Utilizing the Long Term Facilities Maintenance (LTFM) Revenue Program

Utilizing the Long Term Facilities

Maintenance (LTFM) Revenue Program

MASBO Institute

LTFM Basics

• Approved by 2015 Legislature

• Effective beginning FY 2017

• Flexible tool for financing certain types of facility

maintenance and improvement projects

LTFM Basics

• Significant funding to protect community’s investment

in facilities

– Reduces disparities in opportunities to fund costs of facilities maintenance projects

• Prior to fiscal year 2017, 25 large school districts qualified for full alternative facilities funding program - all other districts qualified for limited program and deferred maintenance revenue

• For most smaller districts, LTFM provides significantly more revenue than previous programs

LTFM Basics

• Initial Revenue

– Formula based on: • Per pupil allowance:

• $193 per pupil unit for Fiscal Year 2016-17 • $292 per pupil unit for Fiscal Year 2017-18 • $380 per pupil unit for all subsequent years

LTFM Basics

• Additional Revenue – Available for 3 purposes

– Health and safety projects > $100,000 per site for indoor air quality, fire alarm/suppression, asbestos abatement – Additional costs based on “grandfather” provision

described on next slide

– Remodeling for voluntary pre-K program (eligible districts only)

• For some districts, 2 categories of additional

revenue

– “Equalized Remainder” – for districts with average building age < 35 years

LTFM Basics

• Grandfather provision

– Guarantees districts greater of revenue under old laws or new LTFM revenue; this can be especially important for:

• Districts with large health and safety projects

• 25 districts in former full alt. facilities program (no limit on revenue)

• Member districts of intermediates and other

cooperative units may add a proportionate share of

LTFM costs to their levy (over and above the

LTFM Basics

• Most revenue provided through combination of state

aid and property tax levy

– Aid/Levy mix is determined using a modified tax base (ANTC)

• Excludes 50% of agricultural land value

• Districts with significant ag value appear to be more “property poor”; allows the district to qualify for additional aid

• Equalizing factor is 123% of State Average ANTC per

pupil

– $9,493.66 for taxes payable 2018/FY 2019

LTFM Basics

For some districts, 3 separate categories of revenue

• [#1] Initial revenue

– Per pupil allowance & building age – Qualifies for equalization aid

• Additional revenue

– [#2] “Equalized remainder” (Ehlers-coined term) – If the district’s building age is less than 35 years, the district can receive

additional equalized revenue, up to the full per-pupil amount

LTFM Basics

Sample School District - Categories of LTFM Revenue - 2017-18

Initial Revenue

1. Estimated Adjusted Pupil Units 4,407.60 2. Maximum Initial Revenue/PU $ 292.00 3. Average Building Age 25.00 4. Initial Revenue/PU $ 208.57 5. Initial Revenue [#1 x #4] $ 919,299.43 6. Aid % of Revenue 39.00% 7. Maximum Aid [#5 x #6] $ 358,526.78 Additonal Revenue 8. Equalized Remainder [#1 x (#2 - #4)] $ 367,719.77 9. Maximum Aid [#6 x #8] $ 143,410.71

10. Unequalized Revenue No Limit

LTFM Planning - Financing Methods

• “Pay as you go”

– Directly from annual general fund revenue

– Smaller projects, or projects with a shorter useful life

• Issue bonds

– Use annual revenue to make payments on the bonds – Larger projects, or projects with a longer useful life

• LTFM fund balance (after program has been in place

for a while, similar to Operating Capital)

LTFM Planning/Process

• Complete process annually and review periodically

during year

• Prepare 10 year plan (MDE template) and submit to

MDE annually

– Prioritize needs and timing – Estimate projects costs

– Plan does NOT have to allocate entire amount of revenue to project costs each fiscal year

LTFM Planning/Process

• Determine which projects qualify for LTFM funding –

if not sure, ask MDE

• Determine financing method

– Pay as you go – Bonds

LTFM Planning/Process

Other requirements if bonds are issued

• Resolution of intent

– Resolution of intent to issue bonds could be adopted along with adoption of 10 year plan or as part of bond sale process

• Notice of intent

– District must publish a notice in their official newspaper that lists projects funded by bond issue, amount of bond issue, and total district debt

LTFM Planning/Process

Other requirements if bonds are issued

• Letter of approval from commissioner

– Submit info to MDE Finance staff – including Notice of Intent, updated 10 year revenue and expenditure worksheets,

preliminary payment schedule

LTFM Planning – Ehlers Approach

• Develop a long-term plan for debt and tax levies

– Include payments and levies for existing bonds

– Include other facilities-related levies (e.g., lease levy, capital projects levies)

– Include LTFM aid, levy, and revenue

– Use the plan to model options for funding LTFM projects – different combinations of bonds and general fund revenue

– In many cases, goal may be to fund all needed projects, while keeping overall tax rates level and as low as possible

Creative Uses – District Examples

• 4 examples of districts that made creative uses of

the LTFM program:

– Hinckley–Finlayson – Willow River

Hinckley-Finlayson School District

• Managing the limited uses and various restrictions of

LTFM

• Initial Revenue

– Boiler “like-for-like” replacement

• Additional Revenue

– HVAC project included air quality > $100,000

Hinckley-Finlayson School District

Hinckley-Finlayson School District No. 2165 Sources and Uses of Funds for Bond Issue

Health & Safety Portion Deferred Maintenance Portion Total Bond Amount $1,210,000 $640,000 $1,815,000 Dated Number of Years Sources of Funds Par Amount $1,210,000 $640,000 $1,815,000 Estimated Premium 73,616 8,672 82,288 Total Sources $1,283,616 $648,672 $1,897,288 Uses of Funds

Allowance for Discount Bidding $8,228 $4,114 $12,342

Legal and Fiscal Costs # 26,192 13,096 39,288

Net Available for Project Costs 1,249,196 631,462 1,845,658

Total Uses $1,283,616 $648,672 $1,897,288

January 18, 2017

Hinckley-Finlayson School District

• If entire project financed with initial revenue:

– Would have used 40% of initial revenue – Left 60% for pay-as-you-go projects

• Utilized additional revenue for air quality portion

exceeding $100,000

– Additional tax impact

– Used only 12% of initial revenue

Willow River School District

• Maximizing a refunding opportunity by combining it

with Facilities Maintenance Bonds

• District considered refunding of a small bond issue

for some time – savings were relatively small

• In spring 2016, began discussing potential issuance

of FM bonds for two purposes:

– $1.3 million deferred maintenance

– $5.2 million health and safety projects

• Settled on a single bond issue with 3 purposes

– Current refunding

Willow River School District

Willow River School District No. 577

Sources and Uses for Bond Issue

General Obligation Refunding and Facilities Maintenance Bonds

Current FM Bonds/ FM Bonds/ Combined

Refunding Per Pupil Additional Totals

Bond Amount $645,000 $1,250,000 $5,135,000 $7,030,000 Number of Years 3.5 15 20 Dated 9/13/2017 9/13/2017 9/13/2017 9/13/2017 Sources of Funds Par Amount $645,000 $1,250,000 $5,135,000 $7,030,000 Estimated Premium $22,061 $84,288 $232,646 $338,994 Investment Earnings * 0 Total Sources $667,061 $1,334,288 $5,367,646 $7,368,994 Uses of Funds

Allowance for Discount Bidding ** $6,450 $12,500 $51,350 $70,300

Capitalized Interest + 0 0 59,189 59,189

Legal and Fiscal Costs # 4,674 9,059 37,212 50,945

Rounding 1,547 -3,212 2,107 443

Net Available for Project Costs 654,389 1,315,942 5,217,788 7,188,118

Willow River School District

Levy Principal Interest

Willow River School District

Willow River School District, No. 577

Estimated Tax Rates for Capital and Debt Service Levies Existing Commitments and Proposed New Debt

Date Prepared: August 16, 2016

21 Years $5,145,000 Facilities Maintenance Bond 0 2 4 6 8 10 12 14 16 18 20 E s ti m a te d T a x R a te

Year Taxes are Payable

Willow River School District

• Sold combined bond issue on August 16, 2016

• Combining 3 purposes into 1 issue reduced

issuance costs compared to separate sales

• Increased savings from refunding

• Payments on deferred maintenance portion will use

~59% of Initial Revenue for 5 years, leaving $65,000

per year for other projects

• Payments on health and safety portion will be

Little Falls School District

• Using LTFM to reduce size of bond referendum

amount and improve chances of approval

• District voted on a bond question on May 19, 2015

(pre-LTFM) - $36,650,000 in a single question

– Deferred maintenance, repairs, and renovations – Security, safety, and accessibility

– Site work for irrigation and paving improvements

– New community center/fieldhouse adjacent to high school – ECFE addition to Lincoln Elementary School

Little Falls School District

• Feedback from voters after 2015 election

– Question and tax impact were too large

– Support for community center/fieldhouse less than for other projects

Little Falls School District

• Scheduled second bond referendum for May 10,

2016

– Planned to finance some deferred maintenance (including the more controversial items) with Facilities Maintenance Bonds (payments funded with initial LTFM revenue)

– Question 1 - $19,670,000 for similar projects to 2015 vote, except community center/fieldhouse and some

maintenance

– Question 2 - $12,645,000 for a “gymnasium/recreation addition to the high school”

– Est. annual tax impact for $150,000 home - $105 for question 1, $67 for question 2

Little Falls School District

• Results – sold two bond issues on July 6, 2016

– $19,670,000 School Building Bonds

– $5,300,000 Facilities Maintenance Bonds

– Selling two issues at one time reduced issuance costs on both issues

Little Falls School District

Little Falls School District, No. 482

Proposed Facilities Maintenance Bond Schedule

Principal Amount: $5,300,000 Dated Date: 8/3/2016 Number of Years: 15 Avg. Interest Rate: 1.91%

Year Taxes Payable Fiscal Year LTFM Revenue LTFM Aid LTFM

Levy Principal Interest

Lakeville School District

• Maximizing equalization aid by changing funding

strategy for deferred maintenance projects

• Before LTFM

– District qualified for “full” alternative facilities program – Did not qualify for aid for bonds or annual levy

– Relatively low expenditures, due to newer buildings and concerns about taxes -$2.5M/year for deferred

maintenance and $400-$500K for health and safety – Due to concerns about high tax rates, all capital costs

Lakeville School District

• Impact of change to LTFM

– Building age < 35 years, so initial revenue per pupil limited to $152 for FY17 and $238 for FY18

– Qualify for aid to fund ~30% of revenue, up to the full equalized remainder

• Deferred maintenance needs increasing due to

Lakeville School District

• Solutions – Working with Ehlers, developed a plan

to:

– Gradually increase expenditures for deferred maintenance and Health and Safety from approximately $3 million a

year to $6.4 million annually

– Shift funding to annual general fund revenue, less to bonds

– Take advantage of maximum available aid, including “equalized remainder” – aid will grow from $700,000 in FY17 to $1.3M in FY19

Lakeville School District

Estimated Tax Rates for Capital and Debt Service Levies Existing Commitments and Proposed New Debt

Date Prepared: 218631.21 0.00 218631.22 0.00 218631.22 0.00 218631.22 0.00 218631.21 0.00 218631.21 0.00 218631.21 0.00 218631.22 0.00 218631.23 0.00 218631.21 0.00 218631.2 0.00 218631.21 0.00 122713.46 0.00 61356.73 0.00 0.00 0.00 0.00 0.00 0.00 March 16, 2016

$18,080,000 Facilities Maintenance Bonds Updated 10 Year Facilities Plan

3 Additional Bond Issues

5 10 15 20 25 30 35 Es ti m a te d Ta x R a te

Proposed New Debt Lease Levy

Additional Considerations

• Impact of New Construction on Building Age

• Property Tax Credits

– Ag Credit (40% of debt levies) reduces total school levy with same revenue (levy)

– Levies for bond payments qualify for credit

Impact of New Construction

Revenue amount is based on average building age for

the year the revenue is received, so new construction

(or closure of old space) can affect a district’s revenue

• Final levies are certified by December 31 for following fiscal year, based on building age calculated by MDE (facilities as of January 1)

• New space opening in following fall would impact revenue for that fiscal year

Impact of New Construction - Example

• MACCRAY Bond Referendum – voting on February 7,

2017

• Elementary addition to high school

• Demolition of two elementary schools

Current After Project Total Adjusted Pupil Units 702.60 702.60 District average building age (uncapped) 52.51 20.66 Formula allowance $ 380.00 $ 380.00 Building age factor 1.00 0.59 Estimated Initial revenue $ 266,988.00 $ 157,599.20

651-697-8522

[email protected]

Greg Crowe