tools for financing capital projects - masa...•debt service levy spread on net tax capacity (ntc)...
TRANSCRIPT
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Tools for Financing Capital Projects
MASA Spring Conference - March 8, 2018
Shelby McQuay
Joel Sutter
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Background
• School districts never seem to have enough money
to finance capital projects
• State has created a number of financing options or
“tools” that can be used to finance capital expenses
• Each tool has different rules, procedures, and
permitted uses
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Background
• Ehlers publishes a resource booklet about these
tools and updates it annually
– Contact us if you would like a copy
• The best tool to meet your district’s needs will vary
based on your goals and preferences and on what
types of projects you need to finance
• In some cases, you may need to combine two or
more tools
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Financing Tools Authorized for School Districts
• School Building Bonds
• Operating Referendums
• Capital Project Levy
• Long Term Facilities Maintenance Revenue
• Capital Facilities Bonds
• Capital Notes
• Lease Purchase Financing
• Lease Levy
• Abatement Bonds 4
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School Building Bonds
• Voter approval required
• Provides up front cash for project
• Broadest authority
– Can be used for any type of capital project costs related to both
facilities and equipment
• Issued for up to 30 years
– Minimum length of 20 years (or average maturity of 12.5 years)
to qualify for debt service equalization aid
• Structuring of payments very flexible; common examples:
– Level annual payments
– Payment “wrapped around” existing debt
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School Building Bonds (continued)
• Debt service levy spread on Net Tax Capacity (NTC)
• Debt service equalization aid
• Approval
– Projects in excess of $2 million require MDE Review and
Comment process
– School board action to call for election
– Simple majority vote at election
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School Building Bonds (continued)
• Building elections can be held five days per year
– The second Tuesday of
• February
• April
• May
• August (primary election date)
– The first Tuesday after the first Monday of
• November (general election date)
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School Building Bonds
8
• Advantages
– G.O. Bonds offer lower interest rates
– Can be included in state credit enhancement program
– Receive additional revenue through tax levies and state aid, no drain on general fund
– Flexibility in structuring of payments
– District may qualify for debt service equalization aid
– Levies for bond payments eligible for School Building Bond Agricultural Credit
• Disadvantages
– A bond issue usually
causes increase in
property taxes
– Voter approval required
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Operating Referendums
• Board may adopt resolution authorizing up to $300 per pupil without voter approval for maximum term of 5 years
• For additional authority, voter approval required and maximum term of 10 years
– Generally, one election per year on general election day
– Specific ballot language dictated by statute
– May include inflationary language
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Operating Referendums (continued)
• Can be used to finance any general fund expense
– Most often used for traditional operating expenses
– Can also be used to finance capital expenses
• Revenue is “capped” at approximately $1,929 per pupil for 2017-18, with exceptions
– Sparsity districts
– Districts that have been “grandfathered” at higher dollar amounts
• No debt issued
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Operating Referendums (continued)
• Equalization aid – three tiers
– First tier equalized at highest level - up to $300 per pupil
– Second tier equalized at a lesser degree - from $300 to
$760 per pupil
– Third tier equalized to an even lesser degree - above $760
per pupil
• Levy is spread on Referendum Market Value (RMV)
– Seasonal recreational residential (cabins) and agricultural
land and buildings do not pay
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Operating Referendums (continued)
12
• Advantages
– State may equalize
revenue
– No taxes paid by
agricultural property
(except HGA) or cabins
– No interest or other
borrowing costs
– Provides additional source
of revenue for capital
expenses
• Disadvantages
– Usually causes an
increase in property taxes
– Voter approval required
– Districts at state maximum
per pupil unit cannot
increase revenue further
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Capital Project Levy
• Voter approval required
• Used to finance capital costs (e.g. technology,
maintenance)
• Levy is spread on Net Tax Capacity (NTC)
– If District’s NTC increases, will generate more revenue and vice versa
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Capital Project Levy (continued)
14
District
NumberDistrict Name Certified Levy
FY 18 Est.
Enrollment
Pay 17
Certified Levy
Per ADM
6 South Saint Paul 566,074$ 3,641 155.47$
11 Anoka-Hennepin 3,260,755$ 38,094 85.60$
13 Columbia Heights 1,127,233$ 3,350 336.49$
14 Fridley 717,635$ 3,068 233.92$
16 Spring Lake Park 1,085,968$ 5,745 189.03$
77 Mankato 500,000$ 8,483 58.94$
112 E. Carver Cty 3,644,140$ 9,667 376.97$
191 Burnsville 2,544,339$ 8,940 284.60$
194 Lakeville 2,102,255$ 10,914 192.62$
196 Rosemount-AV-Eagan 5,049,218$ 27,776 181.78$
197 West St. Paul 1,348,799$ 4,893 275.66$
264 Herman-Norcross 72,660$ 118 615.76$
270 Hopkins 9,056,555$ 6,970 1,299.36$
271 Bloomington 6,864,950$ 10,604 647.36$
272 Eden Prairie 6,442,624$ 8,602 748.97$
273 Edina 5,344,774$ 8,548 625.27$
276 Minnetonka 5,653,426$ 10,550 535.87$
277 Westonka 1,166,780$ 2,298 507.74$
278 Orono 912,335$ 2,810 324.67$
279 Osseo 5,785,887$ 20,654 280.14$
280 Richfield 2,771,333$ 4,183 662.45$
281 Robbinsdale 3,925,856$ 12,700 309.12$
282 Saint Anthony-New Brighton 634,127$ 1,778 356.65$
283 St. Louis Park 2,226,967$ 4,641 479.85$
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Capital Project Levy (continued)
15
District
NumberDistrict Name Certified Levy
FY 18 Est.
Enrollment
Pay 17
Certified Levy
Per ADM
284 Wayzata 6,424,403$ 11,692 549.47$
447 Grygla 107,787$ 153 704.49$
458 Truman 125,000$ 219 570.78$
473 Isle 195,000$ 452 431.77$
542 Battle Lake 283,812$ 435 652.44$
545 Henning 215,459$ 355 606.93$
547 Parkers Prairie 76,000$ 544 139.71$
549 Perham 454,434$ 1,406 323.21$
600 Fisher 262,078$ 256 1,023.74$
622 N St Paul-Mplewd-Oakdale 4,251,404$ 10,398 408.87$
624 White Bear Lake 1,598,135$ 8,376 190.80$
659 Northfield 750,000$ 3,854 194.60$
676 Badger 45,578$ 189 241.15$
720 Shakopee 3,011,717$ 8,365 360.04$
726 Becker 445,656$ 2,813 158.43$
727 Big Lake 417,635$ 2,990 139.68$
741 Paynesville 263,787$ 929 283.95$
743 Sauk Centre 215,248$ 1,070 201.17$
832 Mahtomedi 618,338$ 3,297 187.55$
833 S. Washington County 1,176,475$ 17,903 65.71$
861 Winona 1,000,000$ 2,990 334.45$
2071 Lake Crystal-Wellcome 175,000$ 907 192.94$
2149 Minnewaska 217,361$ 1,193 182.20$
2888 Clinton-Graceville 206,730$ 336 614.54$
2904 Tracy Area 100,000$ 708 141.24$
Totals/Average 95,441,725$ 300,857 317.23$
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Capital Project Levy (continued)
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• Advantages
– No maximum
– No interest or other
borrowing costs
– If district’s NTC increases,
levy authority also
increases
• Disadvantages
– Usually causes an
increase in property taxes
– Voter approval required
– If district’s NTC decreases,
levy authority also
decreases
– No state equalization aid
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Long Term Facilities Maintenance (LTFM) Revenue
• New funding program effective for taxes payable in 2016, FY 2016-17
• Step toward leveling playing field
– Reduce disparities in opportunities to fund facilities
maintenance projects; prior to FY 2016-17:
• 25 large school districts qualified for full Alternative Facilities
Funding program with unlimited funding
• All other districts qualified for limited revenue
• Ability to protect community’s investment in facilities
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LTFM Revenue (continued)
• Significant State equalization aid with indexed equalizing factor
• Grandfather provision
– Greater of revenue under old laws or new LTFM revenue
• Elimination of existing funding formulas for health and safety, deferred maintenance programs, and alternative facilities
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LTFM Revenue (continued)
• Deferred Maintenance - Like-for-like replacement
• Accessibility
• Health & Safety
• Building modifications for state-funded voluntary pre-
kindergarten
• Additional revenue can be raised to fund certain Health
& Safety projects of more than $100,000 per site
– Indoor air quality
– Fire alarm and suppression
– Asbestos abatement
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LTFM Revenue (continued)
• Formula phased in
– $193 per pupil unit for Fiscal Year 2016-17
– $292 per pupil unit for Fiscal Year 2017-18
– $380 per pupil unit for all subsequent years
• Revenue reduced if average age of district’s buildings is less than 35 years
• Revenue is provided through combination of state aid and property tax levy
– Aid / Levy mix determined using modified tax base
• Excludes 50% of agricultural land value
• Districts with significant ag value appear to be more “property” poor; allows district to qualify for additional aid
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LTFM Revenue (continued)
• Equalizing factor is 123% of State Average ANTC per pupil, $9,493.66 for 2017-18
• Only “per pupil” amount equalized
– Revenue for qualifying Health & Safety projects over $100,000 not equalized, unless district’s average building age is less than 35 years (“equalized remainder”)
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LTFM Revenue (continued)
Revenue may NOT be used for:
• Construction of new facilities, remodeling of existing facilities, or purchase of portable classrooms
• Lease purchase agreements, installment purchase agreements, or other deferred payment agreements
• Energy-efficiency projects under section 123B.65, for
– Building or property or part of a building or property used for postsecondary instruction or administration or a purpose unrelated to elementary and secondary education
• Violence prevention and facility security, ergonomics, or emergency communication devices
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LTFM Revenue (continued)
• Approval process to issue bonds
– Notice of intent needs to be published in local paper
– MDE approval
– Updated 10 year plan
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LTFM Revenue (continued)
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• Advantages– For many districts, higher level
of state aid than other financing options
– Districts can chose to pay for projects on an annual basis or issue bonds
– G.O. bonds result in lower interest rates than other forms of borrowing
– Levies for bond payments eligible for School Building Bond Agricultural Credit
– No election required
– 10 year plan requirement positive factor with rating agencies
• Disadvantages
– Limited uses
– Limited revenue for most
districts
– Multistep approval process
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Capital Facilities Bonds
• Provides up front cash for projects; allows district to spread payments over several years
• Revenue neutral – district does not receive new revenue to make bond payments
– Make a debt service fund levy for payments, there is an offsetting reduction in general fund revenue
• No voter approval required; board approves resolution and is required to publish a notice
– If 15% of registered voters submit a petition within 30 days, bonds cannot be sold without first holding a referendum
• Maximum length of bonds - 15 years
• Bond payments limited to district’s annual operating capital revenue
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Capital Facilities Bonds (continued)
• Allowable uses:
– Improvements and repairs to buildings and sites
– Equipping and reequipping buildings with permanent
attached fixtures
– Disabled access repairs
– Fire, life and safety code compliance
– Asbestos removal or encapsulation/cleanup of PCBs/
cleanup relating to fuel storage
– Facility improvements to enhance security
– Energy modifications
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Capital Facilities Bonds (continued)
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• Advantages
– G.O. bonds result in lower
interest rates than other
forms of borrowing
– No election required,
unless by petition
– Levies for bond payments
eligible for School Building
Bond Agricultural Credit
• Disadvantages
– No additional levy
authority, debt service
payment could strain
operating capital or general
fund budget
– Potentially higher issuance
costs
– Procedures for approval
more complex than other
forms of borrowing
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Capital Notes (Equipment Certificates)
• Similar to Capital Facilities Bonds
• Provides up front cash for equipment
• Allowable uses include purchase of:
– Vehicles
– Computers
– Telephone systems
– Cable equipment
– Photocopy and office equipment
– Technological equipment for instruction
• Proceeds can also be used to prepay special assessments
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Capital Notes (continued)
• Maximum length of note is ten years
– Restricted to useful life of equipment being financed
– If used to prepay special assessments, maximum of 20 years
• Revenue neutral – district does not receive new revenue to make payments
– Make a debt service fund levy for payments, there is an offsetting reduction in general fund revenue
• Debt service payments limited to district’s annual operating capital revenue
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Capital Notes (continued)
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• Advantages
– G.O. bonds result in lower
interest rates than other
forms of borrowing
– No election required
– Levies for bond payments
eligible for School Building
Bond Agricultural Credit
• Disadvantages
– No additional levy
authority, debt service
payment could strain
operating capital or general
fund budget
– Potentially higher costs of
issuance
– Procedures for approval
more complex than other
forms of borrowing
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Lease Purchase
• Provides upfront cash
• Funds can be used for any real or personal property
• Lease length determined by useful life of asset
• During term of lease, financed asset technically
owned by “lessor”
• District has right to purchase asset at end of term for
nominal fee
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Lease Purchase (continued)
• Tax-exempt financing in most cases
• Leases can be set up in various ways
– “Privately placed” with bank, leasing company, or equipment vendor
– “Certificates of Participation” (COPs)
– Lease Revenue Bonds sold by HRA or EDA
• Methods of sale
– Competitive sale of COPs or Bonds
– Request for Proposal process
– Direct negotiations with one lessor
• In most cases, payments must be made from existing resources
– If project qualifies, lease levy may be used to to fund payments
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Lease Purchase (continued)
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• Advantages
– Most times procedures can
be completed in a relatively
short time
– Most times costs of
issuance are relatively low
– No election required
• Disadvantages
– Lease payments subject to
annual school board
appropriation
– Generally higher interest
rates than with bonds
– In many cases, annual
payments made from
existing resources
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Lease Levy
• Funds can be used for “capital portion” of leases for instructional purposes
• Cannot be used for
– New buildings used primarily for “regular” K-12 instruction
– Additions for regular K-12 instruction, if space is > 20% of existing building
– District-owned buildings leased to another program in same district
– Stadiums
• Requires MDE approval
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Lease Levy (continued)
• Limited to $212 per pupil unit (plus additional $65 for
intermediate district members)
• Spread on Net Tax Capacity
• In many cases, no debt issued
• In some cases, levy can be used to finance
payments on lease purchase
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Lease Levy (continued)
36
• Advantages
– Additional revenue
received, no drain on
general fund
– No election required
• Disadvantages
– Annual approval required
from MDE Commissioner
– No state equalization aid
– Usually causes an
increase in property taxes
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Abatement Bonds
• No voter approval needed, but Board must hold a
public hearing
• Funds can only be used for construction or renovation
of parking lots and structures
• Limited to 15 years
• Review and Comment process required for projects
over $2 million
• District is allowed to levy each year for principal and
interest payments
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Abatement Bonds (continued)
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• Advantages
– G.O. bonds result in lower
interest rates than other
forms of borrowing
– No election required
– Levies for bond payments
eligible for School Building
Bond Agricultural Credit
• Disadvantages
– Extremely limited uses
– No state equalization aid
– Procedures for approval
more complex than other
forms of borrowing
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Planning Considerations
• Mix and match
– Districts often need to use several tools to finance needed
projects
– Example: Osseo used 4 tools to finance grade level
conversion
• Lease purchase (COPs) for additions to all 3 high schools
• Capital facilities bonds for renovations/remodeling of high schools
• Capital notes for furnishings and equipment
• Facilities maintenance bonds for related deferred maintenance
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Planning Considerations
• Combining Bond Issues
– Purposes for many of these tools are very limited
– Districts may need to issue several types of bonds – in
relatively small amounts – to fund all projects
– Combining several small bond issues into a single issue (with
separate purposes and payment schedules) can:
• Reduce bond issuance costs
• Reduce interest rates by making bonds more attractive to
investors
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Planning Considerations
• Know your constituents
– In some districts constituents may be upset about district
increasing taxes without voter approval – could jeopardize
future referendum questions
– In other districts constituents may support district for being
creative in funding needed projects without a vote
• Consider your tax base
– Different revenue sources impact different property types,
especially in case of an operating referendum
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Planning Considerations
• Consider your tax base
– Different revenue sources have differing impacts on state aid
and impact on property taxes for different types of property
– Districts with lots of agricultural property and/or cabins:
• May qualify for much more state aid on operating referendums
than on other funding sources
• But tax impact on homes will usually be much higher for
operating referendums than for other funding sources
– Issuing any type of bonds may reduce taxes on ag property
(due to School Building Bond Ag Credit) compared to tools
like capital project levy or lease levy
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Shelby McQuay
Municipal Advisor
Ehlers
(651) 697-8548
Joel Sutter
Senior Municipal Advisor
Ehlers
(651) 697-8514
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