HEBRON – Lakewood Finance Task Force members started looking at specific financial strategies at their Monday night meeting.
It was the group’s fifth meeting with the district’s financial consultant – David Conley of Rockmill Financial Consulting, LLC. The group’s meetings started in April and are open to the public. Conley has urged participants to come to all the meetings due to the complexity of school financing, but it is not a requirement. Background information is available at www.lakewoodfinancetf.org
Superintendent Mary Kay Andrews opened the meeting by outlining the concept for the new Pre-K – 5 school, its estimated cost and the estimated costs of the priority permanent improvement projects.
The new school will replace three buildings – the 100+ year-old Hebron Elementary and the two Jackson Intermediate building. The concept, Andrews said, puts the new school on the district’s main campus, requires the purchase of an estimated 10.75 acres of adjacent farmland and limits the new school to a single story.
“It all comes down to dollars,” she explained. “No decisions have been made.”
Project architect Dennis Paben with Columbus based Legal Kingscott presented the cost estimates at the June 28 elementary school planning meeting.
The school’s basic design is a 158,000 square foot, single story that could accommodate the district’s “right now” student population. Paben said the cost estimates were based on the Ohio School Facility Commission’s 2017 Design Manual using Central Ohio prices. The cost is approximately $222 per square foot which includes all design costs. The estimates are:
• New school & site – $35,134,460;
• Additional access drives – $84,963;
• New school parking lot – $391,959;
• Demolition of Jackson A- $21,265;
• Reprogramming Jackson B to district administration- $150,210;
• Purchase additional 10.75 acres – $322.440
Total cost $36,105,298
Paben also presented updated cost estimates for the remaining permanent improvement projects listed on the district’s plan.
The grand total is $46,949,713 or $47 million. The key question, Conley asked, “How do we finance the $47 million?” He then started walking the group through the financing options.
The State of Ohio has a formula to set debt limits for school districts, Conley explained. Lakewood’s debt limit is $49 million.
“Once we borrow $47 million you are basically tapped out,” he said. “It will use up most of your debt capacity. Don’t ask for the full $47 million.”
Conley suggested looking for cash, grants and unvoted debt (COPs). Naming rights might generate some cash, he said. State grants aren’t much of an option for Lakewood, Conley explained. The State calculates that Lakewood is the 161st wealthiest district out of the 612 school districts in Ohio. That limits Lakewood to a 12 percent cost contribution from the State for new facilities, but the money won’t be available to Lakewood for another 10 years.
COPs, short for Certificates of Participation, is a form of a lease that doesn’t require voter approval. Conley said it is similar to how Lakewood financed its portion of the new football stadium.
Its primary advantage, Conley said, “It never goes before voters.” The disadvantages are that it is more expensive than a bond issue and is backed by rent payments that must be appropriated annually by the board. Due to the risk that a future board might not appropriate or be able to appropriate the rent payments, COPs have a higher interest rate – .25 to .50 percent – than a bond issue.
A COPs’ trustee can evict a district from the leased premises if the annual payments aren’t made. Conley said in reality boards make the annual payments because having students barred from facilities is a political disaster for board members.
A district’s COPs borrowing is determined by how much the district can afford in lease payments since the payments have to come out of the district’s existing budget. For Lakewood, he and district treasurer Glenna Plaisted came up with a total of $7.8 million.
Assuming voters renew existing levies, Lakewood will be able to save a total of $2 million to complete its master plan. Plaisted believes the district can save $100,000 a year in operating and maintenance expenses and the district’s general fund could contribute $100,000 a year. Another $280,000 a year will be available after the stadium is paid off in 2026.
In addition, the bond levy for the high school will be paid off in 2026. That levy is currently being assessed at 1.8 mills. That money won’t be able to flow directly to the district after 2026 unless voters approve a new levy. But it’s easier to get voter approval, Conley said, when a new levy will keep taxes at current levels.
With COPs contributing $7.8 million, the district now needs $39 million. Conley based a bond levy on a 37-year term (likely the maximum term using a blended useful life calculation for the equipment and furnishing part of the building) at a 4.25 percent increase rate. That’s a conservative rate, he said, since interest rates are in the three percent range now. Conley calculated millage or the tax rate for 37 years at 4.25 percent interest as 4.19 mills. The district’s median home value is $148,500; 4.18 mills would cost the median homeowner $18.32 per month. “This is not a scary number,” he said.
Cutting the term from 37 years to 30 years would save millions in interest, Conley explained. That would require a 4.74 mill bond levy, costing the median homeowner $20.73 per month. Cutting the term to 28 years would save $9 million in interest compared to 37 years. That cut would likely cut the interest rate to four percent. A total of 4.84 mills would be required to raise the $39 million, costing the median homeowner $21.16 per month.
“We (Lakewood) struggle getting voter support,” Conley noted. The median age of voters is increasing and is now 45.3 years. “The community is aging,” he said. “More than two-thirds of voters are age 45 or older.” These voters are the least likely to support additional taxes, Conley said.
An earned income tax is a way to reduce the impact on older voters since it is not assessed on Social Security or any retirement income, or investment income.
Annual earned income in the Lakewood district reached $380 million in 2015 (latest available total). Conley said it is growing a healthy 4.5 percent per year.
Income taxes are done in .25 percent increments. Conley cautioned that income taxes take 12-18 months to reach full collection. He said a .25 percent earned income tax would generate $13 toward the project. Its contribution would reduce the millage for a 37 year bond levy to 2.8 mills.
Conley said an earned income tax can raise a couple of issues. By proving tax relief to older residents without earned income, those with earned income will pay more than they would have via just a bond levy. Some voters might object to an income tax because the revenue can be used for buildings and operating expenses. An income tax can not be dedicated exclusively to buildings, but it can be lined up with a bond issue, Conley said.
An earned income tax also isn’t assessed against business income and business property makes up 30 percent of the district’s property valuation, he said.
A 37 year bond levy at 2.8 mills costs the median homeowner $12.25 per month. The median family income in the district is $63,636, according to Conley, so a .25 percent earned income tax costs them $13.26 per month, for a total of $25.51 per month compared to $18.32 per month for a 4.19 mill bond levy.
The task force meets again at 6 p.m. on Monday, August 18, in the high school library to work on their recommendation to the board on how to come up with the $47 million. Meetings are limited to two hours and another meeting is set for Monday, Sept. 18, if more time is needed to reach a decision.
Lakewood has announced an additional public meeting with the Elementary School Planning Team at 6 p.m. on Thursday, August 24, in the high school library to review their recommendation, focusing specifically on the needs outside of the elementary building.