student are higher when a school has 400 students compared to one with 900. Common sense also tells us that the costs of having two superintendents, district offices, warehouses and bus shelters will cost more than having one. As anyone who’s been through a divorce knows, it just costs more to split a household into two.
Orem would lose Title 1 funds as a self-governing district. Disadvantaged students at Orem generated $2.12 million in Title 1 funds. ASD spent $5.65 million at Orem Title 1 schools. This difference of $3.52 million is part of the deficit of operation mentioned above.
The last split in the Utah District was the Jordan/Canyons split, and it’s a good example of what can happen, against all odds. Both parties expected a reduction in the property tax. Instead, what happened was that property taxes went up for both districts. Additionally, the cost of the division was at least $59 million combined. A recent study looking at a possible split from southern Jordan estimated the cost at $25 million. Southern Jordan is the same size as Orem. It is not reasonable to assume that Orem could split for $5 million, as the flawed feasibility study indicates.
It is true that Orem is a net contributor of $6M to $8M per year to the debt service fund. The debt service tax for Orem generates about $16 million per year and about half of that is currently allocated to bond projects that have not been completed at Orem. The capital tax for Orem generated $3.85 million and Orem received approximately the same amount in capital expenditures. It is not true that excess money from the debt fund can be used to cover the operating deficit we have described, because debt service funds cannot legally be used to cover the operation of the debt fund. ‘school. In addition, a new Orem-only school district must assume a proportionate share of existing bond debt.
Another important factor to consider is that ASD is currently one of only 16 school districts in the United States to receive a Aaa bond rating from Moody’s. This bond rating enables ASD to obtain an extremely favorable interest rate on the money it borrows. A new school district in Orem might not benefit from such a favorable interest rate immediately and perhaps not for many years, if at all. Moreover, the estimated land values of Orem, calculated in taxation, do not increase as fast as those of other parts of the Alpine District. Thus, a greater portion of ASD’s existing obligations are paid for by new developments. It’s a good reason to bond and counteract the rush some feel to part ways now before more bonds are issued.
Keep in mind that even though Orem currently helps build schools in other cities, we were once the recipient of the funds while other cities helped build schools in Orem. That’s the beauty of a multi-city neighborhood, an insurance policy, a state highway, or a federal disaster fund. All participate by paying a share, knowing that sometimes we are beneficiaries and other times we are payers. What goes around comes around.
The figures presented by the pro-split group make no sense and are not accurate. We were very disappointed to learn that John Barrick and the other accounting professors had not asked ASD staff any questions to try to reconcile their numbers. For our part, we have reviewed the figures with the ASD staff and are confident that all questions/corrections raised by the professors have reasonable explanations.
Currently, Orem receives more ASD than it contributes. It is obvious that this difference could not be made up with the current property taxes of Orem; services should be shut down if Prop 2 passes. Please keep our taxes low and support Orem students by joining us in voting NO to Proposition 2.
Tim Christensen, CPA, retired partner at Squire, CPAs.
James Gilbert, CPA, managing partner of Gilbert & Stewart, CPAs.
Steve Hortin, CPA, Senior Partner of Groupe Hortin.
Brett Duckworth, CPA, partner of Duckworth & Gordon.
Douglas Halladay, CPA, President of Douglas D. Halladay & Company.