One year later, proposed school’s impact on local taxes continues to rise

By: Michael Campbell | Twitter: @itsthesoup
Posted: February 8, 2019 | 12:30 p.m.

PRINCE GEORGE – In 2017, the Prince George County Board of Supervisors heard a pitch from the local school division to replace two of the county’s aging instructional facilities due to age and other concerns, resulting in 2018 being full of reports and analysis of the project’s fiscal impacts as leaders reviewed the scope and possible locations for one of the facilities.

While the project remains in the foreground of members of the county school board, who have publicly stated the need to replace Walton Elementary School with a modern, non-open-air facility within an area that keeps reduces the need to go through redistricting exercises, since the latter stages of 2018, little motion from either board has occurred after the Prince George School Board voted down a proposal from supervisors to build a school along Middle Road and no action was taken after the school board presented an idea to build a school behind the existing Walton Elementary School, an idea supported by a number of teachers and parents who spoke during a public comment period in November. 

Despite the pause in discussions, supervisors continue to be briefed on the possible impacts of the new elementary school on the county’s bottom line, particularly the capital improvement plan and the real estate tax rate. The latest breakdown was delivered to supervisors right at the end of 2018 and showed, as the proposal continue to be mulled over, the cost and fiscal impacts continue to rise.

According to county documents, as of December of 2018, Prince George’s multi-year CIP, which charts capital needs through fiscal years 2020 to 2029, has identified nearly $97 million in projects, which would be funded through debt issuances over the short and long term, with projects ranging from new high school generators, along with water and sewer projects, among others. 

While FY2020 doesn’t start until July 1, the idea of paying for the new school through the issuance of debt during the current fiscal year is one that been looked but, according to Deputy County Administrator Betsy Drewry, it brings its own challenges.

“The [financial] impact is significant,” Drewry explained in her presentation, most notably on the county’s real estate tax rate and the county’s capacity for future projects without having to leverage an additional tax increase to pay for them.

With a location not finalized, as it appears the current Walton Elementary School and a site along Middle Road near Interstate 295 seems to be the current frontrunners for the new facility, wherever it goes, there will be an impact on price due to various utility needs at the sites for water and sewer services.

Working with Davenport, the county’s financial advisors, Drewry presented various runs of the county’s CIP to show the short- and long-term impacts of financing the new school at $32.1 million and $34.3 million, which are some of the recent figures that have been revealed regarding the school’s cost while taking into considering possible utility costs as detailed in the county’s presentation.

If the county were to build the school at a cost of $32.1 million, while also funding the projects in the FY2019 CIP, which at the time of the December 2018 presentation totaled just over $7.8 million, Prince George would be looking at a debt issuance of just over $39.9 million during the upcoming spring borrowing. 

With that base figure, Davenport presented the county with two scenarios based on the natural impact of debt on the county’s real estate tax rate and a second one based around the wishes of board members who stated during the course of 2018 that they would not support a real estate tax increase any higher than five cents to finance the cost of the school.

According to Davenport’s runs, should the county fund the school through this year’s debt issuance, that $39.9 million borrowing would necessitate a four-cent real estate tax increase in the coming fiscal year and in the following fiscal year of 2021, which would raise the rate to 94 cents per $100 of assessed value for the county’s real estate tax rate. 

If the tax increase were capped at five cents, the county would then need to find just over $605,000 in funding to cover the shortfall. 

Looking at the scenario where the same CIP projects in FY2019 are funded but the cost of the school is increased to $34.3 million, the county would then need to borrow $42 million during the spring debt issuance. In terms of natural impact, the results are similar to the $39.9 million borrow presented in Davenport’s presentation, with a pair of four-cent tax increases needed in FY2020 and FY2021 to cover the costs. 

Capping the increase at five cents would require the county to come up with nearly $830,000.

Finally, when looking at the life of the CIP, from FY2020 to FY2029 with over $144 million in costs, which include the new school, the natural tax rate impacts would be significant. According to Davenport’s projections, a combined nine-cent real estate tax increase would be needed during FY2020 and FY2021, along with a combined 12-cent increase distributed between FY2028 and FY2029, which would raise the county’s real estate tax to  $1.08 per $100 of assessed value in FY2029, a 22-cent increase over the current rate.

In any scenario, one element plays into all of these financial runs – the need for the real estate tax increase proceeds to be solely dedicated to school capital projects, which requires a change to the county’s memorandum of understanding with the schools.

That memorandum dictates what percentage of certain county revenue streams, including real property, the school division will receive as part of its annual funding from the county. Currently, for every one dollar in tax proceeds, the school division is entitled to just over 40 percent of that revenue. It was revealed during discussions in 2018 that, if the MOU is not modified, any tax increases would have to be doubled in order to truly get the financing needed to make this kind of project happen. 

While a draft version of the MOU was created in 2018 and approved to be sent to the school board for their consideration, which featured language allowing for tax increase proceeds that are for school capital and public safety capital projects to be exempt from the tenets of the MOU, no formal action has been taken by either board in regards to modifying the MOU.

Since the December presentation, Drewry delivered an update to supervisors in January regarding the possible acceleration of a move of the Jefferson Park Fire Station and funding it in the FY2019 borrowing. 

At that time, she did note some projects weren’t going to be funded in this year’s borrowing, like a police boat after the county failed to earn grant funding and self-contained breathing apparatus units, but a placeholder of $3.5 million had been added to look at construction and relocation of the station. In total, the updated borrowing for this spring is estimated at $43.5 million, which includes $34.2 million for the elementary school.

According to Drewry, Davenport was expected to provide an updated analysis at the end of the month to look at both the CIP with and without the elementary school to provide a picture of the fiscal impacts.

Copyright 2019 by Womack Publishing
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