By Jim Newell
In the Nov. 6 general election, voters will decide on Lake Orion Community School’s $160 million bond proposal that would be used to renovate, and, in some cases, rebuild schools and improve technology and safety/security throughout the district.
The Lake Orion Review sat down with Assistant Superintendent of Business and Finance John Fitzgerald to discuss the financial structure of the bond and debt levy.
“We believe we’re going to get out of band-aid mode on all of our remaining facilities and get them up to great running health. And then move them forward into the next 20 years of having a relevant operating efficiency; an educational environment that is geared for the way learning is going to go on for at least the next 10-15 years,” Fitzgerald said.
The district operates 14 facilities with over 1.3 million square feet of space on over 400 acres of sites, each addressed in the plans. The proposed bond addresses what district officials have called “critical needs” and would include new construction, renovations and upgrades over a 10-year building period.
“If you look through our bond documents, the vast majority is roof replacements, mechanical, infrastructural; things to get the existing facilities just caught up and healthy again. And there’s some newer stuff in there that brings our classroom learning capabilities up to the future layout of classroom learning spaces,” he said.
The bond is actually a series of three bonds. The first bond would be issued in early 2019 for $71.615 million; the second in 2022 for $45.355 million; and the third in 2025 for $43.03 million. The maximum repayment period is 19.2 years, according to the bond documents the district released.
Structuring it as a series of bonds allows the district to issue the bonds and then have five years from each issuance to build out the projects in that particular bond series. It also allows the district more time to pay off the bonds, Fitzgerald said.
District officials and school board members – who approved putting the bond on the ballot by a 6-1 vote on Aug. 8 – have said they structured the bond so that “There is no expected tax rate increase” over the current 7.491 mills levied.
While the proposed bond is $160 million, the interest on that bond is $90.558 million.
The district’s current outstanding bond debt is about $87.7 million, including interest.
The total of the current bond debt, the proposed bond debt, interest and loans from the SLRF is expected to be $354,646,963, according to the bond documents.
In order to keep the current bond levy rate, the district would also borrow a little more than $6.982 million from the School Revolving Loan Fund (SRLF) program. Expected interest on that principle is $10.3 million, according to the ballot proposal language and the bond documents.
“There’s three outstanding bonds left that, combined, is what I refer to as the debt structure,” Fitzgerald said. “Depending on what the tax base does. On paper, the maximum time frame is 2033. In reality, because of the tax base, as you know with the ups and downs from 2008 all the way back to where we are (now), if it continues to grow at a healthy pace it would be paid off, theoretically, before 2033, probably in the late 2020s or maybe 2030.
“Typically, you’d use a 2-3 percent growth assumption (in the community), even though the last few years we’ve breached 5-6 percent. But we’ve still used the more conservative (numbers) to help ensure that things go as planned in regards to when things get paid off and the tax rate to be levied. So, the design is that if there is a surprise it’s only a good one, from our perspective.
“If the tax base grows quicker than planned, that’s when we would be paying this debt off before 2040,” Fitzgerald said.
The current 2018 taxable value of the properties – businesses and homes – in the district is more than $1.9 billion. In the bond documents, the taxable value is forecasted to increase and reach $3.8 billion in 2040.
In the first year of the proposed bond, the district would need to levy 10.27 mills to meet all its bond debt obligation. By borrowing from the SLRF, the district is able to keep the current debt levy to taxpayers.
“It’s designed not to breach the 7.491 (mills) level, and it’s designed to not go out further than 20 years,” Fitzgerald said.
“If we did not participate in the School Loan Fund, which just allows us to elongate things a bit so we can keep our debt levies down, so we don’t have to go to our public and ask for some amazingly high debt level. If we were not in this situation of participating in the school loan fund…there’s no way I would go to the public and say we need 13 mills (a higher millage rate).
“Because we’re in the program, we can levy 7.49 mills. So, it’s not crippling debt load,” he said. “If John Q. public pays $1,000 this year and then he pays $1,010 next year it won’t be because of an increase in the debt rate. It will be because his house value went up.”
The district generates between $14 million to $15 million in tax levy, so, if the district had to borrow an extra $3 million they would extend the bond slightly and pay it off in 19.4 instead of 19.2 years, he said.
The district isn’t, however, expecting a major recession similar to the mid-late 2000s. “If we see in my lifetime another 2008 event, I would be the most shocked person on the planet,” Fitzgerald said.
If there was a recession and the district expected to generate, say, $20 million for that year’s debt service, but could only generate $18 million, the rate would stay the same and the district would borrow $2 million more from the SLRF, Fitzgerald said.
“So, we don’t change our debt to our tax base, we just pick up some additional funding from our school loan program that we belong to. And then on the backend we get caught up and pay it off,” he said.
In 2013, the district’s debt load was about $170 million. “We’ve got our financial house in order over the last five years,” Fitzgerald said.
For the last five years, district officials have been engaged in positioning the district for the future in one way or another, Fitzgerald said. “And this is really the next step in getting the district ready to compete with other districts.”
“In our analysis of all the districts in Oakland County the only one that has not passed a bond since we’ve passed one is Pontiac,” said Mark Snyder, director of communications and marketing for the district.
Lake Orion has not passed a bond since 2002, when it passed a $20 million bond. In 2000, the district issued a $77 million bond “to build Oakview and do some other work,” Fitzgerald said.
“We greatly appreciate our taxpayers supporting the sinking fund, but in this case it’s a no new tax rate (proposal) and it’s a 10-year facility plan that will really position the district for the next 20-plus years in terms of getting the facilities caught up to speed from an operations, efficiency and safety point-of-view, as well as – probably more importantly – right up there with safety is the educational ability and delivery systems,” Fitzgerald said.
The sinking fund, passed in August 2016, will generate $35-$38 million over its 10-year life. “The sinking fund in our district we’re using to tackle the highest priority items as they are related to functioning.”