Supervisors digest fresh data on tax impacts of new school

By: Michael Campbell | Twitter: @itsthesoup
Posted: November 8, 2018 | 12:30 p.m. 

County would need to find more funding to cap tax increase at five cents for new school

PRINCE GEORGE – As the midpoint of the 2019 fiscal year approaches, so too does the need to analyze the financial implications of major projects being looked at in the county, among them, the proposal to build a new elementary school to replace an aging facility.

Last week, members of the Prince George Board of Supervisors received updated information about how that new elementary school would impact the county’s real estate tax rate, along with the county’s fiscal policies, which are specific financial metrics that are evaluated and used to assign the county its bond rating. 

According to Deputy County Administrator Betsy Drewry, Davenport, the county’s financial advisors walked through the 20-plus page analysis, which looked at the what affect the elementary school would have on the real estate tax rate and what would happen if you limited that impact, which would be a tax increase, to only five cents on the county’s rate.

In Davenport’s report, the company provided four scenarios, starting at $29.1 million and increasing from there in $1 million increments before reaching $32.1 million. 

Both of those numbers have significance within the ongoing discussions about the construction of a new elementary school in Prince George County. 

$29 million was the original proposed cost of the school when Drewry presented Davenport’s financial analysis in the winter of this year. At that time, a five-cent real estate tax increase was proposed to help generate the needed capital to help finance the cost of the new school but was eventually scrapped by supervisors after it was determined that significant spending on the project wouldn’t occur in the now-current fiscal year.

The proceeds of that tax increase, roughly $1.2 million, would’ve been solely dedicated to covering the costs of the school, which would require an amendment to the county’s memorandum of understanding with the school division, which is a document that prescribes what percentage of certain revenue streams, including real estate and personal property taxes, the school division will receive in a given year as part of its local funding for the county. Currently, the school division receives roughly 43 cents of each dollar of tax revenue from those and other sources. 

In August, it was proposed that tax increases for both school capital projects and public safety-related projects should be exempt from the terms of the memorandum of understanding. In regards to the schools, it has been stated on several occasions that, without an alteration to the agreement, any increase in taxes would have to be doubled in order to generate the needed capital for the project.

On the higher end of Davenport’s latest review, $32.1 million represents the current estimated cost of the new school’s construction. That figure, which represents the school being built at the current home of Walton Elementary School, came from the school division’s retained architectural firm Moseley and was presented by the school board to supervisors in October, just one day after the school board narrowly voted to reject the county’s recommendation to build the school on county-owned land along Middle Road. 

According to Drewry and Davenport, at a cost of $29.1 million, the county would have to implement a pair of roughly three-and-a-half cent tax increases in the 2020 and 2021 fiscal years, which would result in a total tax increase of just over 7.3 cents. 

On the higher end of the report, looking at the $32.1 million figure, the most current estimate of the school’s cost, to generate the capital needed, a tax increase of approximately four cents would be needed in both the 2020 and 2021 fiscal years, resulting in a total real estate tax increase of eight cents.

During last week’s work session at the Central Wellness Center, supervisors reiterated their commitment to capping any real estate tax increases needed for the new school to five cents and, with that commitment came additional data from Davenport showing how that cap would affect the county’s financing plans for the schools. 

With the five-cent tax increase cap, the county could delay principal repayment for a short time, known as debt structuring or find additional funding sources, such as dipping into their fund balance to help generate dollars to fill the gap. 

Looking back at the low-end analysis of $29.1 million, should the county cap the tax increase to five cents, the county would need an additional $294,712 to help pay for other county projects along with the school. The higher-end figure, $32.1 million, requires nearly twice that, with the county needing to find $605,202 in additional funding sources to cover those other projects in the county’s capital improvement plan while the pay for the school’s construction. 

Finally, Davenport’s data gave insight into what the county’s borrowing situation would look like going forward should the project go ahead. While either approaching or just over or under the county’s fiscal policy thresholds, such as the ten-year payout of 55 percent of the county’s debt load, and debt service to expenditures, the more telling point for supervisors was when they looked at cumulative debt capacity for future years. 

Should the school be financed at $29.1 million or 32.1 million through a five-cent tax increase, Drewry noted that the county likely wouldn’t be in a financial position to build a new second elementary school, which was requested by the school board in 2017 during their initial presentation and mentioned in discussions recently, until at least the 2027 fiscal year, nine years after the August 2017 presentation by the school division’s core committee.

After receiving the figures during their retreat, supervisors remain steadfast in their stance to limit any tax increase for this project to five cents. 

“We verbally said we wanted to build a new elementary school and when we looked at the nickel, the school was estimated at $29.1 million,” Supervisor Floyd Brown, Jr. said. “I am not in favor of going above the nickel, but that means we have to come up with $600,000 in alternative funding,” he remarked, referring to the Davenport analysis.

Drewry did note no tax increase would be needed to cover the county’s currently listed capital projects, which includes police vehicles, projects at Scott Park, and fire and crew building security systems, should the county decide not to move forward with funding the school this coming fiscal year.

COMPLETE COVERAGE: New Elementary Schools in Prince George County

2018 Coverage

2017 Coverage

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