North Tama board explores infrastructure financing
Options for possible school bond referendums discussed
Ten members of the public joined the North Tama School Board in the junior high commons on Wednesday, Jan. 12 for a three hour special work session meant to explore the district’s financing options in regards to anticipated future infrastructure projects.
Matt Gillaspie from the financial firm Piper Sandler led the board through a hefty packet of information that laid out the different funding options available to the district as well as how each funding source could be utilized (or not) with the four facility study options the board previously chose to pursue further.
Andrew Bell with Align Architecture was also present to provide further clarification as the board dove into the financial packet.
“At this stage our role is to educate you, teach you what your options are or are not,” Gillaspie told the board.
The four primary funding methods for school infrastructure improvements in Iowa include cash and/or grants, sales tax revenue bonds (also known as local option sales and service tax or SAVE bonds), general obligation PPEL (Physical Plant and Equipment Levy) capital loan notes, and general obligation school bonds.
Gillaspie told the board a voted PPEL levy (VPPEL) – if implemented as a result of a bond referendum that would require 51 percent approval from voters – could generate anywhere from $1.4 million to $2.8 million for infrastructure spending. Most districts that pass VPPEL choose to levy either $0.67 or $1.34 per thousand dollars of assessed valuation on property owners in the district for a period not to exceed 10 years.
PPEL notes are backed by property taxes and as such typically have lower interest rates.
The cheapest option of the four facility study options the board is currently exploring is Option A and it has an approximate price tag of $24.4 million.
Laying aside any new construction or renovation, Bell reminded the board that general maintenance and ADA compliance alone for the district are estimated to cost $12 million.
Gillaspie shared this is why most school districts in Iowa must tap into a combination of funding sources to complete their infrastructure upgrades.
VPPEL could therefore be added to a SAVE bond, a general obligation bond, or some combination thereof.
The district’s biggest source for funding would be a general obligation bond which would be backed by the school district’s credit and as such requires 60 percent voter approval. The levy can be approved by voters for up to 20 years and up to $2.70 per thousand dollars of assessed valuation on property owners in the district.
Voters can also approve to exceed the $2.70 rate limit up to $4.05 per thousand dollars assessed valuation. If the district decides to bond for more than $2.70, a second ballot question is required and also must have 60 percent approval.
Piper Sandler estimated the 2020 current taxable property value in the North Tama School District to be $242 million with the 2021 taxable value estimated slightly higher at $247 million.
If North Tama voters approved a $2.70 general obligation school bond levy, Gillaspie said the district could generate about $9.8 million for infrastructure needs.
No school district in Iowa is allowed to borrow more than five percent of their total assessed value – even with 60 percent voter approval – which means North Tama School District is only allowed to borrow $17.8 million total across all sources per Iowa law, Gillaspie said.
Bell said North Tama’s $17.8 million statutory debt limit is why each of the four options was broken into phases.
Option A financing
Option A involves renovating the 1917 building – the building with the current highest maintenance costs – into a new junior high/high school and expanding the elementary school.
The cost of Option A’s phase one would fit within the statutory debt limit, but phase two would not, meaning it could not be financed until at least 2032 and would require another bond referendum.
Option A would require a VPPEL of $4.05, the maximum levy allowed, as well as SAVE/sales tax borrowing.
Option B financing
Option B has a total price tag of $32.1 million and involves replacing the 1917 building, creating a new elementary school across Walnut Street on the north end of the Dennis Field complex, and creating new administration/entry space.
If the board chose Option B, the district would need to adopt a “very long term plan,” Gillaspie said, across three phases.
Option B’s phase one at $15.1 million could begin in 2023, but phase two could not begin until 2042 and would require general obligation notes, SAVE/sales tax borrowing, and “a lot of cash.” Phase three could not begin until 2046 and would also require a bond referendum plus $6 million in cash reserves.
“Future boards will need to be saving money all those years,” Gillaspie said.
Option C and C.2 financing
Option C would require a general obligation bond for phase one of about $11.7 million. Phase two could begin in 2029 with another bond referendum, while phase three could begin in 2031 with a bond referendum.
All three phases would require either the highest tax levy of $4.05 or close to it for the full 20 years allowed.
The board completely ruled out Option C.2 during the work session due to the price tag being unworkable in regards to the district’s statutory debt limit.
Gillaspie told the board the hardest piece of the puzzle in terms of financing will be the first general obligation school bond referendum, which requires 60 percent voter approval, and in particular, the second ballot question that would give the district the full $4.05 tax levy authority.
“Once you vote and get the citizens to approve that higher tax levy rate, that authority never ever goes away,” Gillaspie said.
Unless a district consolidates or changes the district’s legal name, the district has the authority to bond up to that amount without splitting the referendum into two ballot questions, Gillaspie said.
Effect on property taxes
Gillaspie also spent time during the work session explaining to the board how property taxes would be affected by addressing common misconceptions many Iowa voters have about their tax bill when it comes to funding school infrastructure costs.
“What if the school district had a $4.05 cash increase?” Gillaspie posited. It would not be applied to the market value of any property, he said, only the assessed value.
There is a rollback percentage each fiscal year, Gillaspie said, that even further decreases the amount that is taxed. The rollback for the next fiscal year is set at 54.13 percent of a home’s assessed value.
“A property tax increase [due to a school bond referendum] is usually about half of what people dream up in their heads,” Gillaspie said.
In terms of agricultural land, there is also a rollback, Gillaspie said.
“No farmer is paying property taxes on the market value,” Gillaspie said. “The Tama County average is $1,493. That’s the assessed value [per acre]. But even the assessed value is not what the ag landowner is paying taxes on because there’s rollback on that as well.”
Gillaspie said next fiscal year, owners of agricultural land in Iowa will be paying taxes on 89.04 percent of the assessed value of the land.
Athletic facilities, next steps
Following the December board meeting during which the four options were presented to the board by the architects, discussion arose regarding the district’s athletic needs and how none of the four options included a new gymnasium.
Since that meeting, a new two station gym with construction costs of approximately $4.1 million has been added to each of the remaining three options.
Devin Kack with Plunkett Raysich Architects, who was attending the meeting remotely, brought the work session to an end by reminding the board of the need to focus on the big picture, the big numbers and try to generally agree on a narrative list of bullet points.
“You have come a long way,” Kack said. “These are some really viable, interesting options. This position that [the board] and the community finds themselves in tonight is not at all unusual.”
“We’ll get there. It’s not going to be easy,” board member Doug Dvorak said as he addressed his fellow board members seated around him. “If everybody gives a little, we’ll get there. It’s kind of like COVID, there’s no simple answer, we’re not going to make everybody happy. But if we compromise a little bit and be flexible, we’ll get there.”
The next steps for the board will involve further work in order to bring forward one facility study option along with a possible financing plan to the community directly through both surveys and public forums.