At the board of education’s latest business and facilities meeting, two financial advisors reviewed options the board had when it came to selling a $363-million bond referendum that passed with 69-percent vote on Oct. 6.
“The physical improvement of our facilities will have a tremendously positive impact on the day- to-day experiences of the students, in all 19 schools,” Superintendent Dr. Joseph Meloche told The Sun.
“Addressing the HVAC systems with the installation of new controls and new units will be a huge improvement,” he added. “Improving the electrical and plumbing infrastructure will create more efficient and user-friendly environments. New elevators at Knight and Sharp elementary schools and high school West will provide better access.”
Tony Solomini, bond counsel for the district, and Sherry Tracey, a financial advisor from Phoenix Advisors, looked at two ways of selling the bond: half now and half later, or $300 million now and $63 million five years from now, the reason being that once the bond is sold, 85 percent of the funds need to be used within the first five years of spending.
Both options will allow for funds to be paid back over a 20-year period.
Solomini and Tracey explained that once the bond is sold, the district would have to keep track of any interest earned on the funds. If the district earns more than what 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 the bonds now to maximize interest on reinvestment.
“Even though the interest rates have gone up now on the borrowing side, what you could make up on the reinvestment side offsets that increase,” he explained. “Even though the cost of borrowing has increased, you’re going to have that money around or portions of it for up to five years.
“Right now, you can reinvest at basically 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 tax impact is estimated to be $106 per year, or $386 averaged over 20 years, which is lower than the estimated $399.65 per year previously estimated, a number that includes conservative interest earnings.
Tracey explained that while the average tax impact may fluctuate from year to year, it will be structured in such a way that no year will be more than $399 per.
The second option – selling the bond around half and half – would look like selling $185 million today and $178 million in two years. Tracey said that option is open to market-rate risk, depending on what the rate is in two years, higher or lower than what it is today.
The financial analysis was done in the case of selling the bond at a 4.25 market rate today and at 4.0 in two years. The advantage is that because the district is borrowing $185 million instead of $300 million, it would pay interest on debt service back at $185 million rather than $300 million.
“This scenario could work,” Tracey said. “It just leaves you at market rate risk, which could be a positive or a negative.”
Robert Garrison Jr. of Garrison Architects explained that due to the uncertain nature of the supply chain, it would be hard to spend $363 million in five years when the materials are unavailable, but “85 percent of $300 million is more palatable.”
Tracey noted that the goal would be to sell either half or $300 million of the bond by December to be eligible for debt service aid in the 2023-’24 school year. If the district misses that deadline, there would be no debt service aid next year and it would be doubled the year after.
Garrison discussed the projects that are starting, beginning with designing bids for work on 10 roofs for $22 million. Other projects that have begun to be surveyed include work on the six all- purpose rooms at the elementary schools, for another $22 million; replacing the HVAC system in the D-wing at West, at $500,000; upgrading flooring on the second floor at Rosa Middle School, for $500,000; and adding lights and bleachers at East for $2.2 million.
Site work will take place at Malberg Early Childhood Center and Cooper, Harte, Paine, Stockton and Lewis elementary schools.
“The roofing work will be 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 turns on on Oct. 15 (of next year), the lights and the stadium – I want them on in September, (but) supply chain is the issue with that.
“Site work is all this summer, and carpets will be this summer at Rosa,” he added. “We’re delivering what we promised. Every single site will have some work going on.”
Though the specific inaugural project at Carusi Middle School has yet to be determined, the architect said he has begun looking for temporary classroom units for students while construction work takes place.
The next business and facilities committee meeting will be Tuesday, Nov. 29, at 5:30 p.m.
