Now that we have a formal proposal for the new Pulaski County Middle School, I thought it was time to explain some of the numbers and try to address some of the common questions I’ve heard about the school.
First, it’s important to understand the financing arrangement that the School Board has recommended to the Board of Supervisors. Currently, Pulaski County spends about $3 million dollars a year to service outstanding school debt (construction bonds for Pulaski and Riverlawn Elementary, plus renovation/refinancing for the other elementary schools and high school). The School board has recommended a wrapped debt service instead of a level one. A Wrapped Debt Service means that the funds from the $.08/$100 tax increase should first be applied to paying down the outstanding debt while only using minimum funds to pay off the middle school bonds, instead of simply paying off our debts at the same rate under the Level model (like a normal car or house payment). That will dramatically decrease the interest paid on the current bonds, while slightly increasing the debt paid on the middle school bonds ($66 million vs. $72 million on a twenty year term). Overall, it’s essentially as if we are re-financing all of our debt and paying off our smaller debts first which should mean a much smaller tax increase for everyone.
Second, what does this mean for the local property owners here in Pulaski County? For those whose homes are around the median assessed value (I’ve heard anywhere from $120,000 to $140,000) an $.08 increase in tax rate means approximately an additional $96-112 per year. For me personally, its about $100 per year based upon current assessments. Note that for those whose agricultural lands are part of the land use program, that means an additional $0.42 per acre of land owned (since currently the land use value is set at $520). Our largest landowner, Randall Kirk, will be charged an additional $1,100 for his 2,610 acres in the program. A more modest landowner, like Mr. Charles Bopp, will pay an additional $70.56 for his 168 acres. In addition, Pulaski County provides tax relief in the form of a reduction in assessed value for those above 65, or permanently disabled, and whose income is below $25,000, and whose liquid assets are below $55,000. Therefore, the tax increase will be less for those groups.
Third, I’ve read and heard a lot of questions about funding options and several other issues related to the middle school. I’ll try to address a few of the most heard here, but if there are any other questions in the comments I’ll try to answer those as well, either through my own research or by reaching out to the various bodies (County, School Board, etc.) that may have the specific information.
What are the next steps in the process?
The School Board’s proposal is sent to the Board of Supervisors, who then have two options. One, vote to approve the proposal, increase taxes for next year, begin the process of issuing the bonds and put out the proposal for bidding by construction contractors which could happen in the fall. That’s right, the Board of Supervisors has all of the authority to do that without a referendum. In fact, it would likely save us money since interest rates are steadily increasing and will continue to do so in 2018 and 2019. The second and more likely option, is for the Board of Supervisors to put the proposal on a referendum during the November general election. That means we could be looking at an additional six months of time during which interest rates could increase by up to .75% (and thus costing us all more money in interest).
Why does the middle school have to be financed through a property tax increase? Technically speaking, the County could finance the middle school through any number of means. All local tax revenue is pooled into the general fund and the County may spend it on almost anything it desires. Local Real Estate taxes make up about $25 million out of about $35 million in locally controlled funding (the rest is from various use and consumption taxes i.e. meals, sales, etc). The County has previously requested the revenues from taxes on cigarettes, but those are sent to the State treasury. Most of the remaining $53 million in funding that makes up the County’s budget is required to be spent on things like schools, social services, and capital improvements according to the state and federal laws which provide those funds. The Board of Supervisors could use other funds to pay for the bonds, but that would require substantial cuts to other programs or tax relief programs. The Board of Supervisors can only impose taxes on specific areas which have been identified by the General Assembly, thus any suggestion of a “school fee” would be illegal in Virginia. Simply put, real estate taxes are the largest single source of revenue that the County actually has any control over.
Will the County reduce the tax after the school bond is paid off?
The County is under no obligation to maintain the tax increase in any particular year, the proposal is merely a suggestion by the School Board of an amount that would cover the payments on the construction bond. If property taxes rise substantially at the next assessment, or a substantial number of additional homes are built, the County would be fiscally able to reduce the tax rate in any year. Some counties reassess property every year, my understanding is that Pulaski County engages in the process much less frequently. The County simply needs to ensure that the revenues cover our yearly expenditures. They could reduce taxes in 20 years, or opt to continue them in order to fund a capital improvement fund that would be applied to additional school renovations or construction. Again, if they approved the proposal now, there might be an attractive enough rate environment to put some money into the current $5.4 million backlog of capital projects for our schools (see page 7, excluding projects for the current Middle Schools). Over time, construction projects such as these only get more expensive.
I should note that the County is spending $419,000 on building upgrades to the County Administration building, which has $147,00 in new windows from 2012-14 compared to the original single-pane windows in both middle schools. I’ll be following up with some more information about how the County spends our tax dollars, when I get more information that I have requested pursuant to the Freedom of Information Act.
Here’s a Summary of the Financing options from the School Board Presentation Meeting.
Thank you for the extensive research you do to provide these most informative articles. I'm just wondering why you single out Charles Bopp as a comparison to Randall Kirk, since there are other landowners on the Board of Supervisors. Without going back and checking, I believe this is the second time you have mentioned his name, which, to me, is sending a negative message about his intentions regarding the middle school issue. Just my opinion!
Hey Kathy, thanks for your kind words about the article. About Mr Bopp, I used his farm in my previous piece about the Land Use Program because when searching through the 200 page text file I got from the County, his name was easy to find, his farm is about in the middle of the size range, and he is also the Board member from my district. So when I wrote this update, I thought his farm was a good representative for many landowners in the county. I do not mean to make any assertions about his intentions toward the middle school, just provide some comparative information about the effects of a tax increase. Thanks for sharing your thoughts.
I understand now, Mike. Thank you so much for getting back to me.
Michael, I am a strong supporter of a new middle school -- we need to build it as soon as possible. Time is of the essence for our kids, teachers, aids, and administrators who are laboring in difficult, perhaps unsafe, conditions. In addition, I have posted earlier about avoiding expensive studies that gather ammunition of economic leakage and the like to support an argument to the BOS. That (those?) studies will just cost more money and will serve those who wish to delay. Or maybe for the folks who do the studies! Thank you for your patience, but here's my question. First a quote from you: "The School board has recommended a wrapped debt service instead of a level one. A Wrapped Debt Service means that the funds from the $.08/$100 tax increase should first be applied to paying down the outstanding debt while only using minimum funds to pay off the middle school bonds, instead of simply paying off our debts at the same rate under the Level model (like a normal car or house payment). That will dramatically decrease the interest paid on the current bonds, while slightly increasing the debt paid on the middle school bonds ($66 million vs. $72 million on a twenty year term). Overall, it’s essentially as if we are re-financing all of our debt and paying off our smaller debts first which should mean a much smaller tax increase for everyone." I am having problems getting my aged, liberal arts brain around this particular proposition -- especially given other needs Pulaski County will be facing. I "get it" if all the County's needs were schools. The school needs are very significant (the new high school is 40 something years old!), but "they" are not all our County's needs. We have been enormously fortunate with industrial recruitment in the County -- that has assisted in diversifying our industrial base away from Volvo. One only has to look at the Town of Pulaski's past firm believe that furniture and textiles would last forever (or for heavy industry before that!). Nope. So thanks to Phoenix (Colombian), James Hardie (Australian), Korona Polish), Red Sun Farms (Mexican), Fall Stamping (US), etc., we have seen success. That said, apart from one or two lots in the County Corporate Center near PCHS, we're out of green space sans "Commerce Park" that is owned by several many localities, managed well by Danny Wilson, but needing funds to grade industrial "pads." Retrofitting old industrial hulks is just well, in most instances, not cost-effective. "Let's tear them down?" Oops, we don't own them! Oops, many have significancy "legacy" issues -- ethel-methel-bad stuff. I could go more into detail: social service needs, rising costs of employee health care, market competition for the "brightest and best" to work of the Towns and County.... You get the idea. I don't "wrapped debt" will do the trick. It's salve on a wound that's been festering for decades. It will, I think, strap Pulaski County citizens (you, Jill, Jennifer, and me, etc.,) with more eventual debt. As the Hebrew Bible says (LOL), "wrapped debt" is a "shibboleth." We don't need too chase that mirage. I urge the BOS to vote "yes" at a measure that will ensure our future. Otherwise, it's just more bandaids or, and I love this one, "lipstick on a pig." Thanks for your commitment!
John, I guess I'm a little confused about what exactly you think the county should put forward as a solution? I don't think that this funding structure will solve all of the County's problems, just address the debt payments for our schools. I know wrapped debt sounds like the kind of financial "structures" used to get people to take on more debt than they can afford, but this seems to me to be a fairly normal funding structure that takes into account the existing and future debt as a totality instead of a one-off. I'm not sure that using a Level Debt structure, with the larger tax increase, will be as likely of success either at the BoS or at the ballot. If additional tax increases to pay for more economic development are needed, that's a separate issue that the County should take up. I'm going to assume that those interests have lots of people who speak on their behalf, unless you tell me otherwise. I'm sensing that wrapped debt will need a separate post, because it seems to be an issue many people are confused about.
Michael and John, I enjoy the comments that both of you share online and otherwise. I find your comments insightful. As to the wrapped debt bond financing, allow me to share several thoughts with the caveat that these are my personal thoughts and not those of the school board. One of the most frequently cited reasons for delaying the construction of a new middle school has been that we needed to be able to use the funds currently being used to pay off the Pulaski Elementary and Riverlawn Elementary School bonds to fund the debt service for a new middle school. Regrettably, this delay almost certainly ensures that we ultimately will pay more both in construction and financing costs. This delay also deprives our students of the use of a modern, 21st century educational facility which, while difficult to quantify in dollars, surely represents a cost to our students, educators and community as a whole. In seeking to proceed with this needed school at this time, I believe it is reasonable to consider a bond financing schedule that would allow us to proceed without further delay and at the same time utilize the current school related debt service to pay the middle school debt service. What we are referring to as wrapped debt service, I think of more aptly as blended financing since the existing debt service is blended into the payment schedule for the middle school bonds as current school debts are paid off. This wrapped or blended debt structure was prepared by Dr. Sheryl Bailey, former Director of the Virginia Resource Authority, and a recognized expert in public financing and municipal bonds. The hallmarks of the financing structure would be interest only payments during the construction of the new school, much like you or I would pay with a standard construction loan. Thereafter, principal payments would commence, but then significantly escalate after 2021 when the PES debt is paid off and then escalate again several years later after the RES debt is retired. Essentially, we are using the existing school debt as retired to pay for the new middle school, just as many persons have insisted we must and in doing so are able to moderate the tax increase needed for the middle school. All of which seems to me at least to be a most reasonable plan. In recent weeks, I have heard suggestions that the tax rate utilized in a middle school referendum should be set at a level to fund other future projects. I do find these suggestions disturbing for several reasons. First, this seems to abandon the oft cited reason for past delay, that being the need to use current school debt service to pay for a new middle school. Now, it is suggested that retired school debt service should be used for unidentified future projects. Secondly, to propose a tax rate in the middle school bond referendum that is based, in part, to generate revenue for other projects runs the risk of failing to pass the transparency test. If an added tax rate increase is needed for other projects, then clearly identify those projects, specify the additional tax rate increase needed to fund these other projects, and allow them to be considered separately from the middle school project. Of course, the board of supervisors can incur debt for the construction of a new middle school and for other projects without a referendum should they wish to do so. My concern is with using the middle school referendum as a vehicle to fund other, unrelated projects, an approach that seems to me to have great potential to confuse or even mislead.