High school bond structure explained

The Oak Harbor School Board Monday addressed questions about the pay-off structure of the $45 million high school construction bond, which they are asking voters to approve March 11.

While much has been said, written and debated about the proposal, Superintendent Rick Schulte made it clear after a lengthy explanation of how the board arrived at their proposal that the bond repayment structure is not what people are voting on.

“This entire discussion is not on the ballot,” he said, outlining that the school board’s only legal commitment resulting from the vote, as outlined in the board resolution proposing the plan, would be to sell $45 million worth of bonds for an agreed term.

Within those parameters are many variables, and how the board chooses to finance the bonds can be decided after the bond levy is approved, should they so choose. This too is addressed in the resolution: “. . . The exact date, form, terms, and maturities of the bonds shall be hereafter fixed by resolution of the Board.”

“If the board wants to revisit the terms, they can do so at any time,” Schulte said. “There is nothing to prohibit them from looking at different scenarios.”

Former school board member Scott Hornung has been an ongoing and vocal opponent of the school district’s levy proposal, contending the school board has opted for a more expensive structure than needed, and that the board has not explored other options.

“When numbers can be added up they should,” Hornung told the board.

Hornung says he has run the numbers for the bond financing several ways, and that the structure proposed by the school board will end up costing taxpayers an estimated $77 million over the 16-year life of the bonds. Hornung’s proposed method, which assesses a flat annual rate for this bond levy alone, would result in an estimated cost to taxpayers of $63.4 million.

In addressing the concerns of Hornung and others, Superintendent Schulte outlined the lengthy process the board used to arrive at the proposed levy rate structure, which is an approximate 90 cent increase from the current bond levy rate ($1.32 versus $2.22).

Schulte said the bond committee looked at 26 different financing structures, including 9 “step-down” scenarios, with decreasing rates. The bond structure was also presented and discussed at numerous public hearings, Schulte said.

“Based on public hearings, the board determined that the priority (for taxpayers) was a less than $1 per thousand increase and a term of less than 20 years,” Schulte said.

Schulte said the main interest and only questions from the public have been about these issues.

“We feel obligated to the public to stay within the 90 cent increase and 16-year period,” Schulte said.

He explained that 20 years is the maximum term allowed under school district rules, although state law allows 30 years. By reducing that to 16 years the total interest paid could be reduced by $10 million.

In shooting for a total school tax rate of $3 per thousand of assessed valuation, the board’s goal was to keep it at a level that was significantly less than the average in neighboring school districts.

For example, Monroe property owners pay $4.05 per thousand in school taxes, while in Everett the rate is $5.93 per thousand.

Schulte stressed interest rates used were only estimates, based on assumptions, and that the board was conservative in adding a 1 percent interest increase cushion, as one-half percent is normal.

“Estimates are not obligations or promises, but they are reasonable expectations,” Schulte said later. “For each variable we have deliberately chosen a more conservative estimate than we believe is likely to occur. We carefully examined other alternatives and found them less desirable overall. We used an experienced and knowledgeable expert (Jack Eaton, Bank of America) when making our estimates and comparisons.”

County appraiser Daniel Jones said bond levy rates can’t be set in advance, because in order to pay off a set amount of money over a set amount of time, there are many variables that come into play.

Typically, bond rates go down as the tax base increases, Jones said.

Board member Kathy Jones (no relation to Daniel Jones) said the district has a history of being fiscally conservative, and that she was not in favor of further public hearings to determine the repayment structure.

“That’s what they elected us for,” she said.

She felt the board got public input, and this option is what people said they wanted.

“The majority want to know what they will pay, and plan for it,” she said. “I think we’re doing the right thing.”

Jones said repaying the interest sooner would result in a huge tax payment spike at the beginning of the bond, which the board tried to avoid.

“They’re looking to us to provide stability on property taxes,” she said.

Schulte said the actual interest rates and term of the financing will be known the day the bonds are sold, and actual tax rate increases will be known when the actual assessed valuation is established in 2004.

“We are highly confident that we can meet or better every financing goal we have established,” Schulte said.

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