By CRISTINA JANNEY
Hays Post
Work has started on Hays High School, the largest of the Hays USD 489 bond projects.
With the signing of the contract with Nabholz Construction, the construction manager at-risk, some residents are asking where is my money going and how did a $95 million new high school construction project end up as an almost $105 million project.
The bond includes the construction of a new high school. The current high school will be remodeled into a middle school. The current middle school will be remodeled into an elementary school. Roosevelt Elementary School is being expanded and remodeled. O'Loughlin Elementary School will receive renovations.
Rockwell Administration Center and Lincoln Elementary School will be closed. The administration plans to move into Wilson Elementary School upon the closure of Rockwell.
Chris Hipp, assistant superintendent of business services, gave a presentation to the school board during a work session on Monday to explain bond financing.
Voters in the Hays school district approved a $143.5 million bond in May 2022.
Hipp said the school district has two obligations: to pay off the bond loan and to complete the projects the district promised voters.
The bonds were sold at an average interest rate of 4.12 percent for a 30-year term.
Just like a car loan or mortgage, the full cost of the loan will include both the $143.5 million principal plus interest.
"The community does not need to be afraid that we are going to spend more money and charge [people] more bills," Hipp said.
The 4.12 interest rate is locked in. The district could refinance the loan at a later date if an opportunity arose to take advantage of a lower interest rate.
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The bond mill levy and a .5 percent sales tax will be used to repay the bond loan. The mill levy and sale tax can only be used to pay back the loan. They can't be used for any other district expenses, Hipp said.
The district can't raise the bond mill levy above what is needed to make the payments on the original $143.5 million bond loan, Hipp said.
When the district calculated the anticipated mill levy for the loan payments, it conservatively estimated revenue from the sales tax.
Instead of the $290,000 to $300,000 per month in sales tax income the district estimated, the sales tax is bringing in $315,000 to $320,000 per month.
The district can use this extra revenue to lower the mill levy or it can use it to further pay down the bond. The mill levy is set when the district sets the rest of its annual budget.
"The sales tax helps manage the mill levy," Hipp said.
The district was able to lower the mill levy this year based on the higher-than-estimated revenue from the sales tax, Hipp said.
The sales tax was only approved for 10 years. If it is not reauthorized, the. mill levy would have to be increased to pay the full cost of the bond payments.
Residents have raised concerns about inflation. Inflation will not affect the mill levy or sales tax, Hipp said. The sales tax can't go beyond .5 percent. The mill levy can't be raised above what the district needs to pay back the principal and interest on the original $143.5 million loan.
Inflation can affect the scope of the project. However, Hipp said there are other factors built into the project funding that can help account for inflation.
The district received premiums during the bond sale. These funds in addition to the $143.5 million from the loan were invested in treasury securities to align with when the district would have to pay for the construction work.
However, the IRS restricts how much interest the school can earn on the bond funds. This is called an arbitrage rate, which is about. 3.66 percent.
Anything above the arbitrage rate has to be paid to the IRS.
The district can spend money on bond projects that include the initial loan amount, the premiums from the bond sale and the investment interest minus the arbitrage rate
In addition, funds from the sale of any property associated with the bond can be used to pay for bond projects. This could include Lincoln Elementary School and Rockwell Administration Center, which are set to close once the bond projects are completed. The district has also applied for $2 million in grants from the Federal Emergency Management Agency to pay for storm shelters that are part of the bond projects.
When you take all of these funds into consideration, the district could have up to $161.9 million to invest in the bond projects, Hipp said.
Hipp said the extra funds could be used to help deal with inflation or any other unforeseen cost overruns.
The original estimate for the high school was about $95 million. The bid that was approved by the school board on Oct. 4 was almost $1o5 million.
RELATED STORY: Hays school board approves HHS, Roosevelt contract; discussion heated
The additional money in the project fund, including bond premiums, interest, sale of property and the FEMA grant funds can be used to cover that gap, Hipp said.
The district also can use capital outlay funds toward building or renovation projects. This could also include new furniture or equipment that would need to be purchased in relation to the bond projects.
A previous board set the capital outlay levy permanently at 8 mills. These funds are also used to pay off lease agreements for previous facility work, buses and vehicles, and technology.