Part 2: The $81.2 Million School Bond • February 2016 • The Cost To Taxpayers

In Part 1, the key takeaways:

• Wilkes Elementary (opened fall 2012) cost $28.92M.

• BISD is asking for $39M to replace Blakely Elementary.

• The six schools the BISD chose as cost comparisons (all listed as higher construction costs) are MUCH larger, and often with full food service cafeterias, than what is now planned for Blakely Elementary.

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The BISD school superintendent (at community presentations and the Inter-Governmental Working Group) and the school bond “facts” pamphlet and School Supporters website:

“If the measure is approved, local school taxes in 2017 will increase an estimated $0.36 per $1,000 of assessed property value, or $15 per month ($175/year), for the median home.”

Every Bainbridge Island tax paying citizen should have sufficient math and life experience skills to know an $81.2M bond cannot be paid off in 20 years (school bonds are typically 20 year bonds) at an annual bond repayment of $175 a year. There are many variables, but $175 for the median assessed Bainbridge Island parcel a year would pay off somewhere around a $23M-25M bond.

So what gives with the $175 a year bond tax impact statement BISD presents to the public?

Is that reasonably accurate or a “tax deception” to help get the big bond passed?

Let’s analyze that.

It starts with the way the bonds will be sold.

New school buildings take roughly a three year process … about 18 months of planning and designs and bidding, and about 14-18 months to construct the school and get it ready for occupancy.

The $81.2M bond authorization will actually be three bonds that add up to the total bond amount less the cost of the administrative side of planning and selling the bonds. One bond will be marketed for each of three sequential years, and they currently are planned to be of near equal amounts per BISD’s bond consultant.

The BISD tax deception is that the tax cost of the bond is … you might have already guessed it … ONLY the FIRST of the THREE bonds, and even that understated.

If you ignore two of the three planned bonds as the school district and the school supporters do, the tax implications are not all that shocking. It’s akin to one of the common practices in marketing … and enticement rate for X months, then the costs increase to what you need glasses to read in the minuscule print buried somewhere on the reverse of the promotional literature.

The school district isn’t exactly lying … they are just simply providing the first year, first bond tax impact, and that is NOT reflective of the total bond tax impact actually be.

Not even close.

BISD  only discusses the  2017 tax increase. Problem is, of course, that first year tax projection is only repayment on one bond expected to be $27.07M and sold mid-year 2016. The bond debt service is only  $2.6M in 2017 … in future years, the annual debt service will up to four times that amount, and the tax for these bonds  is paid each year based on the debt service that has to be paid for each specific bond service amount due each year.

The other critical money and tax point they fail to mention is that the bonds are not going to be paid off at a standard annual amount … the bonds are being “backloaded.”

Backloading bonds has been a common practice with BISD, and the concept has some significant pros and cons with major tax implications.

The pros are that the early years of the backloaded bond payments, the taxes required to pay the annual bond obligations are initially lower. In the case of the the $81.2M bonds, tax rates stay relatively lower for the first ten years. Then, the bond obligations increase substantially. That means the majority of the bond obligations are going to be paid by Bainbridge Island residents paying taxes in 2026 – 2038. It’s a tax obligation that falls most heavily on property owners ten to twenty-two years in the future.

The cons are that the payments for the bonds are heavy on interest and light on principle for the first decade, and that means the total bond interest payments are much higher.

BISD’s bond consultant, D.A. Davidson, projects the bond’s total interest obligation will be approximately $62.5M. Add the $81.2M principal payback, and Bainbridge Island taxpayers will have a $143.748M total debt obligation to pay off in the next 22 years for this $81.2M capital bond.

This is the projected payback schedule, and I’ve color coded it so the larger tax obligations are in reds.
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Projected new taxes for a $81.2M School Bond for a typical Bainbridge Island residence with an assessed value of $486,295 in 2015. There will be three nearly equal bond sales in 2017, 2018, and 2019. The first bond is a 19.5 year bond, the 2017 and 2018  are 20 year bonds.

BISD BOND $81.2M SCHEDULE

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The Kitsap County Assessor’s office has calculated the 2015 new tax for each $1M in bond service at $0.17620397 per $1,000 in parcel assessments. That rate drops to $0.161794 in 2016, but the median assessed value will increase. The Kitsap County Assessor’s office does not yet  know exactly what that median assessment will be until the 2016 assessment book is released in February, 2017. The 2016 median assessed residential value is expected to be about $536,170, and that would make the 2017 tax increase about 1% higher than the above graph.

There are a large  number of variables, and there simply is no absolutely precise numbers that can be put on the per parcel cost of a bond for the next 22 years.

Of course, there are differing island growth scenarios, and as Bainbridge Island grows and increases its tax base, the above chart is, in all fairness to the BISD, the worst case scenario. However, a growth rate of, say 1.2%, which is about what is currently happening, would  be about a 1% per year impact on these tax amounts. Much of the high cost waterfront has now been developed, and the majority new residential construction is tending to be in the more middle income range. And large new shopping or industrial centers?  Maybe, but not too likely.

It’s probably safe to say that the median priced residential property will pay at least $10,000 over the next 22 years in new property taxes if the $81.2M bond is approved by voters.  If the BISD disagrees with that amount, they can provide their own full term tax analysis.

The BISD and School Board is not being “blindsided” by these tax numbers. The payback schedule was provided to them (less the $1M they added to the proposed bond at decision meeting) before the decision was made to approve the bond level for a public vote. They had all this data before the “Facts” mailer was written/approved.

The bond levy amount details  are on the BISD website if you mine down far enough to find the spreadsheets. I located it in just under 30 minutes. It displayed sideways and was in very small print, but it’s there if you want to make the effort to validate the annual bond repayment figures.

 

Next in Part 3: Construction costs, soft costs, a little about the theater, and doing long term bonds for other capital projects.