STC hears financing options for Middle School

Travis Squires with Piper Sandler (far left) discusses project financing options to the Facilities Task Force at a special meeting of the South Tama Board of Education on Aug. 30. Pictured in the background are (from left) Adam Todd, Board Director Clint Werner, Doug Stadler, Joanne Wacha, Charlotte Upah, Board Director Alan Kline, Ryan Ellsworth (Estes Construction) and Laura Peterson (Invision). -- Photo by Darvin Graham

Several stakeholders in the South Tama Middle School bond referendum project gathered at STC Elementary Monday evening to hear a presentation from Travis Squires of Piper Sandler. Squires, who is the Managing Director at the Des Moines-based financial consulting firm, addressed the STC Board of Education and the Facilities Task Force regarding financing capabilities the district has before them as they move forward toward a vote on a middle school improvement project.

Though the funding mechanisms have remained the same since the 2019-20 school year, the district’s financial position has changed.

In December 2019 as election petitions were circulating for the first middle school bond referendum, the district owed $3.8 million toward a general obligation loan that funded the South Tama Elementary construction in 2006.

Since that time the district has accelerated payoff of the 2006 Elementary debt and plans to pay off the loan entirely in May.

Currently the balance owed on the Elementary debt is $865,000. The regular annual loan payment of $420,000 will occur in May as will an additional payment of $445,000 funded by sales tax cash dollars the district has available through the state.

The 2017 South Tama High School remodel project debt remains at a balance of $5.5 million with a scheduled payoff in 2029. South Tama Director of Finance Randy Denham said however the district may look to refinance that debt or accelerate payoff of the debt depending on the outcome of the current middle school bond referendum.

In his remarks to the board Monday, Squires laid out three tools the district has available to acquire financing for a large capital project.

Those include general obligation bonds that would require a vote, the Physical Plant and Equipment Levy (PPEL) which is a voter-approved tax of up to $1.34/$1,000 on property valuation of property owners and sales tax revenue bonds that are loans against sales tax dollars each school district in Iowa receives from the state.

The sales tax revenue bonds require a public hearing through the board of education but do not require a vote to pass.

In 2020, voters were given three questions on a special election ballot to make financing available for a proposed middle school project. Two of the ballot questions did not receive a high enough majority to pass. That required the district to restart the process of developing a plan to address one of the state’s oldest active school buildings.

Should the district decide to utilize the voter-approved PPEL tax they would likely have to supplement that with a general obligation bond. That would again require multiple ballot questions to go before voters.

The PPEL tax levy was voted down in 2014 by South Tama voters and has not been taken up since.

Financial template

Ultimately, Squires presented a financial plan he felt was a good and straight-forward option for the district to use should they move forward with the project and a vote in March.

The template plan utilizes an estimated total project budget of $31 million, which Squires said was near the maximum of what he felt the district could afford in a single-phase project.

The project budget amount given is not set in stone and could fluctuate down if the district were to decide to limit the scope of the project.

The plan Squires presented serves more as a roadmap for how to acquire funding rather than a final recommendation using specific estimates and costs.

In the $31 million template, the district would utilize $19,257,647 in general obligation bonds (20 year loan), $9,692,500 in sales tax revenue bonds (20 year loan) set against future sales tax dollars and $2,049,853 in current state sales tax cash the district would have on hand.

Squires felt the timing of the investment in the middle school capital project was favorable because interest rates on loans are the lowest they have been in several years and that transitioning out of the 2006 Elementary debt and into the new Middle School debt would allow the overall property tax rate to stay the same as the current fiscal year.

Should the district decide against the project, the property tax rate for the school district would likely decrease in the next fiscal year. However, the need to address the aging middle school facility would remain and would eventually have to be taken up.

“If you want to keep up on facilities, you’re likely going to have to have a property tax investment at some time,” Squires said. “Whether that’s voter-approved PPEL or a bond issue.”

Squires also reminded the group that the state legislation that provided funding to schools with sales tax dollars will eventually change. He said the legislation committed up to 30 percent of sales tax dollars to eventually go toward the property tax relief and that currently only 2 percent was going into that bucket. The increase from 2 percent to 30 percent in property tax relief will mirror a decline in state sales tax dollars made available to schools in the coming years.

Over the past year and a half much has also transpired in the construction industry that has affected the projected cost of the middle school project.

According to Ryan Ellsworth, Lead Project Executive at Estes Construction, material and labor costs have greatly escalated since the COVID-19 pandemic took hold in 2020.

He said the normal yearly project cost increase for inflation was around 3-5 percent. This year, those costs have ballooned out to a 20 percent increase.

Although availability continues to be an issue with steel products, should the district proceed forward with the project, the soonest they would need to take bids from construction companies would be late 2022.

The hope would be for costs to level out over the next 15 months and not present such a financial hurdle for new projects like the one South Tama is investigating.

At the Monday presentation, Squires took questions from the task force and from members of the public, though discussion by the board was limited.

The next step in the process is for the Facilities Task Force to meet with the architects from Invision on Sept. 13 to further define the scope of the project and to discuss options such as whether to build using brick or metal.

The task force will also set dates for public input sessions to come in late September. The public will have the opportunity to see and discuss different project options that may offer different locations or budget amounts.