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Understanding the Consolidation Potential of:

ISD 93 – Carlton & ISD 100 - Wrenshall Joint School Boards Presentation Presented by: Michael Hoheisel January 26, 2015

Robert W. Baird & Co. Incorporated is providing this information to you for discussion purposes only in seeking to provide consulting services to ISD 93, Carlton and ISD 100, Wrenshall in regards to consolidation assistance. If an election is held in both Districts authorizing the consolidation of these two Districts, it is anticipated at this time the potential future election does not contemplate or relate to a future issuance of municipal securities. If the election does contemplate a future issuance, Robert W. Baird & Co. Incorporated wishes to serve as a financial advisor or municipal advisor to you on the issuance of municipal securities. Baird is a municipal advisor registered with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board (“MSRB”). A financial advisor or municipal advisor is subject to a fiduciary duty, including a duty of care and a duty of loyalty, and is required to act solely in the best interests of the client. See “Important Disclosures” contained herein.

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Goal of Presentation

This information has been prepared to help community members understand the overall implications of consolidation between the Carlton and Wrenshall School Districts.

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What is Consolidation?

Minnesota has state laws allowing two or more school districts to voluntarily consolidate. These statutes (Minnesota Statutes, sections 123A.48 and 123A.485) outline the process used to consolidate the districts, give the districts some choices about how to handle outstanding debt and referendum revenue (operating levy) and provide a relatively small amount of added state funding for two years.

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Financial Incentive

Consolidated districts are eligible for state aid for the consolidation transition of $200 per pupil unit (resident) the year of the consolidation and $100 per pupil unit the year after. First year estimate: $195,080 Second year estimate: $ 97,540 Total: $292,620

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Consolidated Enrollment

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Total Grade66 Pre-K

55 Kindergarten68 1st48 2nd58 3rd46 4th55 5th72 6th

402 Elem. Total

Total Grade

82 7th60 8th60 9th62 10th63 11th79 12th

406 HS Total

Total Grade

874 Total with Pre-K

808 Total without Pre-K

Wrenshall has two sections of grade one at 13 students each and Carlton is similar. The new district would potentially have 3 sections. This scenario will be duplicated over the PK-12 model to achieve similar efficiencies while still maintaining "right sized" classes (i.e. goal of Grades K-2 at 22).

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Carlton Debt

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$1,780,000 GO Taxable OPEB Bonds, Series 2009ANon-callable

Principal Maturity

Date Principal Coupon Interest100% Annual

PaymentRequired 105%

Over Levy2/1/2015 170,000 3.750% 51,295.00 221,295.00 232,359.75 2/1/2016 180,000 4.000% 44,920.00 224,920.00 236,166.00 2/1/2017 185,000 4.300% 37,720.00 222,720.00 233,856.00 2/1/2018 195,000 4.600% 29,765.00 224,765.00 236,003.25 2/1/2019 205,000 4.900% 20,795.00 225,795.00 237,084.75 2/1/2020 215,000 5.000% 10,750.00 225,750.00 237,037.50

1,150,000 195,245.00 1,345,245.00 1,412,507.25

$545,000 GO Capital Facilities Bonds, Series 2010ANon-callable

Principal Maturity

Date Principal Coupon Interest100% Annual

PaymentRequired 105%

Over Levy2/1/2015 55,000 1.850% 11,235.00 66,235.00 69,546.75 2/1/2016 55,000 2.650% 10,217.50 65,217.50 68,478.38 2/1/2017 55,000 2.650% 8,760.00 63,760.00 66,948.00 2/1/2018 55,000 3.050% 7,302.50 62,302.50 65,417.63 2/1/2019 60,000 3.050% 5,625.00 65,625.00 68,906.25 2/1/2020 60,000 3.300% 3,795.00 63,795.00 66,984.75 2/1/2021 55,000 3.300% 1,815.00 56,815.00 59,655.75

395,000 48,750.00 443,750.00 465,937.50

OUTSTANDING DEBT - CARLTON

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Wrenshall Debt

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$3,575,000 GO School Building Refunding Bonds, Series 2009ACallable: 2/1/2018 - callable maturities reflect in gray shade

Principal Maturity

Date Principal Coupon Interest100% Annual

PaymentRequired 105%

Over Levy2/1/2015 260,000 3.000% 82,425.00 342,425.00 359,546.25 2/1/2016 270,000 3.000% 74,625.00 344,625.00 361,856.25 2/1/2017 275,000 3.250% 66,525.00 341,525.00 358,601.25 2/1/2018 285,000 3.250% 57,587.50 342,587.50 359,716.88 2/1/2019 295,000 3.500% 48,325.00 343,325.00 360,491.25 2/1/2020 305,000 4.000% 38,000.00 343,000.00 360,150.00 2/1/2021 315,000 4.000% 25,800.00 340,800.00 357,840.00 2/1/2022 330,000 4.000% 13,200.00 343,200.00 360,360.00

2,335,000 406,487.50 2,741,487.50 2,878,561.88

$55,000 GO School Building Bonds, Series 2002ANon-callable

Principal Maturity

Date Principal Coupon Interest100% Annual

PaymentRequired 105%

Over Levy2/1/2015 10,000 6.000% 1,500.00 11,500.00 12,075.00 2/1/2016 10,000 6.000% 900.00 10,900.00 11,445.00 2/1/2017 5,000 6.000% 300.00 5,300.00 5,565.00

25,000 2,700.00 27,700.00 29,085.00

OUTSTANDING DEBT - WRENSHALL

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Property Tax Impact

Consolidation requires the old districts to share tax responsibilities as a new district. The required responsibilities include excess levies as well as debt levies. For example, Carlton has post employment debt (OPEB bond) outstanding. Carlton’s operating levy is about 3 times larger than Wrenshall. Carlton has borrowed for roof repairs. Wrenshall is still paying back their school building referendum bonds. Decisions will need to be made as to whether or not the bond payments will be shared (in part or whole) or if it remains solely the responsibility of the originating District.

The goal as it stands right now is to neutralize the tax impact on like properties.

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FY 2015 authority/APU, Carlton #93 1,604.79FY 2015 authority/APU, Wrenshall #100 539.33

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Historical Property Tax Impact Homestead Residential Property (figures below are prior to any available offsets)

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Estimated Market

ValueRMV NTC Annual

TotalRMV NTC Annual

Total

Prelim $50,000 $109.64 $35.79 $145.43 $77.81 $66.43 $144.24Pay 15 75,000 164.46 53.69 218.15 116.72 99.65 216.36

100,000 219.28 83.51 302.79 155.62 155.01 310.63

$50,000 $111.56 $33.43 $144.99 $72.86 $65.78 $138.63Pay 14 75,000 167.33 50.15 217.48 109.28 98.67 207.95

100,000 223.11 80.01 303.12 145.71 157.43 303.14

$50,000 $123.99 $30.61 $154.59 $58.08 $52.39 $110.47Pay 13 75,000 185.98 45.91 231.89 87.11 78.59 165.70

100,000 247.97 71.42 319.39 116.15 122.25 238.40

$50,000 $126.30 $31.76 $158.06 $72.67 $52.13 $124.80Pay 12 75,000 189.45 47.63 237.08 109.01 78.20 187.21

100,000 252.60 74.10 326.70 145.34 121.65 266.99

ISD 93 - CARLTON ISD 100 - WRENSHALL

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Goals of Consolidation

Long Term Financial and Educational

Viability

Enhanced Programming

Expanded Academic,

Fine Arts and Athletic

Activities

Improved Facilities

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Viability

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Sav

ings

thro

ugh

Con

solid

atio

n

Staffing Changes (i.e. 1 Superintendent, 1 Food Service Director, 1 Transportation Director, 1

Business Manager, 1 Buildings and Ground Director, 6 possible retirements {teaching staff}, right sizing of all staff to meet the

needs of the consolidated district)

Facilities Changes (i.e. Elimination of energy, maintenance and

cleaning costs at Carlton High School)

Service Delivery Changes (i.e. Less bus routes will reduce

transportation costs in the areas of personnel costs, future bus purchases,

reduced fuel, etc…)

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Savings through consolidation (estimates range from $1MM to $1.5MM depending on choices and transition period)

Allows flexibility for program options to be considered

Allows for sustainable long term financial budget

Viability (continued)

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Educational

Increased Programming

Cost Effective

Delivery of Programs

Level Class Sizes

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PK-12 Academic

Programming

Expanded Digital Learning Options

Science, Technology,

Engineering, Arts, and Mathematics

Middle Level Exploratory

Overall Renewed Focus on General Education Leading

to Student Achievement

Activities

PK-12 Academic

PK-12 Fine Arts

PK-12 Athletic

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Larger tax base for improvements and

maintenance

One or Two Facilities to Maintain

Utilize State Grant Incentive

Improved Facilities

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Utilize State Grant Incentive

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MS 123A.443 Subdivision 1. Qualification. Any group of districts or a consolidated district that meets the criteria required under subdivision 2 may apply for an incentive grant for construction of a new facility or for remodeling and improving an existing facility. A grant for new construction must not exceed the lesser of $20,000,000, or 75 percent of the approved construction costs of a cooperative education facility. A grant for remodeling and improving an existing facility must not exceed the lesser of $10,000,000, or 75 percent of the approved remodeling costs.

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Facility Options

Two Sites – PK – 5 at

South Terrace & 6-12 at Wrenshall

PK-12 All New South

Terrace Campus

PK-12 All New

Wrenshall Campus

PK-12 Remodel plus

some New South Terrace

Campus

PK-12 Remodel plus

some New Wrenshall Campus

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Carlton Site – PK-12

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Wrenshall Site – PK-12

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Carlton PK-5 and Wrenshall – 6-12

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Facility Options to Contemplate

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OPTIONS

PRELIMINARY COST

ESTIMATE*GRANT

REQUESTBORROWING

COSTESTIMATED

TAX IMPACT**

Single Site All New $40MM - $50MM $20MM $20MM - $30MM $150-$240Single Site Remodel plus some New

$30MM - $40MM $10MM $20MM - $30MM $150-$240

Two Sites - PK - 5 at South Terrace & 6-12 at Wrenshall

$0 - $16MM $10MM $0MM - $6MM $0-$50

* - Subject to change, estimates are very preliminary in nature and intended to get community members thinking about options, size of grant and associated tax impact of decisions. Additional study and fact finding necessary, administration and school board involvement, etc…

**Tax Impact above assumes cost of $7.95 per $1MM borrowed over twenty years on $100,000 homestead residential home

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Business Professional of America - Student Project

Click on this link to check out the video Neil and Chloe did for their BPA project this year: BPA Project To use above hyperlink – right click on BPA Project and choose the open hyperlink option

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Next Steps Public Presentations Thursday, January 29, 2015 at 6 p.m. February – Each School Board adopts resolution proposing to

continue with consolidation plans February – School Boards are asked to extend Baird’s

contract End of February / Early March Activities

Drafting of new consolidated school district map is authorized, completed and placed in plat

Meet with Carlton County Auditor and other County Officials to discuss Consolidation Plat submittal to the Commissioner of Education

Have joint School Board meeting to review plat, incorporate any changes and receive approval from both School Boards to forward to Carlton County

Carlton County Auditor submits Plat to Commissioner of Education

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Baird Important Disclosure

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Robert W. Baird & Co. Incorporated is providing this information to you for discussion purposes only in seeking to provide consulting services to ISD 93, Carlton and ISD 100, Wrenshall in regards to consolidation assistance. If an election for a school facilities bond is contemplated, Robert W. Baird & Co. Incorporated (“Baird”) is seeking to serve as a financial advisor or municipal advisor to you on a possible issuance of municipal securities. Baird is a municipal advisor registered with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board (“MSRB”).

If Baird is hired as financial advisor in connection with an issuance of municipal securities, Baird will provide municipal advisory services with respect to the issuance of municipal securities, including advice, recommendations and other assistance regarding the structure, timing, terms and other similar matters concerning the particular issuance of municipal securities for which you may be considering. As such, Baird will serve as a fiduciary and act solely in your best interest. Baird’s fiduciary duties as your financial advisor will include the duty of care and the duty of loyalty. Under MSRB Rule G-23, if Baird is hired as financial advisor with respect to an issuance of municipal securities, Baird will not be able to serve as underwriter or placement agent for that issuance.

Should you want Baird serve in a different capacity, such as underwriter or placement agent, you should notify Baird of such decision immediately and Baird will provide additional disclosures to you which will describe the role of underwriter or placement agent and explain any actual or potential conflicts of interest inherent in that role.

The Materials do not include any proposals, recommendations or suggestions that you take or refrain from taking any action with regard to an issuance of municipal securities and are not intended to be and should not be construed as ''advice'' within the meaning of Section 15B of the Securities Exchange Act of 1934 or Rule 15Ba1-1 thereunder. The Materials are intended to provide information of a factual, objective or educational nature, as well as general information about Baird (including its Public Finance unit) and its experience, qualifications and capabilities.

Any information or estimates contained in the Materials are based on publicly available data, including information about recent transactions believed to be comparable, and Baird’s experience, and are subject to change without notice. Interested parties are advised to contact Baird for more information.

If you have any questions or concerns about the above disclosures, please contact Baird Public Finance.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that the Materials do not constitute tax advice and shall not be used for the purpose of (i) avoiding tax penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.