A Guide for Long Term Facilities Maintenance Revenue

MASA Spring Conference

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March 11, 2016

Joel Sutter and Gary Olsen, Ehlers Tina Burkholder, Monticello School District

What is LTFM?

•  Long-Term Facilities Maintenance revenue

•  New funding program approved by 2015 Legislature •  Effective in Fiscal Year 2016-17

•  First property tax levy for taxes payable in 2016

•  Based on Commissioner’s School Facilities Funding Working Group recommendations

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Advantages of LTFM

•  Step toward leveling the playing field •  Reduces disparities in opportunities to fund costs of facilities

maintenance projects

•  Prior to fiscal year 2017, 25 large school districts qualified for full alternative facilities funding program - all other districts qualified for limited program and deferred maintenance revenue

•  For many districts, significant additional funding to protect community’s investment in facilities

•  Significant State equalization aid with indexed equalizing factor

•  10 year plan requirement is positive factor with rating agencies

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LTFM Revenue Amounts •  Formula phases in over 3 years; revenue for most districts:

•  $193 per pupil unit for Fiscal Year 2016-17 •  $292 per pupil unit for Fiscal Year 2017-18 •  $380 per pupil unit for all subsequent years

•  Revenue is reduced if average age of district’s buildings is less than 35 years

•  Revenue can be increased to fund: •  Health & Safety projects of more than $100,000 per site, for indoor

air quality, fire alarm & suppression, or asbestos abatement •  Payments on new facilities maintenance bonds to fund same types

of projects •  Payments on existing alternative facilities bonds •  Additional costs based on “grandfather” provision described on next

slide

4

LTFM Revenue Amounts

•  Grandfather provision - guarantees districts the greater of revenue under old laws or new LTFM revenue; this can be especially important for:

•  Districts with large health and safety projects

•  25 districts in the former full alt. facilities program (no limit on revenue)

•  Districts who are members of Intermediates and other cooperative units may add a proportionate share of LTFM costs to their levy (over and above the districts’ individual levy authority) with approval of all member districts

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LTFM – Related Funding Changes

•  Elimination of existing funding formulas for health and safety, deferred maintenance, and alternative facilities programs

•  Reductions in other levies to partially offset increases from LTFM

•  Operating capital levy reduced, beginning with taxes payable in 2017

•  Student achievement levy reduced by half for taxes payable in 2017 and eliminated for 2018 and later

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LTFM Aid and Levy •  Revenue is provided through combination of state aid

and property tax levy •  Aid / Levy mix is determined using a modified tax base

•  Excludes 50% of agricultural land value

•  Districts with significant ag value appear to be more “property poor”; allows the district to qualify for additional aid

•  Equalizing factor is 123% of State Average ANTC per pupil –  $8,799.15 for fiscal year 2018

–  Will increase in future years if average ANTC per pupil increases

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LTFM Aid and Levy •  For some districts, 3 separate categories of revenue

•  #1 - Initial revenue – per pupil amounts described earlier, prorated if building age <35 – qualifies for equalization aid

•  Additional revenue, as described earlier, for the purposes listed on slide 4, may be divided into 2 categories •  #2 - “Equalized remainder” (Ehlers-coined term) – If the district’s

building age is less than 35 years, the district can receive additional equalized revenue, up to the full per-pupil amount

•  #3 - Unequalized revenue – any revenue above the full per-puil amount, funded 100% by property tax levies

•  If your district does not qualify for equalization aid, the distinction between #2 and #3 is not important

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LTFM Aid and Levy

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SampleSchoolDistrict-CategoriesofLTFMRevenue,2016-17

InitialRevenue1. EstimatedAdjustedPupilUnits 4,407.602. MaximumInitialRevenue/PU $193.003. AverageBuildingAge 25.00 Thisrevenueavailableforanypermitted4. InitialRev./PU $137.86 useofLTFMR,ortoaddtofundbalance5. InitialRevenue-#1x#4 $607,619.146. Aid%ofRevenue 39.00%7. MaximumAid-#5x#6 236,971.47

PotentialAdditionalRevenue8. EqualizedRemainder-#1x(#2-#4) $243,047.66 Thisrevenueavailabletopayfor:9. MaximumAid-#5x#8 $94,788.59 - H&Sprojects>100k/siteforIAQ,firesafety,asbestos

- PaymentsonnewFMbondsforsametypesofprojects10. UnequalizedRevenue Nolimit - PaymentsonexisitingAlt.FacilitiesBonds11. Aid%ofRevenue 0.00% - Additionalcostsbasedon"grandfather"provision

Uses of LTFM Revenue •  Deferred Maintenance

•  Capital and maintenance projects

•  “Like for like” replacement of building components (i.e. roofs, flooring, attached equipment), and site components (i.e. parking, athletic fields) that have exceeded their useful life

•  Attached equipment

•  Accessibility •  Health and safety

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Restrictions on Uses of LTFM Revenue Revenue may NOT be used for: •  Construction of new facilities, remodeling of existing

facilities, or purchase of portable classrooms •  Lease purchase agreements, installment purchase

agreements, or other deferred payment agreements •  Energy-efficiency projects (performance contracts) •  Building or property used for postsecondary education •  A purpose unrelated to elementary and secondary

education •  Violence prevention and facility security, ergonomics, or

emergency communication devices

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Financing Methods with LTFM Revenue •  “Pay as you go”

•  Directly from annual revenue •  Smaller projects, or projects with a shorter useful life

•  Issue bonds •  Use annual revenue to make payments on the bonds

•  Larger projects, or projects with a longer useful life

•  LTFM fund balance (after program has been in place for a while, similar to Operating Capital program)

•  Combination of pay as you go and bonds

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LTFM Planning/Process

Similar to existing alternative facilities ”full” program •  Complete process annually and review periodically during

year

•  Prepare 10 year plan (MDE template) annually, submit biennially •  Prioritize needs and timing

•  Estimate projects costs

•  Plan does NOT have to allocate entire amount of revenue to project costs each fiscal year

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LTFM Planning/Process

•  Determine which projects qualify for LTFM funding – if not sure ask MDE

•  Determine financing method •  Pay as you go

•  Bonds

•  Fund balance

•  MASBO starting new Research Project Team •  Designed to deep dive into specific topics

•  First topic is LTFM (including how to plan for projects)

•  Present information at MASBO Annual Meeting (May)

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LTFM Planning/Process

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Other requirements if bonds are issued •  Resolution of Intent

•  Not required under new law, although may it may be politically wise for the board to adopt a resolution prior to starting the bond issuance process

•  Resolution of intent to issue bonds could be adopted along with adoption of 10 year plan or as part of bond sale process

•  Notice of intent •  District must publish a notice in their official newspaper that lists

projects funded by bond issue, amount of bond issue, and total district debt

•  Publication must occur at least 20 days prior to the earliest of: solicitation of bids, issuance of bonds, or final levy certification

Ehlers Approach to LTFM Planning

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•  Develop a long-term plan for debt and tax levies •  Include payments and levies for existing bonds •  Include other facilities-related levies (e.g., lease levy,

capital projects levies) •  Include LTFM aid, levy, and revenue •  Use the plan to model options for funding LTFM projects –

different combinations of bonds and general fund revenue •  In many cases, goal may be to fund all needed projects,

while keeping overall tax rates level and as low as possible •  Also want to maximize available state aid to fund projects •  If you are issuing bonds, make sure you are preserving

enough LTFM revenue to fund smaller ongoing projects

Planning Steps Unique to Fiscal Year 2016-17

Planning process very rushed last summer, but still have time to make adjustments

•  Bonds can be issued now even if not included in last summer’s 10 year plan or on Pay 16 levy –  Board will need to approve an amended 10 year plan that

includes the projects and the bond payments

•  In most cases, MDE is not allowing expenditures of LTFM revenue or bond proceeds prior to July 1, 2016; exceptions: –  Districts in the full alternative facilities program

–  Health & safety projects >$500,000 per site

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Impact of New Construction on LTFM Revenue

Revenue amount is based on average building age for the year the revenue is received, so new construction (or closure of old space) can affect a district’s revenue •  Final levies are certified by December 31 for following fiscal year,

based on building age calculated by the MDE earlier in the year (as of January 1)

•  New space opening in following fall would impact revenue for that fiscal year

•  May want to consider asking MDE to update average building age in advance (as part of levy process) to prevent a levy adjustment in future years

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LTFM Estimated Revenue

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YearTaxesPayable

FiscalYear

EstimatedAdjustedPupil

Units1 Rev.perPupilEstimatedRevenue

Equalized

Remainder2

ExistingLawHealth&Safety

Rev.

ExisitingLawDeferredMaint.

Rev.

PotentialNetChangein

Revenue3

2015 2016 4,463.40 $892,900 $253,2412016 2017 4,407.60 $178 $785,773 $64,894 $241,384 $258,616 $285,7732017 2018 4,310.20 $278 $1,198,526 $60,052 $237,309 $262,691 $698,5262018 2019 4,310.20 $373 $1,606,522 $31,354 $229,428 $270,572 $1,106,522

123TheEqualizedRemainderistheamountofadditionalhealthandsafetyrevenuethatwouldbeequalizedattheLTFMrate.Doesn'tincludeanypotentialadditionalrevenuefromnewhealth&safetyprojectsorAltFacilitiesBonds.

FY2017-FY2019pupilunitsreflectupdatedprojectionsasreportedtotheMinnesotaDepartmentofEducation.

LTFM Estimated Aid / Levy

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YearTaxesPayable

FiscalYear

PercentAid4 Aid LevyEstimatedTaxRatefor

LTFM

Est.LevyReductioninDef.Maint.

Est.NetChangein

Levy5

2016 2017 17.55% $137,933 $647,840 2.05% -$257,230 $390,6102017 2018 21.21% $254,160 $944,366 2.99% -$262,691 $681,6752018 2019 20.59% $330,829 $1,275,693 4.03% -$270,572 $1,005,121

4 Estimatesofaidandlevyfor18and19assumenochangeinthedistrict'sANTCandnochangeinthestatetotalsofANTCandpupilunits.5 Doesn'tincludeanypotentialchangesinhealthandsafetylevy.

LTFM Estimated Tax Impact

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EstimatedMarketValue

Pay2016 Pay2017 Pay2018$75,000 $9 $13 $18 -$16100,000 15 21 29 -26150,000 26 38 51 -46200,000 37 54 73 -65300,000 59 86 117 -105400,000 82 119 161 -144500,000 102 149 202 -181$200,000 $67 $97 $131 -$117500,000 189 276 373 -334750,000 292 425 575 -5141,000,000 394 575 776 -695$500,000 $143 $209 $282 -$253750,000 169 246 333 -298

1,250,000 220 321 433 -3881,500,000 246 358 484 -433$2,000 $0.41 $0.60 $0.81 -$0.724,000 0.82 1.19 1.61 -1.446,000 1.23 1.79 2.42 -2.17100,000 $20 $30 $40 -$36250,000 51 75 101 -90500,000 102 149 202 -181

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7

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ThenetestimatedannualLongTermFacilitiesMaintenanceLevyshownhereistheannuallevy.ThePay15LevyforDeferredMaintenanceandHealthandSafetyshowsthereductionbasedonwhatthedistrictleviedforthatyear.

NetEstimatedTaxImpact,NewLTFMvs.CurrentDeferredMaintenanceandHealth&Safety

TypeofProperty EstimatedAnnualLTFMLevy6

ResidentialHomestead

Pay15LevyforDef.Maint.And

Health&Safety6

Forcommercial-industrialpropertyinthesevencountymetroareaandtheIronRangefiscaldisparitiesarea,thetaximpactshownaboveisoverstatedbecauseitdoesnotaccountfortheimpactofthefiscaldisparitiesprogram.Foragriculturalhomesteadproperty,avalueof$100,000wasassumedforthehouse,garage,andoneacre.

Industrial7

Agricultural

Homestead8

Commercial/

RecreationalResidential(Cabins)

AgriculturalNon-Homestead(dollarsperacre)

Seasonal

Sample Bond Schedule

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OtherRevenue Aid Levy Principal Interest Revenue

- - - - - - 785,773 149,325 636,448 95,000 199,500 491,273

1,198,526 254,160 944,366 315,000 196,175 687,351 1,606,522 343,119 1,263,403 330,000 185,150 1,091,372 1,637,876 333,509 1,304,367 340,000 173,600 1,124,276 1,637,876 304,033 1,333,843 350,000 161,700 1,126,176 1,637,876 304,033 1,333,843 365,000 149,450 1,123,426 1,637,876 304,033 1,333,843 375,000 136,675 1,126,201 1,637,876 304,033 1,333,843 390,000 123,550 1,124,326 1,637,876 304,033 1,333,843 405,000 109,900 1,122,976 1,637,876 304,033 1,333,843 420,000 95,725 1,122,151 1,637,876 304,033 1,333,843 430,000 81,025 1,126,851 1,637,876 304,033 1,333,843 445,000 65,975 1,126,901 1,637,876 304,033 1,333,843 465,000 50,400 1,122,476 1,637,876 304,033 1,333,843 480,000 34,125 1,123,751 1,637,876 304,033 1,333,843 495,000 17,325 1,125,551

23,245,334 4,424,481 18,820,853 5,700,000 1,780,275 15,765,059

Long-Term Facilities Maintenance Revenue

Facilities Maint. Bonds$5,700,000

2/1/20163.50%

Monticello ISD 882 – Background Information •  Located off Highway I-94, between Minneapolis and St.

Cloud in Wright and Sherburne Counties •  4,100 students •  600 employees •  Facilities

•  Eastview Center

•  Pinewood Elementary School •  Little Mountain Elementary School

•  Monticello Middle School

•  Monticello High School •  Turning Point ALP

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Monticello ISD 882 – Background Information

1980s & 1990s •  District experienced rapid growth

•  Community supported bond referendums for new facilities, additions to existing buildings and other capital improvements

•  Since 1999 when Monticello High School opened, no influx of funds for facilities from voter approved referendums

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Monticello ISD 882 – Background Information

More recent years •  Concerted effort to avoid increasing taxes; focused on

maintaining level tax rates for debt and not able to address many improvements needed for the facilities

•  Refinanced High School bonds 3 times, saving $3.1 million

•  Significant reductions in bond payment amounts after both Fiscal Year 2014-15 ($3.5 million) and Fiscal Year 2015-16 ($1.3 million)

•  Remaining bond payment amounts are $200,000 or less each year and all existing debt will be paid off by Fiscal Year 2020-21

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Monticello ISD 882 – Planning for Facility Improvements

•  Because debt was being paid off, District had opportunity to address improvements needed for facilities without causing a significant tax increase

•  Planning process to address improvements started almost 2 years ago

•  Facilities questionnaires completed with each school building administrator and head custodian

•  Preliminary capital bond referendum list developed; estimated total costs of approximately $60 million

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Monticello ISD 882 – Planning for Facility Improvements

•  High level of community input and involvement throughout process •  Presentations to staff, Curriculum Advisory Committee,

Monticello Rotary (community members, local businesses)

•  Listening sessions with community members

•  Feedback reviewed by District administration

•  Various financing options discussed

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Monticello ISD 882 – LTFM Process

June, 2015 - Legislature Approved Long Term Facilities Maintenance Revenue

•  June, 2015 - reviewed capital bond referendum list and discussed with MDE to determine qualifying LTFM projects

•  June & July, 2015 - Refined list to exclude LTFM projects

•  July 20, 2015 - Recommendation to School Board

•  August 10, 2015 - School Board action to call for election and approve of 10 year plan

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Monticello ISD 882 – Final Financing Plan

Voter Approved Component

•  November 3, 2015 Referendum Election •  Question 1: $39,325,000 School Building Bonds

•  Improving safety and security

•  Enhancing learning environments

•  Increased academic and activity opportunities

•  Question 2: Revoke existing operating referendum authority of $576.30 per pupil and increase to $775.00 per pupil, beginning with taxes payable in 2017

•  Provide funds to support additional staffing needs for programs and facilities included in Q1 projects

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Monticello ISD 882 – Final Financing Plan

Board Approved Component

•  Facilities Maintenance Bonds •  $5,700,000 to be issued in 2016, along with School Building

Bond issue, to finance deferred maintenance projects

•  Future bond issues will finance other higher cost deferred maintenance and health & safety projects included in 10 year plan

•  A portion of the District’s annual LTFM revenue will be used to finance bond payments

•  Remaining LTFM revenue will finance lower cost deferred maintenance and health & safety projects

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651-697-8514 jsutter@ehlers-inc.com

Joel Sutter Senior Municipal Advisor Ehlers

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651-697-8513 golsen@ehlers-inc.com

Gary Olsen Senior Municipal Advisor Ehlers

Tina Burkholder, Director of Finance, Monticello Public Schools 763.272.2000 tina.burkholder@monticello.k12.mn.us