Otsego goes with lease-purchase for new elementary
Written by By MARIE THOMAS/Sentinel Education Editor
Monday, 27 July 2009 20:04
TONTOGANY - The Otsego Board of Education has decided to use a lease-purchase option to finance a new elementary school.
By doing so, the board will bypass residents by not placing the option to a public vote, and will not need to put on the November ballot a bond issue to fund the project.
A Weston resident called it "circumventing voters," but board members - as well as several members of the audience - defended the action, stating it would allow the board and communities to now focus on getting additional operating funds for the district.
The vote came after a sometimes contentious, often supportive discussion on the financial health of the district and the presumed cost savings by going to a centralized campus.
"We are doing what it takes to make sure it's not some risky sham," stated board President James Harter about the funding option. Over the years the board has been prudent of its use of taxpayer dollars, and the lease-purchase is not some "flim-flam" option, he stated. "Everything that we've checked ... it is pretty much a risk-free operation."
"Your situation is not at all unique," said Kent Cashell, with RBC Capital Markets, who attended the meeting to explain further the board's options on financing the new school.
As an underwriter specializing in school projects, Cashell's job will be to make sure the district finds the lowest possible interest rate for the up-to $3.9 million needed for the project.
Two options available to districts are Qualified School Construction Bonds (QSCB) at zero-percent interest, and loans through the Ohio Association of School Business Officials (OASBO).
The district has applied for a QSCB, and the Ohio School Facilities Commission board is expected to meet next week to review applications. Otsego also has applied for credit approval through OASBO's Expanded Asset Pool.
The board could use a combination of construction bonds and OASBO loans to fund the project.
Lloyd Jones, of Weston, told the board he called around to other districts in the state that have used what he called the "rent-to-own" option of funding schools, and found most had a very good tax base and that "non-wealthy schools don't take on terribly expensive projects."
Cashell said "in the scheme of things," the $3.9 million Otsego needs to borrow is a small amount.
Weston resident Jim Repolesk wondered whether the district would use proceeds from its permanent improvement tax to make payments on the loan. Board member Lisa Hatfield explained that PI funds cannot be used for that purpose, and are earmarked for improvements to buildings and grounds.
Bill Wynn, of rural Haskins, wanted to make sure that, as a taxpayer, the lease-purchase option would not cost him anything and payments would be made through savings.
Superintendent Jim Garber said he believed "whole-heartedly" that payments on the loan could be made through savings from operating one elementary instead of three. Those savings won't come in the area of utilities, but through streamlining personnel, he added later.
So, Wynn continued, the bigger problem facing the district is operating dollars, not whether there needs to be one elementary or three.
No matter what decision is made about a new elementary, the district will need new operating dollars in the next year, Garber concurred.
However, there is some urgency to deciding on funding methods for a new elementary building.
Garber has expressed numerous times his fear that OSFC funds will be raided to balance the state's budget, as the legislature did of the state's rainy-day fund. The commission owes Otsego $14 million for work already completed on the district's master plan, and it is unclear how long that money will be available. OSFC will release those millions once the district has in place its funding for the new elementary.
After the state pays its 55-percent share of the entire master plan, and releases Otsego's credit, "We're going to build a $26 million building for less than $4 million," said board member Kurt Dickey.
Supporters, including Tontogany resident Dan Sheperd and Grand Rapids businessman Craig Valentine, called the decision to use the lease-purchase option a "no-brainer."
"The bottom line is, right now we're in old inefficient buildings and that $14 million is our money," stated Sheperd. "If we don't take advantage of it now, it's gone."
Hatfield made the motion to go with the lease-purchase, asking "why let this be a headache any more?" The vote was unanimous in favor.
Others weren't as confident.
Debbie Allen, of Weston, voiced concern over the district's financial status, and wondered how Otsego could build an elementary when it can't pay for what it already has.
"We can't continue to operate on a budget from 10 years ago," replied board member Daren Garmenn, adding it doesn't matter if it's an old or new building.
The district has been unsuccessful in three attempts for new operating millage, and had made $1.5 million in cuts in the past year.
Last Updated on Tuesday, 28 July 2009 09:49