Tax Hike May Be Only Option To Complete School

FAST FACTS

Two Proposals

Two proposals are on the table for the Fayetteville School Board to consider in the coming days:

w Partial renovation — 1.7 mills to finance $31.5 million in Qualified School Construction Bonds. Such a bond issue would require $2.1 million in annual debt service payments over the next 15-17 years.

w Complete renovation — 2.75 mills to generate $51 million, including the $31.5 million in interest-free bonds plus $19.5 million in traditional financing. This plan would require $3.4 million in annual debt service payment.

Source: Staff Report

— An increase in the property tax millage rate may be the only way to pay for the complete Fayetteville High School renovation.

Or, according to one school board member, the district could enlarge class sizes and lay off teachers and support personnel.

Or, as school board member Becky Purcell suggested, the district could revisit the decision to move ninth grade to the high school, thus reducing the size of the school project.

Several Fayetteville School Board members said they don’t want the district to lose the $31.6 million in Qualified School Construction Bonds for which the district has received state approval. The bonds, created under the federal government’s economic stimulus package, essentially give the district an interest-free loan.

The catch? Those interest-free bonds are only available this year. The district will lose its eligibility to sell them if the board can’t come up with a plan to pay the loan back. The district will save more than $29 million in interest payments if it uses the Qualified School Construction Bonds, school officials said.

There is a way to finance completion of the high school without a millage increase, but it’s less palatable than higher real estate taxes, said board member Jim Halsell.

“We can lay people off,” Halsell said. “I just don’t think that’s the way to do it.”

Halsell, who is in the home mortgage business, likened buying a home to the federal interest-free bond program. A homebuyer who buys a $150,000 home ends up paying between $375,000 and $400,000 for the home because of the interest payments spread over the 30-year life of the mortgage.

The federal government reimburses local school districts for the interest on the bonds sold.

“I wouldn’t bring this back to the voters if it wasn’t a good deal,” Halsell said.

The school board on Thursday was told that phase two of the high school construction would cost $48 million. The district has been approved for $31.6 million in bonds and would have to add about $19 million to that, probably by selling second-lien bonds, which don’t require voter approval.

Several school board members indicated Friday they favor the higher millage amount laid out by district administrators to complete the high school.

Still, second-lien bonds, as with the school bonds, have to be paid off, said board member Howard Hamilton.

“I personally wish we didn’t have to go to taxpayers, but we really do save a lot of money with the Qualified School Construction Bond Program,” Hamilton said. He favors completing the entire high school project.

“Letting the $31.6 million go is not good stewardship,” said Susan Heil, board president. “I don’t want to leave the high school unfinished. The teachers and students deserve this.”

If the district waits two to three years to seek a bond issue “the stimulus money is gone, it will take 30 years to pay it off and we’ll have to pay interest,” Heil said. “Waiting is going to cost us a lot.”

The no-interest bonds are expected to be paid off in 15 to 17 years.

Board member Tim Hudson said the district has done some belt-tightening by cutting $2.5 million in the 2010-11 budget and cutting some $10 million out of the estimate to complete the school.

Hudson said he doubts the district can find extra money in the budget to pay off additional bonds “without compromising our education goals and plans.”

The first phase of the renovation is financed by $45 million in Qualified School Construction Bonds authorized last year. The first bond program included tax credits for bond purchasers, but the district has to pay 2.2 percent in interest. A repayment plan for the first bond issue has been launched by the school board.

The second bond program for 2010 included interest reimbursement to school districts by the federal government.

Another bond program is not expected to be forthcoming from the federal government, Lisa Morstad, chief financial officer for the district, told board members Thursday. The only way a third allocation would occur is if a district didn’t use all the money it was approved for in the second allocation.

The board is up against a deadline because, if its members decide to pursue a millage increase, a proposed 2011-12 budget must be published in a local newspaper on or before July 23, according to state law governing school elections. Bonds must be sold by Dec. 10, 2010.

Purcell suggested during Thursday’s board meeting the board revisit its decision, made three years ago, to move ninth grade to the high school.

“We need to critically and creatively examine the cost of the project,” Purcell said Friday. That includes revisiting the decision to move the ninth grade.

“We have to examine every aspect, and the addition or subtraction of 700 students is a significant economic factor,” she said.

Other board members quickly shot down Purcell’s idea. That decision, board members said, was an academic one based on data that showed ninth-graders perform better when in a high school setting, rather than a junior high setting as they are in Fayetteville.

Board members said they believed they could make a decision in early July. Superintendent Vicki Thomas said a special meeting likely will be held in the first week of July.

The annual school election is Sept. 22.

“The math is pretty easy,” said board member Steve Percival. “As money flows, this is as cheap as it gets. If you want to finish the high school, this is what we have to do.”