Mountain Valley School District RE-1 has been awarded a $27 million Building Excellent Schools Today (BEST) Grant. In order to receive these funds for the construction of a new PreK-12 school, voters of the Mountain Valley School District must approve a $3.7 million matching bond. Most registered voters have received ballots, and there have been a lot of questions regarding the complex language of ballot issue 3B. I want to take a few minutes to explain the language on the ballot and hopefully answer some questions along the way.
A School Bond is Similar to a Mortgage
The district does not have the $3.7 million to pay the required BEST Grant match for the new school. Just like a person looking to purchase a home, the district needs a financing mechanism to pay its portion (12%) of the new school construction. Public entities often utilize bonds, which function similarly to a mortgage, to fund construction projects. In order to secure a bond, the district needs approval from voters under Colorado law. The district also needs voter approval to make a temporary increase in property taxes to pay the bond.
Ballot question 3B allows for the issuance of a bond and temporarily raises property taxes to make the payments. The tax increase is only for the payment of the bond, and once the bond is repaid, that particular tax goes away. Under the Colorado constitution (the Taxpayers Bill of Rights or TABOR), the district can only increase taxes in the amount shown in the ballot language to pay off the bond. Once the amount is paid off, the tax rate goes away.
The TABOR Amendment to the Colorado Constitution was passed in 1992 and has a long list of requirements for ballot measures that increase property taxes through a mill levy. The required TABOR language can make reading ballots very difficult and confusing for voters.
What does all of this ballot language really mean?
The first paragraph of the ballot question below asks voters if the district should increase debt by issuing a $3.7 million dollar bond to match the $27 million BEST Grant that has been awarded to Mountain Valley School District by the state of Colorado. The $27 million BEST grant does not require repayment. This money comes from Colorado School Trust Lands, Colorado State Lottery revenues, and marijuana excise taxes. This $3.7 million dollar bond, just like a loan on a house or car, has interest that must be repaid. Total repayment, including the $3.7 million principal and interest over the 20-year life of the bond, will not exceed $5,730,300. Annual repayment for the district will not be more than a total of $290,000. Voters are asked whether they approve a bond with these upper limits. The exact dollar amount of the bond repayment will be at or lower than these limits. Final dollar amounts will be determined based on interests rates at the time of bond sale in December 2017. However, in no event can the repayment costs exceed what is approved by the voters. Language in the first paragraph of the ballot questions is what is required by TABOR.
SHALL MOUNTAIN VALLEY SCHOOL DISTRICT NO. RE 1 DEBT BE INCREASED BY $3,724,699, WITH A REPAYMENT COST OF UP TO $5,730,300, AND SHALL DISTRICT TAXES BE INCREASED BY UP TO $290,000 ANNUALLY BY THE ISSUANCE AND PAYMENT OF GENERAL OBLIGATION BONDS TO PROVIDE LOCAL MATCHING MONEY REQUIRED FOR THE DISTRICT TO RECEIVE APPROXIMATELY $27,072,252 IN STATE GRANTS (WHICH ARE NOT REQUIRED TO BE REPAID) UNDER THE “BEST” PROGRAM TO FINANCE THE COSTS OF PROVIDING CAPITAL ASSETS FOR DISTRICT PURPOSES, WHICH MAY INCLUDE BUT ARE NOT LIMITED TO THE FOLLOWING:
The bullet points below the first paragraph on the ballot describe how the money from the BEST Grant and bond will be spent. A new PreK-12 school will be built and the current middle school will be renovated as a transportation and maintenance facility. The new PreK-12 school will remedy current health, safety, security, and failing systems concerns while providing improved athletic and community spaces, updated technology, modernized classrooms, and 21st-century learning spaces.
- ADDRESSING THE HEALTH, SAFETY, SECURITY, AND EDUCATIONAL DEFICIENCIES IN THE AGING ELEMENTARY SCHOOL, MIDDLE SCHOOL, AND HIGH SCHOOL BY ACQUIRING, CONSTRUCTING, AND EQUIPPING A NEW PK-12 SCHOOL FACILITY ON DISTRICT OWNED PROPERTY;
- RENOVATING THE EXISTING MIDDLE SCHOOL FACILITY FOR ADMINISTRATIVE PURPOSES;
- UPDATING TECHNOLOGY AND MODERNIZING CLASSROOMS TO PROMOTE THE TEACHING OF SKILLS NECESSARY TO PREPARE STUDENTS TO COMPETE IN THE 21ST CENTURY WORKFORCE;
- IMPROVING ATHLETIC AND COMMUNITY FACILITIES;
- UPDATING AND ENHANCING FACILITY SECURITY STANDARDS IN ORDER TO IMPROVE SAFETY OF STUDENTS AND STAFF;
- REPAIRING AND UPGRADING SCHOOL FACILITIES IN ORDER TO EXTEND THEIR USEFUL LIFE, REDUCE COSTS OF EMERGENCY REPAIRS, AND IMPROVE ENERGY EFFICIENCY BY REPLACING OUTDATED ROOFING, UPDATING HEATING AND VENTILATION SYSTEMS, AND REPLACING BOILERS;
The final paragraph on the ballot is probably the most confusing. By law, the district can only raise taxes to pay off the bond amount. This does not mean that the school district can increase property taxes an unlimited AMOUNT (the amount cannot ever exceed $290,000 annually), but it can increase taxes at an unlimited RATE. For example, if in one year the mill levy imposed to produce the $290,000 is 3 mills, that is what the district will impose. If the next year it is 5 mills, that is what the district will impose. If the next year it is 2 mills, that is what the district will impose. So the RATE can move up or down, the AMOUNT cannot ever produce more than $290,000 per year. The district will only be able to receive property taxes equal to the amount required to pay off the bond. Once the bond is paid off, that particular tax will go away.
If the revenue obtained through the property tax payments is not enough to pay the amount of the $3.7 million bond and related interest, the district can make changes to the tax rate. Property assessments across the district are unlikely to go down in the future, so this is a very improbable scenario. As the population in our district continues to grow and overall district assessed values increase, taxes for each individual taxpayer will likely go down.
The mill levy is the tax rate that is applied to the assessed value of a property. The ballot question specifically refers to the property tax collected to pay off the bond used in the new school construction project. Funds received as the result of this specific election cannot be used for any other purposes. Just like a mortgage, bonds can be resold to investors without affecting repayment. The language of the final ballot paragraph below ensures that the district can meet bond obligation payments. The last sentence referring to the redemption of bonds is required by state law. Any general obligation bond of a school district issued for construction projects must be subject to prepayment or refinancing within ten years (the actual bond is for 20 years) according to the state statutes. Similar to certain mortgages, if you pay off the loan early, there is a prepayment “penalty.” In the bond world, that is called a “premium.” Again, under state law, a premium percentage needs to be approved by the voters, or it is assumed to be zero. The State of Colorado, under the BEST program, requires that the “prepayment penalty,” or redemption premium, not exceed 3%.
AND SHALL THE MILL LEVY BE INCREASED IN ANY YEAR WITHOUT LIMITATION AS TO RATE, BUT IN AN AMOUNT SUFFICIENT TO PAY THE PRINCIPAL OF AND PREMIUM, IF ANY, AND INTEREST ON SUCH DEBT OR ANY REFUNDING DEBT WHEN DUE; SUCH DEBT TO BE EVIDENCED BY THE ISSUANCE OF GENERAL OBLIGATION BONDS OR OTHER MULTIPLE FISCAL YEAR FINANCIAL OBLIGATIONS WHICH MAY BE SOLD FROM TIME TO TIME TO INVESTORS OR ISSUED TO THE STATE TREASURER UNDER THE “BEST” PROGRAM IN AN AGGREGATE AMOUNT NOT TO EXCEED THE MAXIMUM AUTHORIZED PRINCIPAL AMOUNT AND REPAYMENT COST, ON TERMS AND CONDITIONS AS THE DISTRICT MAY DETERMINE, INCLUDING PROVISIONS FOR REDEMPTION OF THE BONDS PRIOR TO MATURITY WITH OR WITHOUT PAYMENT OF THE PREMIUM NOT TO EXCEED THREE PERCENT?
All information in this post has been reviewed for accuracy by bond counsel Kim Crawford of Butler Snow LLC.
If you have additional questions, please reply to this blog post and I will respond. Information can also be found on the BEST for MVS website.