The North Crawford School Board met on Wednesday, Jan. 8 to consider the future of the proposed fitness center. They recognized a need to gather more information on the project and opted to delay putting a referendum on the ballot in April. The board and staff decided to continue working on the fitness center proposal and seeking additional public comment with the August 12 election eyed as a possible referendum date.
The board met with both Carol Wirth, the President of Wisconsin Public Finance Professionals, and Allison Buchanan, an attorney with Quarles & Brady, to discuss the financial issues relating to financing the proposed project.
A primary concern was the possible partnership with Vernon Memorial Healthcare (VMH) and how that relationship would affect the taxable status of a bond to finance the building project.
“From the policy perspective, the IRS wants it to benefit the district and not non-public parties,” Buchanan explained.
A 10-percent test applies to whether the project qualifies for a tax-exempt status - no more than 10-percent of the bond can be used to benefit a private business (including non-profit 501c3s such as VMH) and no more than 10-percent of payments to the district for use of the facility can derive from private business.
While the school district and VMH have not yet finalized an agreement, talks thus far involve VMH making a multi-year commitment to manage the facility and maintain equipment purchased and owned by North Crawford in return for collecting fees charged for facility use.
Determination of the percentage would be based on an aggregate view of facility use, according to Buchanan. She cautioned that the determination should be made carefully as choosing to go with a tax-exempt status and then losing that status if audited is a highly undesirable scenario.
Based upon descriptions of the facility being used by the community during, before and after school, Buchanan said that it seemed unlikely to meet the standards for a tax-exempt status.
Discussing options for gaining the advantage of a tax-exempt bond, school administrator Dr. Dan Davies suggested using refinancing to change bond types at a later date, which Buchanan confirmed was an option if the 10-percent or less private use test could be met.
“Even if we do a taxable bond from the start, we might lose the advantage of refinancing as a tax-exempt bond if interest rates increase,” noted board president Mary Kuhn.
Kuhn went on to note that the cost difference between taxable and tax-exempt was likely far less than the cost of managing the facility, should the district choose to operate it themselves rather than have VMH manage it initially.
Wirth confirmed Kuhn’s estimation.
A taxable bond for $1.275 million paid over 20 years would have an approximate interest payment of $925,350. The tax-exempt bond would have an approximate interest payment of $666,112.50. The difference would amount to around $13,000 per year, far less, Kuhn noted, than the cost of hiring someone to run the facility.
“It was always the intent that this be a community project,” observed board member Judy Powell in response to the suggestion of limiting access of the facility for several years to students only. Powell went on to say the board needed hard numbers to show to the public.
“We have already said we can’t afford to do this without VMH,” Powell said.
Kyle Bakkum, the Chief Executive Officer at VMH, told the board that a commitment on specifics had not yet been made and that further details needed to be worked out before he could take the project to his board for approval and the issuance of a Memo of Understanding.
“We are expecting to lose money on the first year or two of management, but 20 years is more than we can commit to,” Bakkum said. He said that VMH would want a shorter contract that they could extend if the project proves it can pay for itself.
“We won’t go past five years on a contract,” Bakkum said. “We have to determine what a reasonable loss is. Hopefully it’s a go and we stay longer.”
Wirth reiterated that the discussed structure was weighted toward greater private use than the tax-exempt structure would allow.
“I think that in order to go to referendum, you’ll have to tell the public what the details of the commitment from VMH is,” Wirth said.
“We have found we have to be able to lay it all out so voters can make an informed decision if we want a referendum to succeed,” Kuhn added.
In order to be on the ballot April 1, 2014, the board would need to pass a referendum resolution by January 16.
“Are we prepared enough to bring this by the 16th?” Kuhn asked.
“I personally don’t feel prepared,” responded Powell. “I am afraid if we rush and stumble, we will lose our credibility and hinder our ability to pass a referendum now and in the future.”
“As long as we know what VMH’s commitment and the tax impact, I feel we can go forward,” Kuhn said.
“The timing of the April election is good for the project,” said PEP grant director Tarasa Lown.
Bakkum said it would not be possible for VMH to work out the details of the agreement and have it passed by their board that quickly.
When asked by board member Terry O’Donnell, Lown confirmed that waiting for the August ballot would not be a problem with the PEP grant since it constrained the public from being able to access the facility before August 1, 2015. The school could purchase and store equipment if need be.
Wirth gave a brief overview of funding options between bond issuance and the state trust fund program, which she said they would go over in greater detail if the referendum passed.
“Financing for school projects like this is done in a backwards manner,” Wirth said. “In a private project you would gather your financing before getting approval, in referendums you get approval and then take it to the market to find the best deal.”
“We used very conservative numbers in preparing the figures we have given you to give the best approximation of what you can expect,” Wirth said.
Kuhn noted that since it appeared they would be working toward the August ballot, the board needed to decide if they should include rubberizing the track in the referendum as estimates of it had grown and were likely to continue to do so.
Powell added that she felt it was important to continue to seek feedback from the community on the proposed fitness center.
Lown noted she would be speaking to the Soldiers Grove Village Board and had already spoken to the Gays Mills Village Board, both of which were important vehicles for gathering some sense as to community interest in a referendum.
A basic survey had been made available at the school holiday concerts, Kuhn said. Forty-five people responded with 42 expressing support, two against, and one maybe.
“At the last referendum we held a series of meetings and only three people showed up at the final meeting,” recalled O’Donnell. O’Donnell noted that it can be difficult to get people to attend meetings to express their support or opposition, though seeking that input is both important and necessary.
Davies committed to sitting down with Bakkum to come up with a clear agreement between the school and VMH.
“We’ll shoot to get something out to the community in March and April about the project,” Davies said. “That gives us time to seek more feedback and get more information out.”
Lown reminded the board as the meeting concluded that the PEP grant “Spring-It-On” event was scheduled for April 26. She noted that over 200 community members participated in the wellness event last year.