Proponents for and against Orem’s Prop 2 arrive at very different numbers in reaching their financial conclusions regarding the proposed Orem-only school district. As independent Certified Public Accountants with nearly 200 years of combined experience, and Orem residents, we want to set the record straight. School district fund accounting is different than accounting for for-profit entities and our attempt is to explain the numbers in a way that everyone can understand. All numbers stated below are for the fiscal year ended on June 30, 2021 and can be found on the Alpine School District website.
A new Orem school district would bring in $113.7M for school operations. This amount is received through property tax collections (22% of total), Federal Funding (14% of total) and contributions from the State Minimum School Program (MSP) (64% of total). The MSP is funded from Utah State income tax and is calculated by using the weighted pupil unit (WPU) multiplied by the state-established value ($3,596). The MSP is designed to guarantee each school district a minimum amount of funding per student. If more property tax is collected, the state support portion goes down and vice versa.
The cost of operations for the schools in Orem for FY21 totaled $129.1M. The contribution from ASD to Orem to cover operations was therefore $15.4M. (This number has been adjusted from $21.5M at the request of the pro-split group to take out the costs of Summit and Polaris schools and to add in more Title 1 funds.) We believe that this operating deficit will be even larger as discussed below.
Consider that ASD overhead is currently $1,930 per student. The economy of scale helps Alpine achieve one of the lowest overheads in the state. The overhead rate for the six city-only school districts in Utah are as follows: 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 average $3,162 per student. Remove Park City SD and the average is $2,833 per student. It is likely that Orem’s overhead would be more in line with these districts and so we used $2800 per student as an overhead allocation. This would increase the operations deficit by an additional $13.4M making the total deficit $28.8M.
One should also consider that schools in Orem are aging, and greater maintenance will be required in the future. Student numbers are decreasing in Orem. Common sense says that overhead per student is higher when a school has 400 students compared to one that has 900 students. Common sense also tells us that the costs of having two superintendents, district offices, warehousing and bus barns will cost more than having one. As anyone who has gone through a divorce knows, turning one household into two simply costs more.
Orem would lose Title 1 funds as a standalone district. Orem’s disadvantaged students generated $2.12M in Title 1 funds. ASD spent $5.65M in the Orem Title 1 schools. This $3.52M difference is part of the operating deficit stated above.
The last Utah district split was the Jordan/Canyons split, and it serves as a good example of what can occur, against all expectations. Both sides expected a property tax decrease. What happened, instead, is that property taxes increased for both districts. In addition, the cost to split was at least $59M combined. A recent study looking at a possible South Jordan split estimated the cost to be $25M. South Jordan is similarly sized to Orem. It is not reasonable to assume Orem could split for $5M as the flawed feasibility study states.
It is true that Orem is a net contributor of $6M to 8M per year in the debt service fund. The Debt Service Levy for Orem generates about $16M per year and approximately half of that currently goes out to bond projects that were not completed in Orem. The Capital Tax Levy for Orem generated $3.85M and Orem received approximately that same amount in capital expenditures. It is not true that excess debt fund money could be used to cover the operations deficit we have described because debt service funds may not be used legally to cover school operations. In addition, a new Orem-only school district must assume a proportional share of the 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 an Aaa bond rating from Moody’s. This bond rating enables ASD to get an extremely favorable interest rate on the money it borrows. A new Orem school district would not be able to receive such a favorable interest rate immediately and maybe not for many years, if at all. In addition, Orem’s assessed property values, computed in taxation, are not growing as fast as those in other parts of Alpine District. Thus, more of ASD’s existing bonds are being paid for by new development. This is a good reason for bonding and counters the rush some feel to separate now before any more bonds are issued.
Keep in mind that while Orem is currently helping to build schools in other cities, we were once the recipient of the funds while other cities helped build schools in Orem. That is the beauty of a multi-city district, an insurance policy, a state road, or a federal disaster fund. All participate by paying a share, knowing that sometimes we are recipients and other times we are payers. What goes around, comes around.
The numbers presented by the pro-split group do not make sense and are not accurate. We were very disappointed to learn that John Barrick and the other accounting professors did not ask any questions of ASD staff to try and reconcile their numbers. We, on the other hand, reviewed the numbers with ASD staff and are satisfied that all the questions/corrections that the professors raised have reasonable explanations.
Currently, Orem receives more from ASD than it contributes. It is evident that this difference could not be made up with current Orem property taxes; services would need to be cut if Prop 2 passes. Please keep our taxes low and support the students in Orem 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 The Hortin Group.
Brett Duckworth, CPA, Partner of Duckworth & Gordon.
Douglas Halladay, CPA, President of Douglas D. Halladay & Company.
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