tools for financing capital projects · –if district’s ntc increases, levy authority also...
TRANSCRIPT
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Tools for Financing Capital Projects
MASBO Spring Conference – May 10, 2018
Andrea Uhl
Jeff Seeley
Background
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• 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
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• 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
• We will sprinkle in a few “school financing tools”
trivia questions to hold your attention
Financing Tools Authorized for School Districts
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• 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
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School Building Bonds
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• 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
School Building Bonds (continued)
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• 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
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• 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
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• 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
Operating Referendums (continued)
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• 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)
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• 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
Operating Referendums (continued)
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• 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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Trivia Question 1
What year were agricultural property and seasonal
recreational property removed from Referendum Market
Value, and what was the popular name for the bill that
made that change?
2001 – “The Big Plan”
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Capital Project Levy
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• 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)
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District
Number
District 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
Capital Project Levy (continued)
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District
Number
District 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
Trivia Question 2
1188
What was the name of the Capital Project Levy
when it was first written into statutes in 1988?
The Down Payment Levy
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Long Term Facilities Maintenance (LTFM) Revenue
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• 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
LTFM Revenue (continued)
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• 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)
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• 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
LTFM Revenue (continued)
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• 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)
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• 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”)
LTFM Revenue (continued)
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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)
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• Approval process to issue bonds
– Notice of intent needs to be published in local paper
– MDE approval
– Updated 10 year plan
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
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• 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
Capital Facilities Bonds (continued)
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• 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
Capital Notes (Equipment Certificates)
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• 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)
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• 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
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
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• 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
Lease Purchase (continued)
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• 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
Lease Levy
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• 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)
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• 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
Lease Levy (continued)
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• 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
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• 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
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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Trivia Question 3
4411
What “tool” has been in Ehlers’ Tools for Financing
Capital Projects booklet every year since 1997, but
was removed for the 2018 update?
Qualified Zone Academy Bonds (QZABs)
Bonus Question – What school district used the
last available allocation of QZABs in MN?
Hayfield – in 2017
Planning Considerations
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• 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
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• 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
Planning Considerations
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• 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
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Planning Considerations
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• 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
Andrea Uhl
Municipal Advisor
Ehlers
(651) 697-8542
Jeff Seeley
Senior Municipal Advisor
Ehlers
(651) 697-8585
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