After attending the Board of Supervisors meeting on June 26, and the work sessions on June 30, July 12, and July 20, I wanted to share some observations about their discussions.
First, the School Board’s proposal for the consolidated middle school has a budget of about $46 million. The Pulaski County High School was built in 1974 for about $11 million. If we take into account inflation since 1974, that would be approximately $55 million dollars in today’s dollars. So the middle school is not the largest investment in County history, at least in terms of actual buying power. Since interest rates on municipal bonds were about 6% in 1974, compared to about 3% today, the interest payments in a level debt service would be approximately $40 million for the high school (compared to about $15 million for the middle school) for a total cost in 2017 dollars of $95 million. While $60 million dollars (principal and interest) for the middle school is a substantial amount of money that should be scrutinized, it is not the most expensive project in Pulaski County history.
Second, Davenport, in its first report on July 12, generated increased tax rate numbers by using an unusual assumption. Pulaski County budgets about $250,000 in revenue for every $.01 in property tax assessed ($.64 per 100 generates about $15.8 million). However in the report on July 12, at the direction of Mr. Sweet, Davenport used an assumption that $225,000 of revenue would come from every $.01 in real estate tax. So the tax increase assumptions in their first report are at least 10% higher than they should be. Davenport initially stated that a $0.14 increase would be needed for the level debt scenario (see first report page 26), but it is actually closer to $0.12 (see second report, Scenario 1, page 2).
My Takeaways From the Meetings
If the County increases taxes by at least $0.12, almost immediately the revenue generated will exceed annual debt payments. By 2024, revenue will exceed debt payments by over $1 million; by 2029, almost $2 million; and by 2031, almost $3 million. Over 18 years, a $0.12 increase would generate a $34 million surplus after paying off all existing school debt. If $.04 cents of real estate tax generates about $1 million then the tax increase, assuming that other budget items remain fairly constant, could be reduced in each of those years. According to my calculations, the tax increase could be fully reversed within 13 years in order to cover the costs of this project. If we take the case of the median home value of about $140,000, then that means 6 years at $0.12 cents, 5 years at $.08, and 2 years at $.04, for a total of $1680 over 13 years. That averages about $130 per year.
While Mr. Sweet stated at the July 20 meeting that using the level debt would allow the County to engage in other capital projects for the existing schools (new roofs, repaved parking lots, upgraded HVAC, etc.) there is currently no plan by the Board of Supervisors that is publicly available to address these issues. Such a plan would enable voters to make informed decisions about how investments would save money in the long run. An example of such an investment is converting the high school from electric to natural gas for heating to save on utilities (see page 7 for a list of capital improvement projects). If Pulaski County would like to use a level debt payment structure, and intends to use the surplus to fund additional capital projects, a detailed public plan should be developed that takes into account the urgency and the potential cost savings of each project. Certainly, if the Board of Supervisors committed funding to the School Board, it would be better able to plan its capital projects for both impact and economics.
Discussion of Traffic and Architectural Reviews
Finally, after all of the discussion of the accuracy of the School Board’s proposal and the hiring of an additional firm to review the plans for accuracy, the results were fairly unsurprising. The presentation was broken up into two sections- traffic reviews and building plans. Both emphasized additional growth in the area as a major consideration in determining cost estimates.
Traffic on Route 11
During the traffic review, we learned that Hurt & Proffitt (Board of Supervisors pick) stated that the intersection of Thornspring Road and Route 11 should have a traffic light based on the current traffic flow. Also that some roadwork improvements would need to be made to increase the safety of that section of Route 11, regardless of whether the middle school is located there. So while some residents have expressed concern about the location of the school based on traffic, two independent civil engineering firms have opined that the site, with modifications, is safe for use as a school.
Proposed Building and Site Budget
The architectural review from Spectrum also included a civil engineering component, which stated that the costs estimated by RRMM were generally accurate (see page 2.5-2.6). However, the engineer from Spectrum stated that, since they had no information about borings or other site work, they included a much higher contingency. Part of that contingency was again the concern about integrating the site plan into a wider scope of growth, particularly replacing an aging pump station to upgrade capacity in that section of the County for any additional residential growth.
The main takeaway by the Board of Supervisors from the Spectrum architect’s review was the difference in “gross square footage.” Even using the same architectural drawings, the two firms differed on the square footage but that’s not because they thought the rooms were a different size. Spectrum counted as part of the square footage exterior areas but only at 50%, and significantly added an additional 50% for 2-story open spaces (Lobby, Commons, and Collaborative spaces) for a total of 9,000 additional square feet (see page 2.4). What this means is that Spectrum considers 2-story open spaces more expensive to build and operate than 1-story spaces, and RRMM has been asked to respond. Certainly, if those calculations are accurate, it would mean an additional $2 million dollars, or just under 5% in cost.
Critically, none of these reviews gave any indication that the School Board’s proposal was unrealistic or drastically under-budgeted. In any construction project, unexpected costs can come up and alter the scope or costs. Interestingly, many of the differences can be attributed to planning for additional growth in the area which both of the reviewing firms appeared to take for granted. While a middle school alone is not a driver of economic growth, it can be a catalyst for changing attitudes about attention to investments in our communities that lead to real change.