LPOSD explores plant levy options

SANDPOINT — LPOSD was counting chickens at Tuesday's school board meeting as investment advisors explained how the school district could multiply its as yet unrealized plant levy nest egg.

The levy, which the district tentatively plans to put on the Aug. 30, 2016 ballot, would fund the repair and renovation of several Lake Pend Oreille District schools as laid out in the its long-range facility improvement program. Projects will include a complete rebuild of Sandpoint Middle School as well as updates and repairs at other schools.

According to the Master Facility Plan, voters would be asked to add $2 in taxes for each $1,000 of their property values to fund the essential construction work. Currently, taxpayers pay $3 per $1,000 for a supplemental operations levy that passed in April 2015, according to LPOSD.

The supplemental levy has up to a two-year lifespan. A plant levy, in contrast, can be in effect for up to 10 years, according to chapter eight of the Idaho's Title 33 education statute. If property values rise from one year to the next, the school district would collect more money accordingly. If property values fall, the district would still be able to collect an annual minimum amount based on values in the year the levy passed. The district plan calls for a term of six years.

District Financial Officer Lisa Hals invited Eric Heringer from Piper Jaffray, Boise, and Danielle Quade of Hawley Troxell, a law firm, to speak to the board about an investment alternative that would generate funding up front rather than as levy revenues come in.

Heringer told those assembled Tuesday evening that non-profit organizations such as school districts could enter into investment agreements within specific legal guidelines without seeking voter approval. However, he said that just one school district in Idaho, Blaine County School District, has taken advantage of this investment plan thus far.

He calculated a total financing package of more than $48 million, which includes the facilities budget plus a $405,000 issuance cost. The district would pay a maximum annual interest rate of 2.57 percent on the funding. Heringer projected that by financing its facilities improvements and earning interest on the loan funding, LPOSD could save about $1.3 million overall.

Quade explained the basics of how the annually renewable lease financing plan would work. Investment advisors, such as Heringer, would draft a Certificate of Participation, and individuals would purchase shares of lease revenues. Shareholder investment capital would provide up-front funds to the district, said Quade.

The school district would ground lease the land upon which the schools are built to an intermediary/bank that would oversee and pay for the project. This intermediary would lease the properties back to the district for the duration of the project, said Quade.

The benefits this type of plan would impart to LPOSD include better cash flow, lower interest rates, lower payments due to tax-exempt status and the ability to meet project costs without delays, according to the Association for Governmental Leasing and Finance. Meanwhile, LPOSD would have a lump sum from the levy in advance to use for other projects and expenses, said Quade.

The district would pay back the capital through annual lease payments of approximately $10 million per year, according to Heringer. These payments would come from annual plant levy tax revenues, but instead of going to LPOSD, they would go directly to a trustee who would transfer them to the COP group.

The term of the lease would coincide with the duration of the levy funding. Given that it made all its payments on time, when the lease expires — or when the debt is paid back — the district would reclaim its property for a nominal amount, such as $10, Heringer said.

The district could opt out of the lease in any year of its term. It would not get its property back until the funds were paid in full, however. 

“You would be required to move out of the buildings by the end of the year,” he said.

Heringer described a few of the other risks as well.

“If market values don't grow, you'll run out of money, and you'll have to find a way to make that last year's lease payment because if you don't, you'll lose the facility,” he said. Also, the district would have “no ability to pledge the plant levy revenue to any other obligation or projects while the lease is outstanding.”

Heringer added that the investment plan would have very specific dollars set aside for construction costs, and would not cover the cost of any overruns or changes. Finally, because plant levy revenues would be irrevocably deposited with the trustee for paying the lease, the school district would not have any discretionary use of that money, he said.

At the conclusion of the presentation, board members agreed that they needed time to digest the information Heringer and Quade provided.

“We're not making a decision until after the levy passes,” said chairman Steve Youngdahl.