Only in government accounting does spending $300,000 to save $100,000 make sense
Jim Galloway’s Political Insider revisits the issue of Dublin City Schools installing solar panels to provide power to the school system. Here’s the most important quote:
The $3.5 million, 1.08-megawatt system is expected to reduce the school district’s power bill by at least $100,000 the first year alone — enough to eliminate one furlough day for all teachers or hire two new ones.
The project is financed by a local option sales tax. Given the rising price of electricity, by 2019 the savings on utility payments will cover the annual $300,000 cost of the 25-year lease, said Chuck Ledbetter, Dublin’s school superintendent.
“Our bottom line is the bottom line,” he said.
On what planet does is make bottom-line sense to pay $300,000 in financing costs for a solar system that “saves” $100,000 per year? Only in government accounting does this make any sense.
In Georgia, schools systems are funded by property taxes levied by the local boards of education, which can be used for operating expenses like salaries, electric bills, and copier paper. Some counties have passed E-SPLOST sales taxes that can be used to pay only for capital expenditures, like brick-and-mortar schools.
In Dublin, the local school system didn’t have enough property tax money in its operating budget without extensive teacher furloughs and local elected officials were not willing to raise property taxes. Last November, the AJC estimated the budget shortfall at $3.5 million.
But they had money from E-SPLOST sales tax collections. It’s like being overdrawn in your checking account, but having a hefty balance in your retirement fund.
The problem was how to convert an operating expense into a capital expenditure so they could spend E-SPLOST money on their electric bill and free-up property tax money for teacher salaries to reduce the number of furlough days.
And that’s where the solar project came in. By leasing the solar system for $300,000 per year using E-SPLOST funds, they “save” $100,000 in property tax funds, which can now be used to reduce teacher furlough days. It’s like magic that only works if (a) you follow government accounting procedures; and (b) you don’t care that you’re actually paying three times as much for electricity because you’re using somebody else’s money. Classic government thinking.
Here are two more very important issues that we’ll be discussing at much greater length.From Galloway’s article again:
Greenavations Power will own the solar panels in Dublin. But because the school system will lease them, the situation is akin to a homeowner powering up a diesel generator in the backyard, Green said.
That’s simply not true and not possible, because a school system is prohibited from entering into long-term leases like a 25-year solar lease. The actual financing structure is much more complicated, and we’ll be laying out how the school system side-stepped the state law prohibition on long-term leases.
Second is this statement:
Given the rising price of electricity, by 2019 the savings on utility payments will cover the annual $300,000 cost of the 25-year lease, said Chuck Ledbetter, Dublin’s school superintendent.
“Our bottom line is the bottom line,” he said.
Again, we’re in fiction-land, financially-speaking. I pulled out my trusty spreadsheet to check the math here. If you accept that the school system’s solar installation will generate $100,000 worth of electricity in 2013, will it really produce $300,000 worth of electricity in 2019?
The only way that math works out is if you assume that electricity prices will go up by 20% every year from 2013 through 2019, a leap of faith that defies historical trends and current forecasts. Since 2001, the highest recorded increase in the yearly average retail electric cost has been under 13%, with three years showing decresed cost over the prior year.
The real bottom line in the Dublin solar case is that local residents are paying at least three times as much of their tax dollars for the electricity being generated by a solar installation that they will continue to pay for over twenty-five years, while being told that they’re “saving” money.
This would be distressing news if I lived and paid taxes in Dublin, but why should I care? Because I live in DeKalb County, with a dysfunctional school board, and an E-SPLOST. If Dublin can play accounting games, so can DeKalb County. And if E-SPLOST funds don’t cover the costs, property taxes will be raised.
The other reason Georgians should pay attention to this is that the exact same people who brought this kind of “saving” to Dublin are now trying to get the Georgia Public Service Commission to approve a massive solar project that will “save” Georgia Power ratepayers just like Dublin taxpayers are “saving” money. Can you afford savings like that?