In a historic evening, the IDB (Industrial Development Board) was the last in a series of three Board groups to unanimously vote to approve funding for a high school in Lakeland.
The called meeting of the IDB tonight (12.5.17) followed a special meeting of the BOC (Board of Commissioners) which also approved the funding mechanism. The Lakeland School Board met last night and unanimously approved the process to construct a high school in Lakeland.
The resolution as per the City webpage:
A RESOLUTION OF THE BOARD OF DIRECTORS OF THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF LAKELAND, TENNESSEE AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $60,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF PUBLIC IMPROVEMENT BONDS (CITY OF LAKELAND SCHOOL PROJECT) FOR THE PURPOSE OF FUNDING THE ACQUISITION AND CONSTRUCTION OF SCHOOLS FOR AND AT THE REQUEST OF THE CITY OF LAKELAND AND TO ENTER INTO ALL OTHER DOCUMENTS RELATED TO THE FOREGOING (and specifics are listed in the remainder of the document).
Link to the IDB agenda and all documents including the resolution:
The high school would be built as a wing onto the middle school campus at 5020 Lions Crest Drive which opened this school year as a grades 5-8 facility. Adding the high school wing would give the Lakeland School System (LSS) grades K-12.
The mechanism approved by the three Boards would utilize a lease revenue bond rather than general obligation bonds and be financed through the IDB. Lakeland Middle Preparatory School (LMPS) was funded through a CON (Capital Outlay Notes) for $20 million over a 12-year period.
The amount to be financed is estimated to be $52.4 million which would include the current CON balance along with expenses for the school addition and CON interest in escrow. The cost of the high school wing was estimated to be $36.5 million by Dr. Ted Horrell, LSS superintendent. But the School System has $3.5 million left from the middle school construction that would be applied toward the cost of the high school.
Al Bright, attorney for the IDB, explained at an IDB meeting last week the reasoning behind the funding mechanism. “Due to a proposed change in the federal tax laws, in order to finance the expansion of LSS, the BOC would like the Lakeland IDB to issue bonds, which would be backed by the City of Lakeland. In this transaction, the Lakeland IDB would be the issuer, and essentially the City of Lakeland is guaranteeing this debt.” Mr. Bright was referring to current federal legislation passed by both the Senate and House regarding changes in the federal tax laws which would impact the way municipalities refinance debt.
In a Nov. 27 BOC meeting, Chris Patterson, City attorney, explained, “This is unique, not used before in Lakeland.” He said there is a need to move quickly. The GOP tax plan would impact the affordability of this project. “The property tax legislation would impact how a note (CON – Capital Outlay Notes) can be financed.” He said many cities across the United States are refinancing their debt before Dec. 31.
Six citizens spoke to the issue: five in favor of financing and building a high school and one against
Deborah Thomas spoke of a smaller school and local governance.
Julie Bingham noted the positive impact on property values.
Jim Ewen expressed his desire for a high school even though his children will be past school-age when it is finished.
Jeff Bearden believes a good community forms around a good school system.
Anna Smith is a Navy wife and said the main reason her family choses a city is schools.
Lou Melton said she didn’t see any figures on the screen and wanted visuals on the financing and how the loan and financing will work.
Mr. Bright outlined the resolution to IDB members explaining the different documents which comprised the project.
City Manager Jim Atkinson reviewed the financing of the project and affordability to both Boards.
He said the following are possible sources of funds to service the additional debt service:
- Road Capital Projects. Current year budget includes $900,000 for streets. Historical average of annual road budgets (2007-2015) equal approximately $118,000. Lowering the roads budget to eliminate the full milling and paving of entire streets would generate significant funds to allocate to debt service. Typical road maintenance would continue as it currently is provided. The exact amount would be determined through the annual budgeting process.
- Pay off existing debt. The city has the option to use reserve funds to pay off existing variable rate debt. This would eliminate approximately $200,000 of annual debt service.
- Future capital projects. These would be reviewed on an annual basis through the budgeting process. Certain non-critical projects could be deferred if necessary to allocate additional funds to debt service.
“It is likely that only one of these sources would be needed, and exact numbers would be presented as part of each annual budget, said Mr. Atkinson. Based on estimates prepared by PFM, a 4% interest rate would require approximately $830,000 of additional funds. Using the current rate as of December 5 (3.507%), it would require approximately $590,000 of additional funds.”
IDB members quizzed City staff and the legal team about particulars on the project. “Would other fees associated with the City be increased?” No. “If the high school exceeds capacity during the 30-year life of the loan, is there capacity to build on the school site?” Yes. “Will the IDB debt impact the City financial rating?” Assumption is no. “What about legal liability to the Board and individual members?” Should not be an issue as long as members are working in their capacities as IDB Board members.
Kyle Wright with PFM (Public Financial Management) said he crunched the numbers and is very confident the conservative numbers can be reached. Although it is subject to fluctuation, he said, PFM feels the numbers are fair and accurate.
Responding to a question asked during the BOC meeting, Mr. Wright said there would be costs associated with this bond including about $500K issuance at closing and penalty fees. He noted however, that even with those fees, the loan using the IDB is still less overall than a general obligation loan of about $46K on an annual basis.
Jessica Millspaugh, City finance director, was asked about the City’s financials which are posted to the City website. She explained the general fund equity balance, an unassigned fund balance, is $6.16 million. There is also $2.62 million for schools and $430K for parks. Newly appointed IDB member Keith Acton noted those are really good figures.
No additional meetings of the three Boards are necessary, according to Mr. Patterson. Closing on the loan is expected before the end of the month and the end of 2017.
The high school wing could be ready for students in August 2020.
In April 2015, voters went to the polls in a special election and defeated a $50 million bond issue which would have constructed a middle school and high school on the current LMPS campus. The bond was to be funded with a 55-cent property tax which was not removed despite the vote against the bond issue.