February 23, 2012
I appreciate the opportunity to provide factual information about the school bond fund proposal to be decided by East Lansing voters at next Tuesday’s, February 28, 2012 election. Since my recent letter to the East Lansing community, a few additional questions have arisen from area residents. If you are interested in learning more about the following topics, arranged in a question-and-answer format, please click on the following links.
I hope this—and all previous information created and shared by the district—will be helpful as you make your decision at the polls on Tuesday. Please feel free to forward this information to your East Lansing friends and neighbors if you think it would be helpful to them. Also, a panel discussion about the ELPS bond proposal is currently airing on Channel 24.
If you have any questions about the school bond proposal, please contact me at (517) 333-7424.
Thank you for your continued support of our students and the East Lansing Public Schools.
David B. Chapin
Q. How can our community be assured the district is not overbuilding and creating more classroom or building space than is necessary?
A. Current and future educational needs are the driving forces behind the East Lansing Public Schools' (ELPS) bond proposal. Enrollment projections are a factor in determining the scope of the projects.
ELPS does not determine the enrollment projections. When seeking approval from the Michigan Department of Treasury for the bond issue, the school district must obtain 5-year enrollment projections from Treasury-approved companies that provide this service. The enrollment projections are then used to analyze the utilization and building capacity at each school to determine if the scope of the project complies with state law and does not result in overbuilding.
ELPS retained Fred Ignatovich, Ph.D., professor emeritus from Michigan State University's School of Education and owner of Stanfred Consultants (one of the Treasury-approved companies), to provide an independent analysis of the 5-year enrollment projections for our school district. Dr. Ignatovich, one of the most prominent experts on enrollment projections and population trends in the state of Michigan, has analyzed enrollment trends for ELPS since 1975. His recommended projections are based on statistical analysis and data utilizing a number of different statistical models and resources.
According to Dr. Ignatovich, the bond proposal’s enrollment projections and utilization plans are:
“…’spot on’ accurate and based on analysis of accuracy checks for prior projections, historic information, current trends, and other sources of information used in projecting enrollments for the school district. I stand 100% confident in the projections as found in your bond application. In my professional judgment, the 5-year projections in combination with the district re-configuration plan results in utilization percentages for the elementary schools and middle schools that are very good for East Lansing Public Schools. The future utilization rates will provide for “optimal” use of the facilities and provide for flexibility that is necessary to adapt to changing educational program demand on the facilities.”
If the voters approve the bond proposal, the school district will continue to monitor the enrollment projections, using Dr. Ignatovich’s independent analysis, during the design phase and early in the construction process.
Q. Is too much additional capacity built into the elementary school projects?
A. ELPS does not believe it is prudent to construct school facilities so that in the first year of use the building is at 100% capacity. Such capacity would not provide for sound educational planning in the future. To illustrate, each elementary school will have 15 classrooms or teaching stations. In five years, with 6 grades (K-5) at each elementary building, additional capacity is less than 7 seats per grade. In other words, there are estimated to be fewer than 3 open seats per K-5 classroom.
At present, ELPS uses 72 teaching stations for pre-k through grade 5; one of which is in a portable classroom. The proposal includes 75 teaching stations. It is reasonable to plan for 3 extra teaching stations, district wide, at the elementary school level to allow for flexibility in future educational planning.
Q. What about the 6th grade wing at the middle school in terms of capacity, space and utilization?
A. Plans call for 8 classrooms and 2 science labs at the middle school to accommodate 6th grade enrollment that has averaged 270 students over the past 5 years. Among other plans, the design includes:
Q. Do these enrollment projections depend on expanding schools of choice?
A. No. The enrollment projections assume NO expansion of ELPS’ current schools of choice practices.
Q. Why are voters being asked to approve a bond proposal to fund these projects?
A. Michigan is only one of 8 states in the nation that does not provide any state subsidy, grant or financial support for school construction. Michigan school districts primarily fund comprehensive, long-term school building improvements with locally voted bond issues that are paid back over time with the levy of debt millage on taxpayers. This is the mechanism that ELPS has used to finance major school construction projects since the 1950s.
Q. I am confused about the current 7 debt mills and how it will be continued to fund this bond proposal. Please clarify.
A. The 7 debt mills, currently levied to pay prior bond issues, are scheduled to drop beginning in 2015 and then gradually decline to 2030. By continuing to levy the 7 mills for a longer period of time, with a gradual decline, the school district will pay the principal and interest for the new bonds. ELPS will also participate in Michigan’s School Bond Loan Revolving Fund so that the 7 mills are evenly spread across current and future taxpayers.
Q. What is the School Bond Loan Revolving Fund (SBLRF) and how does it work?
A. The SBLRF is a 60-year old program embedded in the Michigan Constitution that has provided an opportunity for hundreds of Michigan school districts to fund thousands of school construction projects.
Q. What is the benefit for ELPS to participate in the SBLRF?
A. By participating in SBLRF, the debt millage is level at 7 mills and does not cause an increase in the current millage levied to pay for the bonds. Based upon reasonable projected taxable value growth and current interest rates for bonds, projected total debt millage for the new bonds, without participation in the SBLRF, for current taxpayers would be:
Debt Millage if no SBLRF participation: 9.70 mills, increasing to 9.90 mills in 2013
Q. What is the cost to an average taxpayer for SBLRF?
A. The additional interest cost to participate in SBLRF is approximately $15,403,662 district-wide over the life of the bond issue or approximately $24 of the total debt millage annually paid by a taxpayer with a home valued at $200,000 with a taxable value of $100,000. Click here for more information about the calculation of the annual cost to the taxpayer.
Q. Has ELPS participated in SBLRF before?
A. The school district participated in the SBLRF for the 2000 bond issue, which, among many other things, financed additions and remodeling to the high school and middle school. The loans were for a short period of time (2002 to 2005) and were repaid in 2011. The school district repaid the SBLRF approximately 11 years earlier than projected. Based on current interest rates and conservative taxable value growth projections, it is expected that the proposed bond issue will also be out of the SBLRF approximately 10 years before the bonds mature.
Q. How long will it take to repay the bonds and the SBLRF?
A. Michigan law does not permit school districts to issue bonds for more than 30 years. The bonds will be repaid by 2042.
Based upon current interest rates in the bond market and conservative taxable value growth rates in the future, the school district reasonably expects to repay the SBLRF at least 10 years before the maturity date of the bonds. If taxable value in ELPS did not grow by even $1 for the next 30 years, ELPS would still be able to repay the bonds and SBLRF within the next 30 years.
Q. Are there alternatives to reducing SBLRF participation?
A. The board of education decided not to “max out” the legal amount permitted by SBLRF without a millage increase ($62.1 million). Instead, ELPS decided to reduce the size of the bond issue by $9 million through a contribution of sinking fund monies on hand and reducing the size of the bond issue.
The only other alternative is to increase the debt millage on current taxpayers to approximately 9.9 mills resulting in today’s taxpayers carrying more of the debt millage burden than future taxpayers who will also benefit from the improved facilities.
Q. Opponents to the bond issue have proposed “market rate bonds” as an alternative to using SBLRF. What does this mean?
A. This term means ELPS would not pay principal or interest until a fixed date in the future so that the current taxpayers do not pay for the bonds in the early years. In the municipal bond industry, these are known as “capital appreciation bonds.” Michigan school districts have not been authorized to issue “capital appreciation bonds” (market rate bonds) since 1994.
“Market rate bonds” may also mean variable rate bonds in the municipal bond market. ELPS’ financial advisor recommends against issuing variable rate bonds in this current interest rate environment.
Q. Opponents to the bond issue have said that ELPS could just borrow from the sinking fund millage (“non-voted bonds”) and fund the projects from that millage. Is that true?
A. Sinking fund monies are not permitted to be used to purchase furnishings, equipment, and technology and to do certain types of remodeling projects. State law also caps the amount of “non-voted bonds” that Michigan school districts to 5% of the SEV taking into consideration total outstanding bonded indebtedness. At current levels, there is no legal authority for ELPS to issue non-voted bonds pledging sinking fund monies.
Q. Will the school district take competitive bids for the construction project?
A. Pursuant to the Revised School Code, school districts must competitively bid all labor and materials for projects in excess of $21,900. The construction projects will be competitively bid and the construction manager is committed to providing opportunities for local contractors in the Lansing region to submit bids on all projects.
Q. Did the school district take competitive bids for the professional services provided during the bond issue (architect, construction manager, bond counsel, financial advisor, etc.)? Also, if the bond issue fails, does ELPS have to pay for these services from the general fund?
A. Michigan law does not require any local governments (i.e., cities, townships, counties or school districts) to obtain competitive bids and award to the lowest bidder for professional services such as accounting firms, legal counsel, architects, banks and other types of professionals—in order to assure that local governments receive excellent quality of professional services. It is important to note that the fees charged by the professional team are comparable to fees charged by other professionals for similarly sized bond issues.
The school district will not pay any fees for the services provided by the professional team from the general fund if the bond issue does not pass. No fees will be charged.
Q. What will the economic impact be to the region if the bond proposal passes?
A. School bond projects provide significant economic opportunities in the East Lansing and Lansing region for local trades including, but not limited to, electrical, carpentry, plumbing, mechanical, masonry, flooring, site work, and landscaping. In fact, the Michigan Chapter of the Associated General Contractors of America indicates that for every $1.00 spent on non-residential construction such as municipal, school and business construction, $2.00 is added to the local economy. Also, the construction project will also benefit local businesses that will be frequented by construction workers during the 3-year phase of construction such as restaurants, gas stations, motels, supply stores, and lumber yards.
According to real estate agents in the East Lansing area, improvements to the elementary schools will improve the real estate market, the value of our homes and neighborhoods, and attract to East Lansing young families and global professionals relocating from other nations to work in the Lansing region or teach at our higher education institutions.