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Lifelong Learning

School Board reviews financing options for school construction

March 11, 2015

At its March 9 meeting, the Moorhead School Board reviewed five options for financing bonds to pay for renovations and new construction necessary because of increased student enrollment.

Greg Crowe with Ehlers, a financial advisory company, provided board members with a mini-lesson in Bonds 101 for Minnesota school districts. He explained that a bond is a financial instrument through which one party lends money to another, similar to a mortgage. With school building bonds, investors lend money to a school district, and the district uses the funds to finance capital projects.

With most building bonds, districts pay principal and interest using the debt service levy to collect money from property taxpayers to cover the payments for the course of the bonds (20 years is most common). Bond investment proceeds are used to help pay the cost of the bonds. Districts may qualify for state debt equalization aid once they reach certain levels of debt.

The five different options and their potential tax impact were designed to structure debt in the best way for the district and taxpayers, Crowe said.

“The intention would be to wrap new debt around the existing debt,” he said. “The goal is to keep the tax rate as level as possible.”

This would have a higher tax impact in the first few years after bonds are sold, but would level off after about six years, Crowe said.

Assumptions, such as the 3.5 percent interest rate, used for these scenarios would need to be refined once the board finalizes its plan and sets an election date. Mid summer would be the deadline to set a November election.

The first phase of the Facilities Master Planning Task Force’s recommendation is to invest $78 million to build a new grades K-4 elementary school and to build a grades 5-6 addition and an auditorium at Horizon. This phase also renovates the current elementary schools to improve safety and restore flexible learning spaces that have been eliminated during the space shortage, and it provides for safety upgrades at Moorhead High School. The second phase looks at either renovating Moorhead High School or building a new high school.

Financing Options
Option 1 would be for a November 2015 election seeking $78.2 million in bonding authority to pay for a new elementary school, middle school addition and elementary school renovations. That option would add $123 per year in taxes to a $200,000 home or approximately $10 per month. Commercial or industrial property worth $500,000 would pay $631 more per year, and agricultural homestead property worth $750,000 would pay $291 more per year.

• Option 2 includes two elections with one for $78.2 million in 2015 as in Option 1. A second election in 2017 would ask for approval for $65 million in bonding authority to renovate Moorhead High. Besides the increase for Option 1, Option 2 would add $93 per year taxes to a $200,000 home. Commercial or industrial property worth $500,000 would pay $477 more per year, and agricultural homestead property worth $750,000 would pay $220 more per year.

• Option 2B includes seeking $78.2 million in 2015 as in Option 1. A second election in 2017 would ask for approval for $120 million in bonding to build a new high school. Besides the increase for Option 1, Option 2B would add $246 per year taxes to a $200,000 home. Commercial or industrial property worth $500,000 would pay $1,258 more per year, and agricultural homestead property worth $750,000 would pay $580 more per year. This option would generate more state aid.

• Option 3 includes the same projects as in Option 2, but in a single election in 2015 seeking $137.2 million in bonding authority. Option 3 would add $226 per year taxes to a $200,000 home or approximately $20 per month. Commercial or industrial property worth $500,000 would pay $1,157 more per year, and agricultural homestead property worth $750,000 would pay $533 more per year.

• Option 3B includes the same projects as in Option 2B, but in a single election in 2015 seeking $187.2 million in bonding authority. Option 3B would add $362 per year taxes to a $200,000 home or approximately $1 per day. Commercial or industrial property worth $500,000 would pay $1,852 more per year, and agricultural homestead property worth $750,000 would pay $853 more per year.

A professional demographics study will be completed by the end of March 2015 to provide the district with more information about the projected enrollment growth. The board will discuss the demographics and financing information further in April.

Categorized under: School