Orange Beach voters in 2014 shot down a 5-mill property tax increase to help fund creation of a city school system.
“I think it’s the way it’s always supposed to be done, when possible,” Orange Beach Mayor Tony Kennon said at the time. “Let the people vote.”
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Less than eight years later, things are much different. The Orange Beach City Council, with no public forum, comments, or any forewarning, voted unanimously last week to create a city school.
The quick approach could be an issue in Alabama where it’s fairly easy for a city to break away from a county school system. All that is needed is for a city to have 5,000 residents, and then it has the ability to “enter into an agreement” with the county board of education to operate a city school system.
Since 2000, only Maine has had more city school systems formed.
Orange Beach city officials are saying little, and Kennon says he’s holding off on public comments until the city begins meeting with county school officials to negotiate the split. Talks are expected to begin this week.
But in Baldwin County and beyond, city officials are unlikely to replicate Orange Beach’s abrupt secession even if Alabama law allows for it. Simply put, the two beach cities in Alabama can afford to go it alone without pushing for an unpopular property tax increase that looms over other cities contemplating city schools.
“I will say, if we had the tax base that Orange Beach and Gulf Shores have, we would be telling a different story today,” said Northport City Councilwoman Jamie Dykes. “How wonderful they can truly be self-sustaining.”
Strong financial positions
Orange Beach will be Baldwin County’s second city school system, following Gulf Shores in 2019. No other city in Baldwin County is actively pursuing a split from the Baldwin County School System.
“In my opinion, it’s very refreshing to see education as top priorities for municipalities,” said Kevin Corcoran, president of the Gulf Shores city school board and who played an instrumental role in the formation of Alabama’s newest city school system in 2019.
Gulf Shores recently unveiled a 10-year plan that includes construction of a new high school.
“The children are our future, and we need to give the teachers and staff the best type of resources available,” Corcoran said.
Cities contemplating a split are likely to be envious of the financial positions of Gulf Shores and Orange Beach. Both cities have sparkling budgets despite Hurricane Sally in 2020 and the COVID-19 pandemic that rattled the hospitality industry.
The boost to the city governments can be credited to the beachbound tourists who stay overnight in hotels or the condominium towers and rental homes.
A new high school and middle school was officially opened in Orange Beach, Ala., on Monday, August 10, 2020. The $34 million facility includes a $10 million auditorium that is being financed by the city of Orange Beach. In this picture, Orange Beach Mayor Tony Kennon and Baldwin County Superintendent Eddie Tyler cut the ribbon on the opening of the new school. (John Sharp/jsharp@al.com).
In Orange Beach, a 2020 annual report shows the city’s lodging tax receipts from the city’s hotels and condominiums growing by 117% from 2014 – when the city’s school tax referendum was defeated – to 2019, right before the pandemic.
Three years ago, the lodging taxes for Orange Beach were $21.9 million, and the city’s reserves were $98 million, according to the annual report.
Gulf Shores also saw its lodging taxes surge from $10.2 million in 2019 to a budgeted $17.2 million this year. From 2020 to 2021, the city reported a 25.2% hike in lodging tax revenues.
Both Orange Beach and Gulf Shores approved two percentage point increases in their lodging taxes in 2018. Gulf Shores recently added an additional three percentage point increase this year to help finance multiple transportation projects.
Other revenue sources are also increasing, especially building permits.
The two cities have also seen an explosion in new residents. Gulf Shores, among cities over 10,000 residents, grew the most in Alabama between 2010-2020 at 54%. Orange Beach was right behind their neighbor to the west at 48.8% growth.
State Senator Chris Elliott, R-Daphne, said the coastal cities are “in a unique position” in that they can each raise lodging taxes to pay “for an awful lot of this.” He said he would not be surprised to see Orange Beach follow Gulf Shores with a similar lodging tax increase soon.
“It’s an easy source of revenue that does not hit your citizens,” said Elliott. “It would not be easy anywhere else in the county.”
Baldwin cities
Indeed, the other Baldwin County cities and those tackling city school secessions will need to go the property tax increase route. It won’t be easy.
For Baldwin County, that’s proven unpopular among voters in a county where Republicans have long dominated elections. In 2015, less than a year after Orange Beach voters shot down the 5-mill request, voters defeated an 8-mill property tax increase that would have raised $350 million a year for a countywide construction program.
A millage rate is the number of dollars of tax assessed for each $1,000 of property value.
Voters were so upset that also did something almost unheard of in Alabama: They rejected tax renewals that are needed to keep the public schools operating.
Flashback to 2015: Voters go to the polls on March 31, 2015, to decide the fate of various tax proposals to benefit Baldwin County schools. When the returns came in that evening, tax supporters had suffered pounding defeats. (file photo).
Mayors in Foley, Fairhope, Spanish Fort, Elberta, and Robertsdale said last week that they are not interested in pursuing city schools and are pleased with the results from the Baldwin County School System, the state’s third largest.
Costs are a main factor for why city schools are not being pursued.
Daphne, in 2017, backed away from a city school system after receiving a financial analysis from Birmingham-based Criterion. The analysis showed the city would inherit over $40 million in debt, which would not have been paid back until 2037. Also, the analysis showed approximately $5.3 million needed for start-up costs and an additional 8 to 9 mills of new property taxes to meet basic operational needs.
Fairhope and Spanish Fort voters, in 2019, voted to support 3-mill property tax increases to support the schools within their city’s respective feeder patterns.
Fairhope City Councilman Jimmy Conyers said the city also appropriates up to $350,000 each year to the Baldwin County School System to support the Fairhope area schools. They city also provides an annual allocation to the Fairhope Educational Enrichment Foundation, which supports educational opportunities for the city’s children.
Regarding a potential city school system, Conyers said, “it would be so expensive for us. And I don’t think it changes the quality of education, really. I think Baldwin County is doing a good job.”
Other city officials feel the same way.
“We have kids getting scholarships and testing off the charts and excelling in band and art and all sorts of things,” said Elberta Mayor Jim Hamby, who leads a small city that is a few miles north of Orange Beach. “We are satisfied with our schools.”
Property tax
In cities where secessions are under consideration, the property tax remains the sticky issue. None of the cities have a plush revenue source like a lodging tax revenue that Orange Beach and Gulf Shores boast.
Alabama has historically operated government services on low property taxes, creating a system that critics call systematically unfair because of reliance on sales tax revenues to pay for basic services.
Alabama has among the highest sales tax burdens in the nation.
In the U.S., the largest source of funding for elementary and secondary education comes from state government aid. But the strongest local contribution comes primarily from property taxes.
According to the Tax Foundation, a Washington, D.C.-based think tank, Alabama ranks No. 49 in the nation and only ahead of Hawaii for having the lowest property taxes paid as a percentage of an owner-occupied house in 2019. Alabama is also No. 49 for the percentage of state and local taxes collected coming from the property tax. At only 16.9%, Alabama trails all of its Southern neighbors such as Mississippi (28.2%), Georgia (30.9%), and Tennessee (24.3%).
Some Alabama counties tax properties at a noticeably lower rate than counties in neighboring states. In Baldwin County, where property tax increases were defeated in 2015, the median taxes paid by property owners was $605, according to the Tax Foundation. That’s lower than next-door Escambia County, Florida ($1,093) and Jackson County, Mississippi ($1,149).
Only two counties in Alabama -- Shelby ($1,020) and Jefferson ($1,033) -- had a median annual property tax above $1,000.
Northport Mayor Brandon Herndon said he believes his residents are willing to support a property tax increase to form a city school and believes a referendum would be supported by voters.
The city has long discussed options for breaking away from the Tuscaloosa County School System and is waiting the completion of a report from Criterion, the same group that conducted a financial analysis for Daphne.
Herndon said that Tuscaloosa County operates on a minimum 10 mills, and he’s concerned that decisions about his growing city’s educational needs will continue to be decided by school officials outside Northport.
By comparison, Herndon said that Shelby County property owners pay 30 mills to support its school system.
“If we increase 10 mills of property tax, and have a $500,000 home, that would be $500 more a year that you pay in property taxes,” he said. “If you have a $250,000 house, it would be $250 more a year. I got people saying, ‘we are ready to pay.’ We are working on that. People are on board. It’s just time to do something.”
Secession efforts
A man speaks at a public hearing over the proposed new Chelsea school district Thursday, Jan. 27, 2022. Local officials proposed a tax increase to pay for a new city school system. Rebecca Griesbach/AL.com
Other highlights of recent city school secession debates:
- In Chelsea, dozens of residents showed up to a January public hearing and criticized a plan by city officials to add up to 30 mills in new property taxes to create a city system, and a brand-new high school. A lower-option proposal is also on the table, but it would require 20 mills in new property taxes. Chelsea, like Northport, has seen robust growth of 40% since 2010.
- In Pinson, city officials are contemplating whether to move forward with a feasibility study to analyze the costs for having a city school system and to break away from Jefferson County. According to Mayor Joe Cochran, a conversation about a study will take place next month.
- In Greenville, plans were recently called off on a city school following a February public hearing in which residents complained about the taxes and budget allocations, among other things.
Greenville’s interest in a city secession led to HB430, which prohibits a Butler County city from establishing a city school system without first getting approval from the voters.
The legislation sailed through the Alabama House and Senate and was signed into law Thursday by Alabama Gov. Kay Ivey.
In Baldwin County, a similar approach was stymied in 2019. Elliott, the state senator, pitched legislation that would require voter approval before a city split could happen. The referendum requirement did not advance.
That same piece of local legislation also included a requirement for cities breaking away from the county system to pay the depreciated value of the buildings. That portion became law, and Orange Beach will be expected to pay up for its new school: A new $34 million high school opened along Canal Road in 2019.
Still, Orange Beach won’t need the voters to back a referendum for the city school system, and there was no requirement for a public hearing before the council acted.
No public comments occurred during Tuesday’s meeting before the City Council unanimously voted to split away. Baldwin County Superintendent Eddie Tyler, in a statement later in the evening, said he was surprised by the move.
But in Greenville, going forward, longtime Mayor Dexter McLendon will need voters’ approval if the city is to break away from the county school system.
“The state of Alabama doesn’t want the federal government telling them what to do,” said McLendon, mayor since 1999. “I don’t want the state of Alabama telling me what to do with the city that I love and have been mayor for 22 years.”
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