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.

USS Stennis

 

USS STENNIS (CVN-74) off South Beach, Bainbridge Island as she departs Puget Sound Naval Shipyard for deployment January 15, 2016.
USS STENNIS (CVN-74) off South Beach, Bainbridge Island as she departs Puget Sound Naval Shipyard for deployment January 15, 2016.
USS STENNIS Rich Passage 2016
USS STENNIS (CVN-74) in Rich Passage 15 January 2015 as she heads towards the Pacific Ocean and a scheduled deployment.
USS STENNIS (CVN-74) departed Puget Sound 15 January 2016.
USS STENNIS (CVN-74) departed Puget Sound 15 January 2016.
USS STENNIS Lytle Beach
USS STENNIS (CVN-74) passes Lytle Beach as some locals watch the 1,092 foot, $4.5 billion dollar, 3,200 ship’s crew nuclear powered aircraft carrier navigate Rich Passage.

 

Part 1: The $81.2 Million School Bond • February 2015

Fact:  New schools are expensive.

R e a l l y  expensive.

Most voters on Bainbridge Island generally don’t pay attention to such matters as what a bond issue will actually extract from their wallets and investment accounts. It’s just more money “for the kids” from a generally wealthy island population. Bainbridge Island schools are consistently rated excellent, and whatever is said or printed by the bond promotion and school supporter groups is accepted by most at face value.

The Bainbridge Island School District (BISD)  bond mailer is captioned:   Facts about the Capital Bond.

Simple definition of facta true piece of information.

Anyone ever question whether the BISD and the school bond supporters are providing facts, or are they providing financial distortions?

By law, the school district can provide factual information to the community, but they cannot advocate on behalf of the issue. But “facts” can be distorted, and so, let’s see how the district does with the $81.2 million bond issue now before the public.

For a basis, let’s start at a point the BISD generally ignores discussing at their public presentations and bond facts mailer.

The most recent addition to the school inventory asset list is Wilkes Elementary. It’s worth your time wandering through at an open house.

For a K-4 school, it has long and spacious corridors, multiple specialization rooms, loaded with the latest technology, lots of natural light, ample restrooms. It’s geothermal heating and pervious surfaces are in keeping with current environmentalism goals. It’s a very high end K-4 school campus.

Not only impressive, it has received school design awards, raves from the parents of the students, and is frequently toured as an example what can be done by other school districts planning new schools.

But let’s focus on money since that’s the primary focus of this blog.

The 2011 Wilkes bond was for $32.5 million for the school replacement, and $9.5 million for other general district capital improvements. Not much was said about what those funds would be used for, but a stadium renovationand new track were two of the funded improvements. Total bond approved by voters was $42 million.

The money focus point:   BISD asked for $32.5 million for Wilkes Elementary, and they are now asking voters for  $39 million to replace Blakely Elementary.

So what did Wilkes Elementary actually costs now that the bills have been paid?

It was one of Washington State’s most expensive elementary school replacements at the time … but the actual costs came in below the $32.5 million school district bond request.

It’s a pubic record and on the school district’s website:

Wilkes Elementary cost $28.92 million.

Wilkes Elementary Capital Project Budget Update as of 31 October 2015:

 

Wilkes Capital Budget Oct 2015

 

This raises two obvious questions.

First, what happened to the $3.58 million that wasn’t used for Wilkes?

According to the School District, the bond was written such that the bond money could be used for purposes other than Wilkes Elementary. Informally, I was told most of the $3.58 million was put into paying the School District’s Capital Projects staff present and for future work. BISD can clarify that if that is not factual.

Second, how does the school district reconcile asking for $10 million (a 34.8% increase) more to replace Blakely Elementary than they actually spent on a high-end Wilkes replacement 5 years ago?

The Seattle price inflation increase between the two bond dates (May 2009 and Feb 2016 is expected to be 10.5%-10.6% (actual data will be available in March, 2016). Material costs rose rapidly after the recession, but they have rapidly fallen in 2015 to a five year increase of just over 1%. There are exceptions: concrete, for example. Because of booming construction  in the Puget Sound area, concrete costs are substantially higher. But on a whole, cost of construction has increased less than 15% in the past five years.

The first big unanswered question by the BISD is why Blakely Elementary replacement is $10 million more than actual cost of Wilkes Elementary, especially given the school district statement that “the design for Wilkes would be used as a prototype for eventual reconstruction of Blakely and Ordway.”

You might think the School District could save some architect and consultant monies from just having paid for a prototype school, but that just appears to be wishful thinking.

The BISD hires a Seattle consultant, Robinson Co., to do their school cost estimates. Robinson Co. has a fine reputation, but as the Seattle Times pointed out in 2013 when writing about the skyrocketing costs of Seattle area schools, Robinson Co., the firm that  did most of the high cost projections, says it’s just the way things currently are. No specifics … it’s just the way Robinson Co. observes local building conditions.  But, the Seattle Times reporter pointed out that the square footage per student on the new elementary schools was 140+ sq. ft. per school student, and the Office of Superintendent of Public Instruction (OSPI) recommends new construction goal of 125 sq. ft. per elementary level student. Robinson, Co. generally supports the larger schools approach. Probably logical to avoid portables as the years pass.

Most of the Seattle area schools are being built for a fast growing urban population.  We’ll talk about that and how the BISD is cleverly deceiving the Bainbridge Island public with the “facts” in their bond mailer.

Here are the elementary school cost comparisons in the bond mailer:

School Building Construction Comparison

 

Makes Blakely Elementary very reasonably costed compared to the ones the BISD chose to compared, right?

No elementary school is estimated to cost less then the Blakley proposed cost.

What a bargain Bainbridge!!!

Or not  ….

Here is the district’s cost comparison deception:

These six schools the BISD chose for bond cost are MUCH larger than the proposed Blakely Elementary , some have full food service kitchens which is the most expensive cost per square foot in constructing as new elementary school.

Some brief notes on the comparison schools picked by the BISD:

• Issaquah Elem. #16 is budgeted at $36.5M per the Issaquah District website, not $39.3 M. District wants their ementary schools to have 600 student capacity. Much larger school.

• Issaquah Elem. #17 is budgeted at $38.0M per the Issaquah District website, not $39.3 M. Again, target is 600 student capacity. Much larger school.

• Mercer Island Elem. (Northwood) now has a firm construction bid of $30,385,850, has a     prep kitchen, and designed for a school capacity of 550 students. Larger school.

• Arbor Heights Elem. is an 89,000 sq. ft. project designed for 660 students. Much larger school.

• Thornton Creek Elem. is 92,500 sq. ft. project  also designed for 660 students. Much larger school.

• Wing Luke Elem. is projected to be a historical landmark site (drives the costs up). It’s still pre-design, but the tentative plan is for a 90,000 sq. ft. school, up to 660 K-5 students, prep kitchen, and opening in 2020.

Blakey Elementary is penciled out for 63,000 sq. ft. and 450 students …  about the same as Wilkes. Blakey is considerable smaller than the schools the BISD chose to cost compare.

Could the BISD have chosen similar sized schools for cost comparisons?

Absolutely, but then Blakely Elementary would not appear to be the low cost school. Not the message they want to send to the public.

Blakey Elementary , as proposed, is  less than 70% of the size and student loads of the cost compatibles the district selected to use.

The BISD may be factually correct (or close enough) in their cost comparisons … the major deception is that these are much larger schools, and that isn’t revealed to the voting public.

Side Note: The BISD has eight different sq. ft. measurements for Wilkes … all valid, but which one depends on what is counted.  For example, one includes the crawl spaces, janitor cubbies, etc. Another includes anything covered on the playground. When BISD wants to make the case who reasonably priced the school was per square foot, they use one of the larger square footage calculations. Washington State has no standard of measuring different schools for square footage or cost of construction. (Note: The State legislature has directed OSPI to establish such measurable standards, but that hasn’t yet been done).

Part 2 will reveal the multiple $81.2 million bonds, their proposed amortization schedule, and what the bond is expected to cost a median priced residential Bainbridge Island parcel owner.