Alternate Capital Funding Sources Minutes

Tuesday, May 17, 2005 – 10:00 a.m.

School Board Meeting Room

Stuart, FL  34994

Members Present

Susan Hershey –Chairman

Lorie Shekailo-Vice-Chair

Dr. David Anderson

Laurie Gaylord

Dr. Sara A. Wilcox, Superintendent

Tom Elfers, School Board Attorney

Members Absent

Nancy Kline

Katie Gillen, Student Representative (MCHS)

Staff Present

Ruth Pietruszewski, Darla Miloszewski, Rodger Osborne, Cathleen Brennan, Steve Rusnak  

Public

Press                PBPost – Mike Bender                           Stuart News – Kelly Tyko

MCEA – No representation                   AFSCME – No representation

Call to order by the Chairman and Pledge of Allegiance to the Flag of the United States

.

Sue Hershey called the meeting to order at 11:27 a.m.  Because the prior workshop ran late, Sue asked if Board members wished to recess and reconvene this meeting at 1:30 p.m.

Lorie Shekailo moved that the meeting be recessed until 1:30p.m., Nancy Kline seconded, and the motion carried unanimously.

Sue Hershey reconvened the meeting at 1:35 p.m.

1.          Funding Options for Capital Facilities           

Darla Miloszewski, Executive Director of Finance, presented three different funding possibilities, so that Board members would be informed about options available to them to complete pending projects sooner.  Using other funding sources for additional capital funds would free up capital revenues that would allow projects to be moved up on the 5-year budget plan. The three different types of financing she explained were:

                                    Half Cent (surtax) Sales Tax

                                    Certificates of Participation (C.O.P.s)

                                    General Obligation Bonds

Darla compared the finance options and discussed the pros and cons of each type.  Steve Rusnak, Special Projects and Contract Accountant, gave a power-point presentation on all three alternative funding choices.  He explained what they were and expounded on the pros and cons of each funding source. Darla stated that sales tax would shift some of the burden away from residents, since visitors would pay sales tax on the purchases they make in Martin County; however, it would take more than a year to see any revenue.  Darla estimated the expected revenue generated to be approximately $75 million over a 5-year period.  The revenue would come from the State, after vendors turned in their sales tax collected on taxable purchases.  The possibility remains that it would not pass through voter referendum. Darla requested an expert be consulted on using sales tax to generate additional funding.  There are limitations on the tax percentage and specific allowances for the expenditures. Certificates of Participation (C.O.P.s) is borrowing funds in a type of lease-purchase financing to be repaid with 2 mill tax revenue over 25-30 years.  There is a credit rating required with this source of funding, which takes about three weeks to obtain.  The Bonding capacity would be up to $227 million, which is 75% of the 2 mill capital.  The Board can approve the insured thirty year certificates.  A referendum is not needed.  The loan can be processed quickly.  The Board can approve the amount it deems necessary up to $227 million.  The downside with this option is that it is not additional money.  C.O.P.s require annual principal and interest payment for Term of Financing from 2 mill revenues.  The annual appropriation would

1.          Funding Options for Capital Facilities (Con’t)

be established in the budget.  Darla reminded Board members that they need to be careful that enough funds are left to maintain the schools.  Asset ownership comes at the end of the Term.  A C.O.P. for the amount to fund the new Middle School and the new Elementary School ($60 million) would create a debt service amount of approximately $3.9 million annually for 30 years paid from local 2 mill funds. General Obligation Bonds would generate additional new funding by Bond Issue with voter referendum to be repaid from a millage levy over 20 years. By pursuing a General Obligation Bond issue over a 20-year period, a bond issue of $60 million over 20 years would create an annual debt service of $4.8 million.  Average property tax would be .284 mills; therefore, a house valued at $300K would pay an annual tax of $78.10 for debt service. Debt service payments would be required over a 20 year period.  Approximately one year would be needed to gain support of voters; however, the General Obligation Bond may not pass through voter referendum.  Board members discussed the three alternative options and Darla answered their questions.  Dr. David Anderson informed Board members that there has been only one bond issue in the District’s history, and it was in 1976 to build South Fork High School. Darla informed Board members that the sales tax or General Obligation Bonds would take at least a year to implement before seeing any revenue.  Lorie Shekailo asked if C.O.P.s were the only alternative feasible if the Board wished to move projects up on the time line.  Darla answered yes to her question.  The one way to expedite the funds now was to use Certificates of Participation.  Lorie Shekailo asked Darla if the Board chose to use C.O.P.s to move projects up on the schedule, would it be possible to pay off the C.O.P.s early with sales tax revenue?  Darla answered yes to her question.  There was no pre-payment penalty, but  Darla added that there were specific things that could be done with the half-cent sales tax.  She believed that land could not be purchased with sales tax revenues.  Lorie Shekailo asked what the maximum would be on the sales tax.  Darla explained that there are two different taxes.  She continued to say there is an infrastructure tax and this is limited to 1 cent.  If you go under the District’s capital outlay, that is a half cent.  Darla requested the Board obtain an expert’s opinion before pursing anything with sales taxes.  She had not researched all of the Attorney general’s opinions, and there were several of them. Sue Hershey stated that she had received a note from the City of Stuart encouraging the Board to go the sales tax route.  Jeff Krauskopf said that the reason was to spread the costs across with visitors and not put the entire burden on residents.  Sue Hershey asked Darla if bonds or sales tax had any affect on impact fees.  Darla answered, “No, not anything that I am aware of,” to her question. Lorie Shekailo asked what was involved with the Moody’s rating and how long it would take.  Darla explained the process of submitting financials and  looking at project lists. She estimated that it would take three weeks.   Sue asked if the Board could buy land with C.O.P.s.  Tom Elfers answered no to her question.  Lorie Shekailo explained that with a C.O.P., the funds must be used to build a physical new building, not to make renovations on an existing school. She continued to inform them that interest is paid right from the beginning on the C.O.P.s when they are issued.  What can be done is to pass another resolution and increase them later.  Lorie Shekailo stated that it is important to many to keep the School District debt free, so she recommended that Board members consider investigating a sales tax to pay off C.O.P.s. She told Board members that using C.O.P.s’could jump start the projects and get those schools going.  Lorie Shekailo asked Rodger Osborne to furnish a list of priorities.  Rodger stated that in order to complete a list, he would need the funding stream to prioritize. He stated that the dynamics of the financing will change the plan. Sue Hershey stated that the middle schools were a priority to her.  She feels the Board should take a critical look at Stuart Middle and Murray Middle School.  She had concern with the construction prices rising 30% per year.  She stated that if we waited three years we could have built another school.  She pondered how do we do this safely and protect the public at the same time. .Dr. David Anderson said he hates to have to phase a school over 15 years.  Sue Hershey added that phasing is so expensive. She stated that she didn’t want to do a patch and a patch. She wants to look at the Capital Plan very carefully. Her thoughts were that if you do a school in a 15 year phase, you never get ahead.  By the time you are finished, other parts of the school will need work. Dr. David Anderson felt even though C.O.Ps would mean they were borrowing, he felt less of an invasion against the public than going out for the sales tax.  He stated that we are borrowing against our own money.  Dr. David Anderson desired to be furnished with an expert’s opinion to certify that what we are doing is right. He wants to be given a rubber stamp of approval from the District Finance Department and an outside agency.  Dr. Sara A. Wilcox agreed that we need to look at Murray Middle School, Stuart Middle School, South Fork High School, Martin County High School and Spectrum.  She felt that these schools were the neediest.  Rodger Osborne stated that there have been renovations done at the schools, and they all meet code. 

Dr. David Anderson stated that a more vigorous building plan over the next 5 to 10 years will save millions of dollars by not getting the cost of escalation.  Lorie Shekailo suggested the Board take three steps:

1) Use C.O.P.s for new elementary and middle school

2) Prioritize a facilities list

3) Investigate the half-cent sales tax

Dr. Sara A. Wilcox urged the Board to proceed cautiously.  “I am not a real big fan of borrowing a lot of money, she stated. She continued to say that if we move in that direction of the C.O.P.s, she would like for it to be well thought out with the projects that were to be completed to be brought forward with a real solid plan.  She commented that it doesn’t provide us with additional funding.  It provides us with funding earlier. She felt that taking a look at the sales tax is additional funding and is a validation from the community that they see the need. She commented that we are fortunate in Martin County to have a high tax base, so the 2 mils generates a lot of money for us. We have to consider the master planning.  The plan looks at what the needs are long range.  She expressed her concern that once it is out there, there is that tendency to say I want it all now.  Communication is very important with the public. She continued to say that this is a complex issue.  You have brought out a lot of issues that need to be addressed in putting this all together.  I think we need to take our time to ensure we have the best plan. She continued on to say there is the issue of manpower within the District.  She questioned, “How can Rodger do everything?”  There is an issue of the availability of contractors, especially with all the construction going on right now. Lorie Shekailo asked if we could talk about the timeline and

1.          Funding Options for Capital Facilities (Con’t)

what our procedures were going to be at “Open to the Board.”  Dr. Sara A. Wilcox and Sue Hershey said that it could be done at “Open to the Board.”

Lorie Shekailo made a motion to adjourn, Laurie Gaylord seconded, and the motion carried unanimously.

2.         Open to the Public

§ No representation

3.         Open to the Board

§ No representation

There being no further business to bring before the Board, the meeting was adjourned at 2:39 p.m.

_______________________________                    

CHAIR (Sue Hershey)                     

_______________________________

SECRETARY (Sara A. Wilcox, Ph.D.)