Editorial board board discusses future plans for bond funds

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At the school board’s last business and facilities meeting, two financial advisors considered the options the board had when it came to selling a $363 million bond referendum that passed with 69% of the vote on Oct. 6.

“The physical improvements to our facilities will have an extremely positive impact on the daily experiences of students, across all 19 schools,” Superintendent Dr. Joseph Meloche told The Sun.

“Addressing HVAC systems with the installation of new controls and units will be a huge improvement,” he added. “Improved electrical and plumbing infrastructure will create more efficient and user-friendly environments. New elevators at Knight and Sharp Elementary Schools and West High School will provide better access.

District bond attorney Tony Solomini and Phoenix Advisors financial advisor Sherry Tracey looked at two ways to sell the bond: half now and half later, or $300 million now and $63 million in five. years, the reason being that once the bond is sold, 85% of the funds must be used within the first five years of spending.

Both options will repay the funds over a period of 20 years.

Solomini and Tracey explained that once the bond is sold, the district should keep track of any interest earned on the funds. If the district earns more than it borrowed for, there would be a rebate due to the government at the end of the first five years.

Solomini recommended selling the majority of bonds now to maximize interest on reinvestment.

“Even though interest rates have gone up now on the borrowing side, what you might be catching up on the reinvesting side is offsetting that increase,” he explained. “Even though the cost of borrowing has gone up, you’re going to have that money or part of it for five years.

“Right now, you can reinvest at essentially the same rate you borrowed.”

“(For) $300 million sold today, the average tax impact would be about $280 (per year for the first five years),” Tracey said.

As for the $63 million that would be sold after five years, the fiscal impact is estimated at $106 per year, or $386 on average over 20 years, which is lower than the estimated $399.65 per year previously estimated, a figure that includes conservative interest income.

Tracey explained that while the average tax impact may fluctuate from year to year, it will be structured such that no year will exceed $399 per year.

The second option – selling the bond roughly half and half – would mean selling $185 million today and $178 million two years from now. Tracey said this option is open to market rate risk, depending on what the rate will be in two years, higher or lower than it is today.

The financial analysis was carried out in the case of a sale of the bond at a market rate of 4.25 today and 4.0 in two years. The upside is that because the district is borrowing $185 million instead of $300 million, it would pay interest on debt service at $185 million instead of $300 million.

“This scenario could work,” Tracey said. “It just leaves you at market rate risk, which can be positive or negative.”

Robert Garrison Jr. of Garrison Architects explained that due to the uncertain nature of the supply chain, it would be difficult to spend $363 million over five years when materials are unavailable, but “85% of the 300 millions of dollars are more acceptable”.

Tracey noted that the goal would be to sell half or $300 million of the bond by December to be eligible for debt service assistance in the 2023-24 school year. If the district does not meet this deadline, there will be no debt service assistance next year and it will be doubled the following year.

Garrison discussed projects that are getting started, starting with designing bids for work on 10 rooftops for $22 million. Other projects that have begun to be investigated include work on six multi-purpose rooms in elementary schools, for another $22 million; replacement of the HVAC system in the D wing in West, at $500,000; Rosa Middle School second floor flooring upgrade, $500,000; and adding lights and bleachers to East for $2.2 million.

Site work will take place at the Malberg Early Childhood Center and at Cooper, Harte, Paine, Stockton and Lewis Elementary Schools.

“The roofing work will take place in the summer (of next year),” Garrison explained. “The APRs for a year and a half; the HVAC will be done by the time the heat comes on October 15th (of next year), the lights and the stadium – I want them on in September, (but) the supply chain is the problem with that.

“The construction work is all this summer, and the carpets will be this summer at Rosa,” he added. “We deliver what we promise. Each site will have work in progress.

Although he is still looking for a project at Carusi Middle, the architect said he has started looking for temporary classroom units for students during the construction works.

The next business and facilities committee meeting will be Tuesday, November 29 at 5:30 p.m.

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