08/17/11 — Public hearing Sept. 6 on school bonds

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Public hearing Sept. 6 on school bonds

By Steve Herring
Published in News on August 17, 2011 1:46 PM

The public will have the opportunity next month to weigh in on the county's plans to sell $15 million in federal Qualified School Construction Bonds to help finance a $16.4 million building and renovation project at Norwayne and Eastern Wayne middle schools.

On Tuesday, the Wayne County Board of Commissioners scheduled a public hearing for 9 a.m. on Sept. 6 on the bonds. Another focus of the hearing will be the transfer of the school property to the county to secure the loan.

The county will lease the property back to the Wayne County Board of Education -- an arrangement approved earlier this month by the school board.

The hearing will be held in the commissioners' meeting room on the fourth floor of the county courthouse annex, 224 E. Walnut St.

The project was bid two ways -- as individual schools and then as a combined project. One contractor, Harrod & Associates, withdrew its bid after learning it had made a $150,000 error in its bid proposal, County Manager Lee Smith told commissioners.

The contract has not yet been awarded, but Monteith Construction made a combined bid of $14,523,200, the official low bid including alternatives. Once awarded and contracts signed, possibly by November, construction could be under way by early January.

The alternate bid includes items like an additional 20,000-square-foot classroom building for $1,963,000 and $250,000 in heating and air conditioning renovations to the cafeteria and gym at Norwayne and $227,000 for heating and air conditioning renovations to the cafeteria and gym at Eastern Wayne.

The base bid for both schools is $11,947,000 and the alternates add another $2,576,200.

"The bids came in low enough that we could add the alternatives," Smith told commissioners.

Another $560,696 in contingency and related costs and an estimated $81,500 in bond fees boost the total to $15,165,396.

Of that total $15 million will be financed and $165,396 would come from local sales tax reimbursement on items purchased for the projects by the county.

Another $1,264,636 in addition costs falls outside of what would be paid for by the bonds making the total project $16,430,032.

Those costs include $409,500 for furniture and equipment; $536,450 for design fees; $35,696 to R.N. Rouse for construction management; and a $35,000 nitrogen offset fee for Eastern Wayne (to be paid by the school system).

The $1,264,636 will be paid for by $125,068 in sales tax reimbursements to the county; $771,932 from the school's capital balance; and $367,636 from the school's capital outlay maintenance funds.

The capital balance is the remainder of $2.5 million that the county had appropriated for all five school projects.

Lottery proceeds will be used to pay the principal on the debt, while local funds will be used to pay the interest.

The federal government will reimburse the interest to the county at the end of each year, making the bonds interest free -- saving the county more than $750,000 annually in interest.

Commissioner Steve Keen thanked Smith and his staff for putting the figures together, but added a word of caution.

"But again, as we have talked about for the last 12 months, because it is tied to lottery funds, it is tied to sales tax receipts, and of course, as we talked about earlier, federal funds no longer being a 100 percent guarantee," he said. "I would like, as a commissioner, to be kept up, at least during the quarter, where our sales tax receipts are.

"I know the trend for the last two years, but let's keep an eye on sales tax receipts and especially the lottery funds. I know they have been tampered with somewhat in the last 18 months."

Keen said the county also needed to keep an eye on federal funds.

The annual federal appropriation would be about $750,000 a year, Smith said.

"That is something that we will have to watch because if it is not reimbursed it is something that we will have to pick up and we will have to account for it," Smith said. "So you are right. We will have to watch all of those things including lottery because the lottery is picking up the other $800,000.

'"When we get into September and we have bank placement information back and we begin to set the terms of the actual note from the bank that will tell us if the reimbursement by the federal government and the terms by the bank will match and if there are requirements for additional funds from the county," Smith said. "I can't tell you that at this time, but we are anticipating that where rates are now that will not be the case, but things change fast."

The county had originally planned to seek approval from the Local Government Commission in November, but is moving it to October to take advantage of the current rates, Smith said.

"We want to take advantage of low rates so that we can be fully reimbursed by the federal government as much as we can," he said.

Interest savings on the project over 16 years would $11.2 million -- almost the cost of the project, he said.

The agreement with the Wayne County Board of Education for the property transfer and selling the bonds must be approved by the Local Government Commission. That approval is expected to be sought next month.

The term loan is not being used because of the wording of the state law that allows the arrangement in which the school buildings and grounds will be collateral, County Attorney Borden Parker said.

While the interest on the bonds will not be tax free, the federal government will reimburse the county for the interest it pays, he said.

"This is a way that you can finance projects for governmental purposes that you are not putting up the full faith and credit of the county," Parker told commissioners. "What you will be doing in this situation, it is anticipated that the board of education will transfer the two schools to you.

"You will enter into an agreement with a bank that will provide $15 million and you will put the schools up as collateral for the $15 million."

The county does not yet know how long the playback term will be, but it is expected to be between 14 to 18 years, Parker said.

"We have sent out applications for requests for proposals to banks to see what kind of interest that we can get on these (bonds)," Parker said. "The way it is structured, the federal government will make appropriations year by year to repay the interest that we pay.

"After the board of education conveys the property to the county, the county will lease it back to the board of education. The board of education will also be responsible for managing the construction of the schools. They will be your agents."

One benefit of the arrangement is that under state law the county can be reimbursed the sales tax on items purchased for the project, but the school board cannot, he said.

"So you are saving the sales tax for the citizens," Parker said.

Keen questioned if Eastern Wayne and Norwayne were the only two schools involved.

Parker said that three other schools -- Mount Olive, Brogden and Greenwood middle schools that were previously done -- would be conveyed back to the board of education as soon as the year has been completed for the warranty of the work that had been done.

Deeding those properties back to the board of education is expected this fall, Parker said.