New capital project financing plan to reduce interest payments, spread out tax increase

Heading into Phase 2 construction of Broadalbin-Perth’s $39.7 million capital project this summer, the district is making plans to start paying back the bond anticipation notes (BANs) it is taking to pay for the project. This represents a change from the district’s original plan to complete the entire project before beginning to repay incurred debt.

According to the district’s architect, CSArch, and municipal financial advisor, Bernard P. Donegan, Inc., financing the project this way was not an option before residents voted on it in May 2016. Rather, this financing option became available after the district decided to complete capital project work in phases — a move that will reduce the amount of interest the district will pay and likely lower the taxpayers’ share of the project.

“Capital project financing can look a lot like student loans,” said Marco Zumbolo, the district’s assistant superintendent for business and operations. “With student loans, you borrow the money to pay for your education up-front, but generally don’t pay the loans back until after you earn your degree. During those college years, interest is accumulating on the amount you borrowed,  and it gets added into the total that you owe on the loan. That accumulated amount is called capitalized interest.”

Zumbolo explained that, on the advice of the district’s financial adviser and architect, the district chose to finance the capital project by borrowing smaller amounts of money several times — rather than the entire cost of the project at one time. The district has already borrowed the amount of money needed to complete Phase 1 of the capital project and plans to borrow additional money during the 2018-19 school year to begin paying for Phase 2 of the project. By financing the project through several small loans rather than one big loan, B-P is decreasing the amount of capitalized interest it will have to pay — thus reducing the overall cost of the project for taxpayers.

For taxpayers, this means there will no longer be a one-time average tax increase of $55 on a home valued at $100,000 with Basic STAR. Instead, the tax increase associated with the capital project will be spread over several years. In the end, however, district officials said they are committed to the total average tax increase for the capital project being no more than the $55 per $100,000 of market value that was promised at the time of the vote. In fact, by taking this approach to financing the capital project, the district’s financial advisor has estimated that it is likely that the taxpayer share will end up being less than the average $55 per $100,000 of market value.

“After voters passed the capital project proposal in May 2016, we heard from a few residents who expressed concerns that the one-time increase might present a hardship for some families, especially those on a fixed income,” said Superintendent of Schools Stephen Tomlinson. “By spreading out the tax increase associated with the capital project over several years, we’re also addressing that problem.”

What does this mean for the 2018-19 budget proposal?

The local share of a capital project is one of many factors districts use to calculate their maximum allowable tax levy, or tax “cap,” using the state-prescribed formula. According to Zumbolo, roughly half of the allowable tax levy increase can be attributed to the fact that the district will start making payments on the capital project during the 2018-19 school year.

Board of Education members are still working on developing the 2018-19 budget proposal. During budget workshops, board members have explored budget options that would increase the tax levy less than 4 percent to support the district’s operating budget, with roughly half of that increase going toward paying for the approved capital project. Board members are expected to adopt the 2018-19 budget proposal next week, and residents will vote on the proposal Tuesday, May 15.