At our regularly scheduled board meeting on July 17th, the Board of Directors completed the annual exercise of setting our legislative priorities for the upcoming session. One of those priorities includes the extension or repeal of the 2029 sunset of the statewide penny (SAVE) for school infrastructure. While 2029 seems like a long time away, when it comes to school infrastructure needs it isn't all that far into the distant future. Especially when it comes to strategic planning!
Currently three basic options exist for meeting the needs of school district infrastructure projects. We can either issue general obligation bonds, revenue bonds, or adopt a pay as you go philosophy. Since we paid off our general obligation bonds for the high school a few years back, we have adopted a pay as you go philosophy.
Issuing general obligation bonds requires a vote of the public and must be approved by 60%, or what is known as a super-majority. The super-majority creates a very high bar for passage and it is quite common for these type of funding options to take several attempts to gain voter approval. In many cases, projects tend to be scaled back in order to be passed. The reason these issues are so difficult to pass is that they usually come with a property tax increase. If you watch the news on the night of a special election, it is not uncommon to see general obligation questions fail, not because they didn't have the majority vote, but because they didn't reach that 60% majority. I have seen these referendums fail with a 59.99% approval--missing passage by only a couple of votes!
For that reason, many school districts have elected instead to issue revenue bonds. Unlike general obligation bonds, revenue bonds can be issued following a board resolution and do not require a super-majority vote. The reason for this is that these bonds are being issued based on anticipated future sales tax revenue. In other words, there are no property tax implications. Revenue bonds are attractive to property owners and school districts because of the fact there is no property tax implications or super-majority threshold. However, in order to generate the bonding capacity to meet the need of a large scale building project, school districts have to bond against their sales tax for about 20 years. The trouble is the current sales tax law sunsets in 2029, which is a short 12 years away. This has the impact of significantly limiting bonding capacity for schools.
As I mentioned above, at this time Hudson has adopted a pay as you go philosophy. Quite simply that means the board has elected to complete projects as funds become available. But, our needs are just as significant as those of school districts who are building new buildings! This is clearly illustrated by the very significant renovations that are occurring in our elementary school this summer. Our early childhood wing classrooms are all being updated with new windows, air conditioning, lighting, and ceilings. On top of that, we are installing a new ADA accessible ramp and restroom on the South end of the competition gym. This pay as you go project is budgeted at right around $579,000. Next year the board plans to move on to phase two of what will end up being a three or four phase project over the next several years. When finished, we will essentially have remodeled and renovated our entire elementary attendance center.
When we finish our elementary project it will be time to move on to the high school building. You know, people still refer to that building as the 'new high school'? Were you aware the new high school is 20 years old this year? Like our homes need maintenance and updating, so to do our schools! We have already started to replace sections of the roof on the building, and certainly our mechanical systems will start to reach the end of their life in the next several years. That is why it is so important that we have a dependable source of revenue for our school budgets with which to address infrastructure needs.
Last week, school board president Karyn Finn and I had the opportunity to host two legislators in our district and advocate for an extension, or better yet a repeal of the sunset on the SAVE. I enjoyed discussing the importance of this resource with our legislators and was able to demonstrate to them how we were wisely investing our taxpayer resources. The legislative session runs from roughly January to May. The pace is very quick during the lawmaking process and our legislators are often times lobbied from multiple sources representing varied positions. This makes it incredibly difficult for them to fully understand and appreciate the complexities of the decisions they are being asked to make. That is why I think this is a great reminder to all my colleagues and school board members around the state that advocacy is a year round task. If we wait until legislators are in session, it might be too late. And when it comes to this issue, what better time than the summer when we all have building projects underway to show our legislators the impact SAVE has on our schools and community?
In the future, I am uncertain as to whether the board will continue with a pay as you go philosophy. We certainly don't want to handcuff future boards or administrations from making decisions that make the most fiscal sense at that time. The one thing I do know for certain is that our facility needs will never go away. We will finish one project and then move on to another. While I am relatively confident this board has no appetite for a general obligation bond, it is somewhat interesting that the number of school districts bringing bond referendums to voters is on the rise. According to the Cedar Rapids Gazette, the number of bond issues was 24 this last year, up from 14 in 2008-2009. The article goes on to surmise this is due to the uncertainty of the SAVE. I don't think we will ever eliminate the need for school districts to bring general obligation referendums to voters. Each school district in Iowa is unique and has its own philosophy and needs for the citizens and students it serves. But as a practical matter, one way to reduce the number of general obligation bond issues is to restore certainty that SAVE will be there in the future. It certainly will have a positive impact on property taxes.
Currently three basic options exist for meeting the needs of school district infrastructure projects. We can either issue general obligation bonds, revenue bonds, or adopt a pay as you go philosophy. Since we paid off our general obligation bonds for the high school a few years back, we have adopted a pay as you go philosophy.
Issuing general obligation bonds requires a vote of the public and must be approved by 60%, or what is known as a super-majority. The super-majority creates a very high bar for passage and it is quite common for these type of funding options to take several attempts to gain voter approval. In many cases, projects tend to be scaled back in order to be passed. The reason these issues are so difficult to pass is that they usually come with a property tax increase. If you watch the news on the night of a special election, it is not uncommon to see general obligation questions fail, not because they didn't have the majority vote, but because they didn't reach that 60% majority. I have seen these referendums fail with a 59.99% approval--missing passage by only a couple of votes!
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| View from the East end of the new ADA ramp right after the concrete was poured. |
As I mentioned above, at this time Hudson has adopted a pay as you go philosophy. Quite simply that means the board has elected to complete projects as funds become available. But, our needs are just as significant as those of school districts who are building new buildings! This is clearly illustrated by the very significant renovations that are occurring in our elementary school this summer. Our early childhood wing classrooms are all being updated with new windows, air conditioning, lighting, and ceilings. On top of that, we are installing a new ADA accessible ramp and restroom on the South end of the competition gym. This pay as you go project is budgeted at right around $579,000. Next year the board plans to move on to phase two of what will end up being a three or four phase project over the next several years. When finished, we will essentially have remodeled and renovated our entire elementary attendance center.
When we finish our elementary project it will be time to move on to the high school building. You know, people still refer to that building as the 'new high school'? Were you aware the new high school is 20 years old this year? Like our homes need maintenance and updating, so to do our schools! We have already started to replace sections of the roof on the building, and certainly our mechanical systems will start to reach the end of their life in the next several years. That is why it is so important that we have a dependable source of revenue for our school budgets with which to address infrastructure needs.
 |
| In this photo I am reminding legislators that our new high school is 20 years old. |
In the future, I am uncertain as to whether the board will continue with a pay as you go philosophy. We certainly don't want to handcuff future boards or administrations from making decisions that make the most fiscal sense at that time. The one thing I do know for certain is that our facility needs will never go away. We will finish one project and then move on to another. While I am relatively confident this board has no appetite for a general obligation bond, it is somewhat interesting that the number of school districts bringing bond referendums to voters is on the rise. According to the Cedar Rapids Gazette, the number of bond issues was 24 this last year, up from 14 in 2008-2009. The article goes on to surmise this is due to the uncertainty of the SAVE. I don't think we will ever eliminate the need for school districts to bring general obligation referendums to voters. Each school district in Iowa is unique and has its own philosophy and needs for the citizens and students it serves. But as a practical matter, one way to reduce the number of general obligation bond issues is to restore certainty that SAVE will be there in the future. It certainly will have a positive impact on property taxes.
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