Questions and Facts
- What is on the ballot?
- How did the school board develop the referendum request?
- What is a Bond Referendum?
- When was PLSAS’ Last Successful bond election?
- When does the district’s current operating levy expire?
- How did you arrive at enrollment projections of 2,100+ in ten years?
- Is open enrollment the main reason for the district's growth?
- I’ve heard the District is working with Nexus Solutions. Who are they?
- What is the bond funding system that you are using?
- Why does the Q1 project total equal $110.3M but you are only requesting bonds for $109.3M?
- If the school funding requests are approved, how will crowding be handled while construction is underway?
- Is it possible we could build a new school and it would sit empty because we don’t have funding to operate it?
- How much of the operating levy request (Q2) is an increase over the current levy?
- Is the tax impact for Q2 for the entire operating levy or just the increase being requested?
- Where is all the enrollment growth coming from?
- Are Gyms for Prior Lake High School (PLHS) Included in the Referendum?
- How do you know you are not over or under building?
Based on extensive analysis of enrollment growth and recommendations from a community-based Facilities Task Force, the School Board approved placing two school funding requests on the November 7 ballot:
Question 1: $109.3M in 20-year bonds to add space for the growing enrollment
New elementary school
- Classroom space and other additions and renovations to several elementary and both middle schools
- High school additions and renovations including classrooms, expanded cafeteria, increased gym spaces for physical education classes, additional parking lot
- New Bridges Area Learning Center
Question 2: Renew and increase operating levy to $924 per student for 10 years to fund staff and operations for our growing enrollment
- Continues existing operating levy that funds current schools and staff
- Provides additional operating funds needed to hire staff, equip and operate the new schools and spaces in Q1
For tax impact information, click here.
The Board decision was based on a transparent and public planning process that began after a failed referendum in May 2016. The School Board and district staff went back to the drawing board and listened to the community:
- A 50-member community Facilities Task Force worked with an outside facilitator to analyze enrollment and facility data. Some key data points:
- Since 2000, PLSAS has averaged more than 225 additional students per year.
- Most of the schools are already at or over capacity.
- Projections indicate the growth will continue, with more than 2,100 additional K-12 students anticipated in the next ten years
- Based on analysis of the data and the district’s continued growth, the Task Force recommended building a new elementary school, adding classroom and other spaces to all our schools and finding space for the growing early childhood programs.
- Their recommendations were shared publicly for the community’s review and feedback through input sessions and surveys. The results were sent to the School Board as input for the Board’s decision.
- The School Board had several planning sessions to refine the final school funding proposals being put to voters on November 7.
The final Board-approved result reduced the cost of the bond request by nearly $20 million from the 2016 request. The tax impact on homeowners was also reduced by nearly $10/month on a $300,000 home. For more information on the Facilities Planning Process, click here.
Bonds acquired through a referendum are voter-approved funds for building (both new facilities and existing schools). Bonds are generally financed over 20 years, or until they are paid. The cost of the bonds are covered by local property taxes. State education funding does not cover large construction projects, which is why school districts ask voters for bond approval through a referendum to finance local construction needs.
2,165 is actually a conservative estimate because historically our growth outpaces our projections.
- Our projections are based on a demographic study coupled with enrollment history, a conservative view of incoming kindergartners more than five years out (because those children have not yet been born) and annually monitoring open enrollment.
- School districts have to do enrollment projections all the time – to estimate space needs, secure state funding, project future budget needs and project staffing needs. It is not an exact science, but best practice is to base it on demographic studies and enrollment histories. That is exactly what we’ve done.
- You can quibble about the precise number, but we are faced with tremendous enrollment growth and we need to be ready.
- Through an objective and comprehensive process led by an outside facilitator, a 50-member community Facilities Task Force vetted and endorsed enrollment projections that show we have a few thousand more students that will arrive in the next decade.
- The Task Force then recommended solutions for managing this tremendous growth. The board has refined those recommendations and we have submitted the plan to the state.
- Our focus is on how to continue providing the education our residents expect and that keeps new residents moving into our school district.
- The bottom line: we have a lot of kids coming, more homes continue to be built, we are a popular district and our job is to provide them with space, staff and opportunities to succeed.
PLSAS' space needs are due to resident enrollment growth, not open enrollment growth. Here are some facts:
- The district has a legal obligation to offer open enrollment where space is available.
- Historically, PLSAS has lost more resident students to open enrollment than it has gained.
- Starting in 2014/15, the district slowly began to reverse that trend and last school year we had a net gain of 3.2% (we had 306 more open enrolled students coming into the district than going out).
- Open enrollment provides a financial balance to offset the resident students who leave the district each year.
- The district has limited open enrollment for 2017/18 up to 1% at grade levels 1-12, which is the most restrictive per state statute, and 75 students in kindergarten.
Nexus has helped the district make lots of building improvements for students with no increase in the school district levy. Prior to selecting Nexus, PLSAS underwent a competitive selection process, a contract review that was conducted by our attorney and a community forum. In 2016, the school board reviewed the Nexus contract and history and voted to continue the arrangement. The end result has been more accountability -- all projects have been completed on time, on or under budget, with minimal change orders and no increase in local taxes. For more information about the district’s projects with Nexus, click here.
Nexus and City Pages settle over reporting errors (Prior Lake American/Savage Pacer, December 9, 2017)
The Prior Lake-Savage Area School Board is considering a referendum that would include a request for voter approval of bond funding for construction projects. A standard part of that process includes working with the district’s financial advisors, Ehlers, on exploring options to structure the debt based on the district’s unique circumstances.
After reviewing different options with Ehlers, the School Board agreed to pursue a combined approach that uses two different types of bonds, with payments “wrapped around” existing debt. The benefits of this approach:
- The tax impact in the early years is substantially lower than if only one type of bonds were used.
- The resulting tax impact of the new debt increases at the same time prior debt is being paid off, thus reducing the net impact of the increase.
- It helps level off the overall tax impact of all of the district’s debt on taxpayers over the term of the bonds.
- The higher-interest rate bonds mature first, thus reducing their long-term impact on total cost.
When packaged and used judiciously, this combined approach enables growing districts with high existing debt to spread payments over both time and a growing population.
Additional detail on the bonds being used
There are two primary forms of municipal bonds that school districts can use to finance major capital projects – current coupon bonds and capital appreciation bonds. With both types of bonds, there are usually a series of “maturities,” with potentially a different interest rate for each maturity. With either type of bond, the district will be selling fixed-rate bonds. Once the bonds are sold, the interest rates and payment schedules are fixed for the life of the bonds and payments will never increase. It is likely that the district will have an opportunity to reduce payments at some future date by refinancing the bonds at lower interest rates.
Current Coupon Bonds
- Bonds are issued in $5,000 increments; purchasers pay (and district receives) approximately $5,000 for each bond.
- District pays interest to all bondholders every six months until maturity.
- At maturity, district repays bondholders the face value of $5,000 for each bond.
- This type of bond accounts for over 90% of building bonds issued by Minnesota school districts.
Capital Appreciation Bonds (CABs)
- Bonds are issued in face value of $5,000 each; purchasers pay (and district receives) a discounted price, reflecting the present value of the $5,000 payment at maturity.
- District pays no interest on the bonds until they mature; interest is “accreted” and added to the original principal amount every 6 months.
- At maturity, district pays bondholders $5,000 per bond, including the original principal amount plus the accreted interest.
- This type of bond allows districts to postpone payments further into the future, and is most often used by growing school districts with relatively high existing debt, like PLSAS.
- This type of bond allows districts to reduce the impact on taxpayers and shift more of the payments to the years after the existing debt is paid off.
- CABs carry higher interest rates than current coupon bonds of the same maturity; difference varies based on market conditions and maturity schedules, but is often between .25% and 1.00%.
At the June 26 meeting, Ehlers presented two debt structuring options to the Board. Option 1 included current coupon bonds only, and Option 2 included a combination of current coupon bonds and CABs. Option 2 reduced the tax impact of the bond issue in the first three years by almost 40% by delaying some payments until later years. The tradeoff is that it increased total estimated tax levies for the bonds over all years by an estimated $9.4 million, or 5.8%. The Board selected Option 2.
Option 2 has since been adjusted to account for the final list of projects agreed to by the Board. The adjusted plan includes $45.5 million of CABs and $63.8 million of current coupon bonds.
There have been some well-publicized national stories about financial problems resulting from school districts issuing CABs. Most of these stories occurred in California, where some districts issued CABs with a single maturity 30 or more years in the future, which results in a total cost many times greater than the amount borrowed. Furthermore, some of these districts had no concrete plans to raise the funds to make the payments on the CABs.
The proposed use of CABs by PLSAS is very different from these stories.
- Because CABs carry higher interest rates than current coupon bonds, the plan is structured with the CABs maturing first – in 2022-31 – and the current coupon bonds maturing later. This limits the additional costs resulting from the higher interest rates and the accretion of interest on the CABs.
- As required by Minnesota law, when the district sells the bonds, it will set tax levies equal to 105% of the principal and interest payments on the bonds for all years. This ensures that the district will have sufficient funds to make all payments on the bonds.
Because we have $1M in net earnings from the investment of bond proceeds until they are spent on project costs.
When school districts have a voter-approved building program, they usually sell all of the bonds and receive all of the proceeds at one time, shortly after the election. They then invest those proceeds and spend them gradually over a period of several years. Any interest earnings on investments must be deposited into the construction fund and can only be used for project costs. Our “net” amount – investment earnings minus capitalized interest and legal and fiscal costs – is conservatively estimated at just over $1 million, which we use to reduce the total bond funds needed.
If voters approve question 1 but do not approve question 2, we would not have the additional revenue we need to completely equip, staff and operate the new elementary school and other added spaced. That is why both questions are on the ballot, because question 2 is needed to operate both our existing schools and the new schools and space in question 1. By law the two questions cannot be combined because one is bond funding and the other is a levy – which is why there are two separate, but closely related, questions, both designed to help manage our growing enrollment.
The growth we’ve seen and anticipate continuing is from our resident families. These are people who moved into existing homes as well new construction. In the past five years, the city of Savage has added an average of 210 residential units each year, and Prior Lake has averaged more than 160 per year. More than 2100 new students are projected in the next 10 years.
Yes. More gym space is needed at PLHS for curricular and co-curricular classes. Part of the Nov. 7 referendum request includes adding 4 courts to PLHS, which is the minimum amount of additional space needed to meet the current curricular demand during the school day. This request is scaled back from 6 courts that were part of the failed 2016 referendum request.
A community Task Force studied classroom needs across all curricular disciplines, including gyms for physical education (phy ed) classes at the high school, and concluded the following:
There is not enough gym space for students during the school day. Our phy ed classes are the most popular electives at PLHS for students and our gyms are used consistently throughout the day for required and elective phy ed classes. Here is the PLHS phy ed utilization data the Task Force studied (click here).
Some surrounding high schools that are smaller or similar in enrollment serve between 225 and 375 students per court, while PLHS serves 650 students per court (2016/17 data). Here is the gym space comparison the Task Force studied (click here):
- We use a range of data to determine what space we need, including building capacity and use studies, demographic studies, enrollment history and a conservative view of incoming kindergartners more than five years out (because those children have not yet been born).
- We project enrollment conservatively, as seen by our history of actual enrollment consistently outpacing demographic projections.
- Through an objective and comprehensive process led by an outside facilitator, a 50-member community Facilities Task Force vetted and endorsed all this data and then recommended solutions for managing our tremendous growth. Their recommendation was the basis for the final building plan refined by the Board that resulted in the proposed projects that would be funded by Question 1.
- All school districts must submit building plans to the State Department of Education through a Review and Comment process. The State will not let districts overbuild without solid proof they need the space. We received State approval for our proposal through a positive review and comment.