By MIKE ANTHONY
Executive Editor
The total cost of the Mehlville School District’s Proposi-tion P districtwide building improvement program could increase to nearly $89 million under a budget revision re-ently recommended to the Board of Education by the district administration.
Board members took no action last week on the recommended revision, which would increase the cost of Propo-sition P to $88,927,440.
The proposed revision totals $2,202,440 more than a re-vised budget of $86,725,000 adopted by the Board of Edu-cation in September 2003 and $16,527,440 more than the original Proposition P budget of $72.4 million adopted by the school board in 2001. District voters in November 2000 approved Proposition P, a nearly $68.4 million bond issue funded by a 49-cent tax-rate increase.
If approved by the school board, the $88,927,440 Propo-sition P budget would represent a roughly 30 percent in-crease over the $68.4 million building improvement program envisioned in 2000.
Of the 49-cent-voter-approved tax-rate increase, 41.6 cents is being used to retire bond-like certificates of participation, while 7.4 cents is going into the district’s capital fund and being used for Proposition P-related projects.
Current projections indicate the 7.4 cents will generate roughly $31 million more through 2022 than is needed to retire the certificates.
To date, the district has spent $66,333,162 of the Prop-osition P construction budget and $12,543,358 of the district capital fund revenue for a total of $78,876,520.
Remaining Proposition P projects include the construction of an early childhood center and renovations at Forder, Hagemann and Rogers elementary schools. The board recently awarded a nearly $2.5 million contract to construct the early childhood center and last week approved plans and agreed to seek bids for the renovation work at the three elementary schools.
In his Oct. 14 presentation to the board recommending the budget revision of more than $2.2 million, Assistant Superintendent for Finance Randy Charles also noted that cash-flow issues will have to be addressed regarding Prop-osition P. One possible solution, he said, would be to issue additional bond-like certificates.
Revenue available to the district through June 30, 2009, for Proposition P totals $89,803,331 — $875,891 more than the recommended budget revision of $88,927,440, Charles said.
To fund Proposition P, certificates of participation totaling $83,730,000 have been issued in two separate sales — one for $36.9 million and a second for $46.83 million. Revenue available to the district from the certificate sales, including interest, totals $71,712,149, according to information Charles presented to the board.
District capital funds available through June 30, 2009, total $18,091,182. Through Oct. 8, however, the district had spent $12,543,358 of district capital funds. Charles estimated that from July 1, 2009, through June 30, 2022, an additional $13,056,526 will be generated in district capital funds. However, that revenue will not solve the current cash-flow problem, he said.
“The cash-flow issues boil down to this: Through June 30th of ’09, we project our expenditures to be about $88.9 million,” Charles said. “The revenue generated through that same period of time will be about $89.8 million. There’s enough money to pay for the projects.”
Though an additional $13 million in district capital funds will be generated from June 2009 through June 2022, Charles said, “… That $13 million does not help us address the cash-flow issues that we would experience through 2009. Some of the reasons we have the cash-flow issues … is that we moved many of our large projects to the very beginning — Mehlville High School, Oakville High School, Bernard Middle School. Those three projects are well over $20 million and by moving those projects early on, it probably cost us potentially, $700,000 to $800,000 in interest alone, not to mention that if we were still looking at those projects out ahead of us right now, we would have more money obviously in the account right now to address those. We still have issues, but they wouldn’t be as significant as they are right now.”
As a result, the assistant superintendent said, “So more than anything, what we’re looking at … is a timing of expenditures vs. revenue. This would not be an issue for a lot of school districts. School districts that carry larger balances than we do, for example, the county average is well over 20 percent. If we had a 20 percent balance, that means we would carry in the neighborhood of $18 million from one year to the next and many school districts that would experience this type of thing could float temporary cash-flow issues. We can’t do that. Our balances are closer to the neighborhood of the 5 percent range. So we don’t have the kind of balances that other school districts in area and of our size have and, again, that just contributes to the cash-flow issue.
“So how do we address that? Well, first of all, we want to seek input from legal counsel. There are a variety of options I think out there to us, but obviously we’re restricted by the ballot language. We’re restricted by what the voters approved and because of that, we need to seek input from our legal counsel, from our bonding attorneys and so on to make sure that we follow the letter of the law and only do what is legal under the ballot (language) that was approved by the voters. We also need to seek input from financial experts. We may be aware of one, two, three, four different options, but obviously the area of finance is a very complicated arena and we need to seek input from people who really know that arena well.
“We also need to seek input from the Mehlville Facilities Authority. Remember the arrangement for this financing is that there’s a facilities authority that technically issued the certificates of participation and the Mehlville School District then leases those properties from the Mehlville Facilities Authority. After working with this group of people, we need to develop a list of options and then from that list of options, select a recommendation. We believe once we have a recommendation that it’s proper to share that recommendation with the Oversight Committee…,” Charles said, noting the final recommendation then would be submitted to the Board of Education.
Charles suggested board members “take this Prop P budget revision under advisement. Allow us to develop a recommendation of how we will address, should address the cash-flow issues and then hopefully act upon the Prop P budget revision and the cash-flow strategies …”
During a discussion, board member Rita Diekemper said, “… I want to seek the input of the Oversight Commit-tee as to — I guess I’m not prepared to move that $200,000 out of the technology contingency and I know that’s a contingency item and it’s not necessarily identified to an individual project. I almost consider that as part of the question of what to do with the remaining funds and we’ve sort of been going with the process of waiting until everything is completed until we would do something like that.”
Charles said he could develop two proposals — one for the $88,927,440 budget revision he presented and a second that would not reduce the technology budget contingency. That would increase the amount of the budget revision by roughly $227,000 to about $89.15 million.
Diekemper said, “Well, when the projects are completed, then we could do a final budget adjustment …”
Regarding the cash-flow issue, Charles said administrators plan to “seek the opinion of a variety of financial experts, and even some we may not necessarily deal with on a regular basis so that we can truly get … a variety of perspectives and objective opinions on ideas that we might employ.”
In response to a question from Diekemper, Charles said, “I’ll be honest with you, one option that might be considered would be the possibility of issuing additional COPs. There’s nothing to limit us from doing that and that’s one option that might be considered. But with the market being what it is and interest rates look like they’re slowly starting to edge up, if that type of option or some hybrid of that option is deemed the best choice, then obviously we want to take advantage of market conditions if and when they’re right.”
Board members took no formal action on the recommended Proposition P budget revision, but took the matter under advisement and directed the administration to pursue input regarding the cash-flow problem.
As previously reported by the Call, a Sept. 30 meeting of the Mehlville R-9 School District Public Facilities Authority at which the refunding of bond-like certificates was scheduled to be considered was canceled earlier that day.
Patrick Wallace, Mehlville School Dis-trict school/community relations director, said Sept. 30 that the meeting was canceled because of a downturn in the market.
The Mehlville R-9 School District Public Facilities Authority was incorporated in early 2001 as a non-profit corporation to issue certificates of participation to fund the Mehlville School District’s Proposition P districtwide building improvement program. Until the certificates are retired, the building improvements performed as part of Proposition P are owned by the non-profit corporation and leased back to the school district in return for an annual appropriation totaling the amount of the certificate payments. When the certificates are retired in 2021-2022, the building improvements re-vert back to the school district.
The only item to be considered Sept. 30 by the Public Facilities Authority, according to the tentative agenda that accompanied the meeting notice, was: “Approve resolution to refund COPs.”
A total of $83,730,000 worth of COPs was issued by the non-profit corporation in two separate sales — one for $36.9 million and a second for $46.83 million. The first certificate sale in March 2001 also included the advance refunding of $6 million worth of leasehold revenue bonds that the district had issued under a lease-purchase agreement with ABN AMRO Inc. three years earlier as part of a long-term energy savings project.
Because the leasehold revenue bonds for the energy savings were not “callable” until 2008, an escrow fund of more than $6 million was established with the certificate proceeds to make the principal and interest payments on those bonds, resulting in a savings of $126,000. When those bonds can be retired in 2008, the escrow money will make the final payment.
