HomeMy WebLinkAboutAgenda - 08-20-1996 - X-A 1
ORANGE COUNTY
BOARD OF COMMISSIONERS
Action Agenda
Item No. Y-A_
ACTION AGENDA ITEM ABSTRACT
Meeting Date: August 20, 1996
SUBJECT: Long Range School Capital Funding Options
DEPARTMENT: County Manager/Budget PUBLIC HEARING: YES: NO: x
BUDGET AMENDMENT: YES: NO: x
ATTACHMENT(S): INFORMATION CONTACT:
Report John Link, ext 2300
Sally Kost, ext 2151
TELEPHONE NUMBERS:
Hillsborough -732-8181
Chapel Hill -968-4501
Durham -688-7331
Mebane -227-2031
PURPOSE:. To receive a report on options for funding long range school capital needs.
BACKGROUND: Following the January 1996 meeting between the Orange County Board of
Commissioners, the Chapel Hill-Carrboro Board of Education, and the Orange County Board of
Education,the Commissioners directed County staff to work with the staffs of the two school systems
to develop options for funding the long term capital needs identified by the two school systems in
their 1996-2006 Capital Improvements Plans. Staff indicated at that time that such a report could be
prepared and presented by August 1996.
The attached report provides several options for addressing the funding required for the major new
projects over the next few years: a new elementary school to be located in the Southern Village
development; a new middle school to be located in the proposed Meadowmont development; a 500
student addition to the new East Chapel Hill High School; and a new elementary school in the Orange
County School district. The attached report, with associated spreadsheets and tables, lays out briefly
several of the options that staff recommend be considered by the Board of Commissioners. Budget
Director Sally Kost will make a presentation at the August 20 meeting that will explain in greater
detail the options suggested, and will respond to Board questions and comments.
No decisions are required at this time. However,the Board's comments and direction will be helpful
to the Chapel Hill-Carrboro Board of Education, which is scheduled to discuss on August 22 whether
or not to make a formal request that the Board of Commissioners schedule a November 7 referendum
on expanding the permitted uses of the proceeds of the Chapel Hill-Carrboro district tax to include
a
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capital project funding. If that course of action is to be pursued,the Board of Commissioners would
need to call for that referendum at their September 3 meeting, in order to provide sufficient time for
absentee ballots to be prepared and distributed.
RECOMMENDATION: The Manager recommends that the Board receive the report for
information at this time. Further discussion on this and related topics may require decisions as early
as the September 3 meeting.
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Long Range School Capital Funding Options
Report to Orange County Board of Commissioners
August 20, 1996
Background
One of the actions identified as part of the Board of Commissioners' Ten-Point Plan,
approved by the Board last Spring, was for County staff to work with the School
Systems' staff to develop long range capital funding options and to report these options to
the Board by August, 1996.
County and School staff have met over the past two months to discuss various funding
options. The options presented in this report are those identified by County staff. The
comments of the School staff are included in the appropriate section of the report.
The Schools have identified the need for the following new facilities:
Chapel Hill/Carrboro City Schools Elementary School (#8) $14,100,000
Chapel Hill/Carrboro City Schools East CH High Addition $11,800,000
Chapel Hill/Carrboro City Schools Middle School (#4) $22,500,000
Orange County Schools Elementary School $14,500,000
Total $62,900,000
This report includes several options to fund these facilities, including one option, which
tests many of the assumptions of the present capital policy for funding both School and
County projects. One option, which includes a$40 million bond referendum in Fall 1997,
is the primary focus of this report.
In developing these financing options for new school facilities, the following assumptions
were made:
• The Chapel Hill/Carrboro City Schools Elementary School #8 will be funded by
borrowing funds through private placement financing with funds drawn down in Fall
1996 and Winter 1997. The Fall 1996 schedule will provide funds for architectural
fees and planning costs as requested by the Chapel Hill/Carrboro City Schools. This
timetable will also provide funding for the first phase of construction.
• The State Bond Referendum in November 1996 will pass. This bond authority will
provide $10,995,840 for the Chapel Hill/Carrboro City Schools and $5,980,160 for
the Orange County Schools. The State bond referendum is a major component of
Option 5 in this report. It is this State-wide bond that allows a funding plan for new
school construction to be proposed that would not increase the general fund property
tax rate.
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• Revenue projections are based on the current Capital Improvements Plan. This is a
conservative approach inasmuch that these projections were made prior to the Board
of Commissioners' action to increase the impact fee for the Chapel Hill/Carrboro City
Schools from $1,500 per residential unit to $3,000 per residential unit. The reason for
not revising these projects as part of this report is to allow easier comparison of the
current funding plan to proposed capital funding options.
• The costs of facilities are based on the School Standards adopted by the Board of
Commissioners in Spring 1996. Based on the recommendations of the State
Department of Public Instruction, future construction costs are inflated by 5 percent
each year until the project is scheduled to begin. For the two new schools to be built
by the Chapel Hill/Carrboro City School system, land costs are not included since
these schools are planned to be constructed on land donated by the developers of the
Southern Village and Meadowmont projects.
Options
The first four options identified to address school facilities are based on current capital
financing policy, leaving funding basically as it is presented in the 1996-2006 Capital
Improvements Plan. (A summary of the current capital policy is included as Appendix 1
of this report.) The one major adjustment to the current capital plan is for the State-wide
bond proceeds. State bond funds are to be used to fund all but $800,000 of the $11.8
million East Chapel Hill High School addition and a portion of the costs for the
additional elementary school for the Orange County Schools.
Options 2 through 4 are derivatives of Option 1. All four of these options are listed in
Appendix 2 of this report.
The major shortfalls of these options are:
• The Chapel Hill/Carrboro City Schools middle school is not funded.
• Options 1 through 3 do not address redistribution of funds between the two
school systems.
Option 5 is a"clean slate" approach, testing many of the assumptions and capital policies
that have been used in the past. To do this, the scope of this study must be broadened
beyond looking just at school capital financing but to also include County capital
projects.
Option 5 includes funding $2.9 million for new school facilities through a combination of
State bond funds, impact fees, private placement borrowing and a $40 million bond
referendum in November 1997. The bond referendum would include $35 million for
schools, with the remaining $5 million for County projects and parks. Of the $35 million
r
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for schools, nearly $7 million would be available to address renovations of existing
facilities, accelerate renovations and improvements to existing facilities as identified by
the Schools. The following table shows how these funds would be used for School
projects:
School Financing Options
Facilities
Year
Needed CHCCS Q Total
Elem School#8 1999 14,100,000 - 14,100,000
CH High Addition 1999 11,800,000 - 11,800,000
Middle School#4 2000 22,500,000 - 22,500,000
Elem School OCS 1999 - 14,500,000 14,500,000
Total $ 48,400,000 $ 14,500,000 $ 62,900,000
Funding Sources
State Bond $ 10,995,840 $ 5,980,160 $ 16,976,000
Impact Fees
1997-98 872,100 344,250 1,216,350
1998-99 889,542 351,135 1,240,677
1999-00 907,333 358,158 1,265,491
Total Impact Fees $ 2,668,975 $ 1,053,543 $ 3,722,518
Private Placement (CHCCS Elem School)
Fall 1996 5,000,000 - 5,000,000
Fall 1997 9,000,000 - 9,000,000
Total Private Placement $ 14,000,000 $ - $ 14,000,000
County Bond Referendum
CHCCS Middle School 20,735,185 - 20,735,185
OCS Elem School - 7,466,247 7,466,297
Total Revenue New Schools $ 48,400,000 $ 14,500,000 $ 62,900,000
Bond Funds for Renovations 3,700,000 3,098,518 6,798,518
Total Funding For Schools $ 52,100,000 $ 17,598,518 $ 69,698,518
1
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The debt service on $40 million in bonds, is about $4.5 million in 1999-2000 (the peak
year), the equivalent of about an 8 cent property tax rate increase. It is possible however,
to minimize or even eliminate this tax rate impact by changing the current policy of
earmarking sales and property taxes.
The worksheets shown in Appendix 3 show how debt service on a$ 40 million bond can
be paid without impacting the general fund property tax rate. Under this plan, all revenue
currently being used for school capital , school recurring capital, county capital, and debt
service are combined. From this revenue debt service (existing and future) is paid. The
remaining amount, which in 1997-98 is $5.88 million, is then evenly allocated between
the County and Schools. Note that there are restrictive revenues, such as the Public
School Building Fund that can only be used for schools, or parkland payment in-lieu that
can only be used for County parks. These restrictive revenues are adjusted as appropriate.
The cumulative impact of this no-tax increase plan on projects currently approved in the
1995-2006 Capital Improvements Plan is as follows:
Currently Approved Proposed Years Difference
for 1997-2006 and 97-06
Recurring Capital (1)
County (2) $24,460,542 $23,341,394 ($1,119,148)
Orange County Schools $29,952,410 $16,417,524 ($13,534,896)
Chapel Hill/Carrboro City $28,786,401 $24,748,561 ($4,037,840)
Schools
(1) Based on funds available for capital projects,less any private placement debt service payments and
proceeds.
(2) The County portion does not include$3 million in bond revenue for parks since these funds are not
included as part of the current Capital Improvements Plan.
Note that in this comparison for the Chapel Hill/Carrboro City Schools, the adopted
Capital Improvements Plan in years 1997 through 2006, does not include funding for a
middle school. In this possible plan, a middle school is funded as part of the $40 million
bond referendum.
In response to this proposal, the Superintendent of the Chapel Hill/Carrboro City Schools
supports the approach to change the existing policies. However, the Chapel Hill/Carrboro
City Schools Superintendent is not supportive of a plan that would reduce the amount of
funding for Chapel Hill/Carrboro City Schools projects. The Orange County Schools
Superintendent supports Option 1 (see Appendix 2) which is based on maintaining
current policy and funding as adopted in the Capital Improvements Plan.
To mitigate the fiscal impact on each School system as identified in the above table, there
are certain conditions or changes to this plan that are possible:
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1. Use the Chapel Hill/Carrboro City Schools District Tax for Capital Financing
or Debt Service. One cent on the District Tax (after revaluation) will generate
around$400,000 in 1997-98.
2. Increase property taxes.
3. Reallocate funds between the County and the Schools. Although an option, the
impact on planned County projects and equipment/fleet replacement schedules
would be severe.
Orange County Schools
4. To reduce the fiscal impact on Orange County Schools, one option is to
dedicate funds after the debt service payment "peak year." The peak year of
existing and new general obligation debt payments is 1998-1999, when debt
service is about $11.2 million. Each year after this peak year, the total debt
service payment falls by about $340,000 per year. If these* funds were
earmarked for Orange County Schools, over the nine year planning period, an
additional $7.1 million would be added to help offset the $13.5 million
reduction.
Currently Approved Proposed Difference
for 1997-2006 and Years 97-06
Recurring Capital
Orange County $29,952,410 $23,510,963 ($6,441,447)
Schools
5. To further reduce the funding shortfall when compared to the current funding
for the Orange County Schools of the Option 5, the Schools could modify the
budget for the facility. The proposed $40 million bond includes $14.5 million
for a new elementary school. If the scope of the elementary school project is
modified and the budget is reduced, these savings could be used for Orange
County Schools capital projects.
Also note that the revenues estimates used in developing these funding options are
conservative. It is likely that actual sales tax revenue and impact fees received will
provide additional funding for capital projects.
Needs Assessment
As was the process for the 1988 and 1992 bond referenda, a citizen's committee to study
the needs of the Schools and the County is likely. In addition to studying the actual
facility needs, careful attention needs to be given to the Countywide recreation and parks
issue and the issue of affordable housing. Based on the outcomes of this needs
assessment, the funding options and plans as shown in this report could be substantially
altered.
Appendix 1.Summary School 4
Capital Projects-Board Policy
g '
,Y
Summary - School Capital Projects Board Policy
The following is a summary of the Board of County Commissioner policy for calculating the funding level
for School Capital Projects, including the amount for debt service.
A. Source of Funds for School Capital Projects
1. 80 percent of the first one half cent sales tax (statewide collections) is earmarked for
School capital. For 1996-97 this amount is estimated to be $2.8 million. (State Statute
requires that 30 percent of funds from this source be used for school capital projects/debt
service.)
2. 60 percent of the second half cent sales tax (statewide collections). For 1996-97 this
amount is estimated to be $2.1 million. (This is the level required by State Statute to be
used for school capital projects/debt service.)
3. Property taxes equivalent to two cents on the General Fund property tax rate. For 1996-
97 this amount is estimated to be$981,000.
4. Impact Fee Revenue. The Chapel Hill-Carrboro $1,500 impact fee on each new
residential dwelling constructed in the district is estimated to generate $855,000 for 1996-
97. The $750 impact fee in the Orange County District is expected to generate $337,500
for the 1996-97 fiscal year.
5. State Public School Building Funds - In 1987 The General Assembly increased the
corporate income tax from six percent to seven percent. One half of this increase, less
$2.5 million, is used to help fund school capital improvements. The funds are allocated to
counties based on student enrollment. For Orange County, the amount anticipated to be
available during 1996-97 is$515,290.
6. The equivalent of one cent on the General Fund Property Tax Rate is set aside in a
School Capital Projects Reserve Fund. This policy was established in 1995-96. The
amount anticipated for 1996-97 is around$490,000.
7. A total of $800,000 in General Fund Property Tax Revenue is earmarked to pay for the
debt service on the 1977 School Bonds with the remaining balance being used to fund
school capital projects. In 1996-97 the debt service payment on the 1977 School Bond is
$513,000; therefore, $287,000 is available for School projects. This debt will be retired in
1998-99.
8. The Debt Service on the General Obligation Bonds authorized by the voters in 1992 will
be$4.85 million. This is paid from Property Tax Revenue.
B. Adjustments
From the revenue sources listed in "A"above, the following adjustments are made:
► Appendix 1•Summary School
Capital Projects-Board Policy
9
• The debt service on the 1988 General Obligation Bonds total $2.5 million in 1996-
97.
• The debt service on the 1977 General Obligation Bond totals $513,000 during
1996-97.
• The debt service on the 1992 General Obligation bonds is$4.85 million.
C. Allocations to Each School system
Funds are allocated to each school system based on enrollment. Enrollment is based on the
tenth day count, adjusted every other year. The schedule of allocation adjustments is as follows:
Enrollment as of.-
September 1994 For 1995-96 and 1996-97
September 1996 For 1997-98 and 1998-99
September 1998 For 1999-00 and 2000-01
September 2000 For 2001-02 and 2002-03
Based on the September 1994 enrollment, the Chapel Hill-Carrboro City School System is
allocated 57.73 percent of the total capital funds and the Orange County Schools, 42.27 percent.
Impact Fees are based on the point of collection.
Once funds are allocated to each school system, the Chapel Hill-Carrboro City Schools pay the
annual debt service on the private placement financing used to finance $9.6 million for the
McDougle Elementary School. This debt service amount is$961,300.
Appendix 2.0ptiow for school
Capital Funding
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Options for School Capital Funding
1. Leave funding (basically) as presented in the 1996-2006 CIP, adjusting for the
State bond funds. The State bond money would be used for the high school
addition for the Chapel Hill/Carrboro City Schools and for the elementary
school for Orange County Schools
• Chapel Hill/Carrboro City Schools Elementary School and High
School Addition are funded through private placement in the CIP with
the debt service payments made from funds which would be allocated
in the CIP.
• The Orange County Schools elementary school is funded through
private placement with the debt service paid from funds which would
otherwise be allocated. The high school addition is funded with
PAYG funds.
This option does not address:
• Consideration of redistribution of funds between the two school
systems.
• Funding for the Chapel Hill/Carrboro City Schools middle school.
• Reimbursement for impact fees and Recurring Capital distribution.
• Simplifying the formula for distribution of capital
2. Adopt Option I and fund the Chapel Hill/Carrboro City Schools middle school
with funds from the district tax.
3. Adopt Option 1 but deduct funding for Recurring Capital and Impact Fee
Reserve Fund.
4. Adopt Option 1 but deduct private.placement funding before funds are
allocated to the two school systems for CIP projects.
5. Hold a bond referendum in November 1997 to fund the Chapel Hill/Carrboro
City Schools middle school, the balance of the Orange County Schools
elementary school, and renovation funds for both school systems. In addition,
the bond would include funding for parks and County capital projects. The
impact on the property tax rate could be minimized by changes in the formula
for calculating CIP funding.
i Appendix 3.Orion 5-
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