tools for financing capital projects - masa...•debt service levy spread on net tax capacity (ntc)...

Tools for Financing Capital Projects

MASA Spring Conference - March 8, 2018

Shelby McQuay

Joel Sutter

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

2

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

3

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

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

5

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

6

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)

7

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

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

9

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

10


• 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

11


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


– Districts at state maximum

per pupil unit cannot

increase revenue further

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

13

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$


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$


16

• Advantages

– No maximum

– No interest or other

borrowing costs

– If district’s NTC increases,

levy authority also

increases

• Disadvantages




– If district’s NTC decreases,

levy authority also

decreases

– No state equalization aid

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

17

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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• 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

19


• 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

20


• 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”)

21


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

22


• Approval process to issue bonds

– Notice of intent needs to be published in local paper

– MDE approval

– Updated 10 year plan

23


24

• 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

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

25

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

26

Capital Facilities Bonds (continued)

27

• 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)

• 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)

30

• Advantages



forms of borrowing





• Disadvantages

– No additional levy

authority, debt service

payment could strain

operating capital or general

fund budget

– Potentially higher costs of

issuance



forms of borrowing

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

31

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

32

Lease Purchase (continued)

33

• Advantages

– Most times procedures can

be completed in a relatively

short time

– Most times costs of

issuance are relatively low


• 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

• 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

34

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

35

Lease Levy (continued)

36

• Advantages

– Additional revenue

received, no drain on

general fund


• Disadvantages

– Annual approval required

from MDE Commissioner




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

37

Abatement Bonds (continued)

38

• Advantages



forms of borrowing





• Disadvantages

– Extremely limited uses




forms of borrowing

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

39


• 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

40


• 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

41


• 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

42

Shelby McQuay

Municipal Advisor

Ehlers

(651) 697-8548

[email protected]

Joel Sutter

Senior Municipal Advisor

Ehlers

(651) 697-8514

[email protected]

43

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