By Frank Mustac, Special Writer
A lengthy discussion about the tax impact of a proposed $36 million bond referendum took place at Monday’s meeting of the Hopewell Valley Regional school board.
If voters pass the referendum proposed for September, the bond would fund repair work, construction and other capital improvements at several schools in the district.
Because a percentage of the bond would be paid off by the state through a program called debt service aid, local property taxpayers would only have to finance about $23.6 million of the bond repayment. The program is part of the Educational Facilities Construction and Financing Act passed in 2000.
The school district initially determined that $60 million worth of projects was needed, but that figure was slashed almost in half.
“The referendum is one piece of our Board of Education’s plan to responsibly address district needs,” said Lisa Wolff, the school board president. “Financing (for the bond) is designed to minimize tax impact while maximizing student benefit.”
“Our Board of Education has set a goal to remove most of the capital expenditures from the general fund,” she said. “Debt service is a more cost-effective way of addressing the capital projects.”
This year is the right time to hold a bond referendum, according Superintendent Thomas Smith, in part because “interest rates remain historically low.”
He explained that the district has long-term debt of $24 million requiring an annual payment of $4.9 million. That debt will be retired by August 2021, according to Dr. Smith’s presentation.
If voters approve the bond, there will be an overlap period from 2018 to 2022 when taxpayers, through property taxes, will be paying off both the old and new debt simultaneously, the superintendent said.
“For example, if you look at year one (2018), assuming the referendum is passed, we’re looking at a $19 per $100,000 of assessed value increase to the residents of Hopewell Borough, Hopewell Township and Pennington Borough,” Dr. Smith said.
Starting in 2023, however, taxpayers will be billed for the new debt only.
Taxpayers, he said, “would see a small bump during the overlap, but when that (old) debt retires, you’re looking at a significant decrease in tax impact from what our current debt is at $4.9 million a year to $1.9 million a year.”
A slide the superintendent presented titled “Sample Debt Impact” showed that a Hopewell Borough taxpayer would be billed in 2017 only for paying down the old school debt at the rate of $100 per $100,000 of assessed property value. The debt-service rate at its highest during the overlap period, in 2020, would be $114. The rate would drop substantially to $39 in 2023.
Debt service represents about 6 percent of the school district’s operating budget.
The debt-service rate figures presented by the superintendent for the overlap period are based on what he described as “alternative funding” being used “for these first couple of years of the impact.”
Michael Markulec, who is on the board’s finance and facilities committee, described the funding plan.
“What we’re doing here is using convertible notes in the first couple of years,” Mr. Markulec said on Monday. “Large construction projects do not always happen (all) at once, so we’re only funding the construction projects that are actually taking place, and we’re doing it with notes. So once all the projects are done, we’ll roll them into bonds.”
“That is what I will call the worst-case scenario, what you’re seeing there,” he said, referring to the numbers presented by the superintendent. “There is also an opportunity for us to go the Local Finance Board to do something that’s called non-conforming debt to even (further) minimize the impact to the taxpayers.”
Mr. Markulec, however, did say taxpayers would be paying roughly $3 million more over the 25 years of bond repayment using the alternative-funding method up front. However, not using the method, he said, would mean “the impact to the taxpayer in years 2018, 2019 and 2020 would be significantly higher.”
“I think we are very, very conservative on this tax impact and erring on the side of caution,” Dr. Smith said.
