DTSD Webinars: Okay, I'd like to call the January 20 third 2,023 Finance Committee meeting to order and announce this. This meeting is being live streamed and audio recorded.
If we could just go around and do a roll call.
DTSD Webinars: i'll go. Kathy sicker, treasure and board member. I'll go to my right.
DTSD Webinars: Stacey Winslow, Superintendent
DTSD Webinars: Eric Schmidt School Board, Member Cheryl Purcell, Business manager.
DTSD Webinars: Michelle Ag Board Secretary
DTSD Webinars: Lindsay Church School Board, Member and Microsoft School Board Member
DTSD Webinars: Thank you. And do we have anybody participating
DTSD Webinars: via zoom
Joshua Smith: this? Josh Smith says, an advisor.
Okay.
DTSD Webinars: any other citizen advisors?
Okay.
DTSD Webinars: Yeah. I did notice Brian Estella on the call.
DTSD Webinars: Maybe away from this.
DTSD Webinars: All right. We'll move on to approval of the summary minutes. May I have a motion to approve the minutes from the last Finance committee meeting.
DTSD Webinars: So move Mike Razo. Second, Lindsey Drew. Is there any discussion?
DTSD Webinars: All those in favor say? Aye, aye, i'll suppose. Say, no.
DTSD Webinars: Okay, the minutes are approved. We have on the agenda the election of a chair, but we Don't actually need to do that because I chair the finance Committee as treasurer, and the treasurer's term runs from July first to June thirtieth, and we, the board won't. Be electing a new treasure until May.
DTSD Webinars: So I will stay the chair until that time.
DTSD Webinars: hey? We'll move on to unfinished business. There is none. New business.
DTSD Webinars: A quarterly update from the Milton Hershey Trust Fund, Fulton financial advisors.
DTSD Webinars: Good evening. I'm. Sherry Leo. I'm. Here to represent the relationship side of the Miltonnessee Trust. I'm in the Keith Al You already is here to talk about the portfolio I always include on the very first page of the presentation. I always include a little bit of the background.
DTSD Webinars: and I think they're pulling that up. Now, in case anybody isn't familiar with it, how it works so full and financial advisors serves as trustee of these funds. So it really means that, according to a trust that Milton us, or she set up years ago, we have a job to manage those funds for the benefit
DTSD Webinars: of Dairy township school district, which is what we do. So there's a few bullet points in there of when we took over, hey? The most important part of the thing is that we have a kind of a bit of a restriction or guidelines on how much to pay out. And so the law that we follow, which is a Pennsylvania law, is, we give out no less than 2%,
DTSD Webinars: no more than 7. We currently this year this current fiscal year, which will end. On June 30 we are paying out 5, and what we've historically been doing is 4, which we do for a lot of our trust, a lot of our beneficiaries, because the idea is, we can pay out 4%.
DTSD Webinars: We can continue to grow the portfolio and keep up with inflation and and keep up with the markets and stuff. So we typically go to 4, and I think we'll probably start having those conversations. As you guys start budgeting for the next next fiscal year. So any questions on the background, or how the trust is working before we look at the portfolio.
DTSD Webinars: Okay, I'll turn it over to Keith.
DTSD Webinars: Thank you, Sherry, and good evening, everyone, Miss Sher said. I'm. Keith, Ali, i'm chief investment officer of Fulton Financial Advisors.
DTSD Webinars: I have
DTSD Webinars: ha been responsible for the account since Liz Paris had transitioned and retired from Fulton. So I will just do a brief overview of the performance of the account in the last quarter, and through 2,022,
DTSD Webinars: starting on page 3 of 6.
DTSD Webinars: At the end of the year. The total market value of the trust was $45,146,012
DTSD Webinars: down. At the bottom is is the account, flow and activity of the trust, both in the quarter and year to date. Needless to say, it was a very challenging year of 2,022 fixed income was down somewhere around 13 equities us equities in particular. We're down just a little bit over 18% or so. I'm happy to report that even though the Trust was down for the year, it did a much better than the than the index benchmark that we use for the Trust. So
DTSD Webinars: to review the quarter down the bottom we started the the beginning of the quarter, fourth quarter of 2,022, with 42,859,000 we end. We had a 571,000 in distributions we earned 766,000 almost 767,000 in income.
DTSD Webinars: and and the the portfolio value appreciated by 2.1 million fees, were 39,000 in the quarter. That brings us to that 45,045,000,146
DTSD Webinars: That's a that's an annualized return for the quarter of 6.7, 7, with the index 6.9 for the year. We started at 54, almost 55 million. We had 2.6 million in concert. In in distributions we earned 1.4 million. We did see a market depreciation or portfolio dish
DTSD Webinars: depreciation of 8.4 million. That gets us to that 45. That was a negative 12.7, 8 for the year, but again slightly better than the index of 14.6, one
DTSD Webinars: on the next page on page 4, I thought, what I do is just share with you the performance on a calendar year basis. This goes back 6 years includes, all of 2,022 out of those 6 years there's only been one year that we've underperformed on a calendar year basis, that was 2,018, as you can see, in 17. We were above the index, 1,921 and 22. So.
DTSD Webinars: even though we saw negative returns in in 2,022. We've seen positive outperformance over the index again. 5 out of 6 past years.
DTSD Webinars: On page 5
DTSD Webinars: is is annualized performance on a one year, 3 year, 5 year, and since inception. Just to describe what you're seeing in the bottom part of this chart, the black bold is the performance of the trust. The light blue are relative in this indices of the trust. I'll i'll focus on the year to date column. Starting with fixed income we were. The fixed income portion of the account was down 8.8 one. That's relative to the bloomberg intermediate Us. Government
DTSD Webinars: from an index at a 22, and the strategic fixed income taxable index of third minus 1,340 with equities down 15.8, 3, the Aquy or Msci, all country world index was down 1,836, and the the
DTSD Webinars: benchmark 1,729, that's where we get alternatives. We're down 7.6 that's where we get the total managed down for the year of 1,278 on a one year, 3 or in a 3 year.
DTSD Webinars: 5 year, and since inception all performance and on an annualized basis, has been above the relative benchmarks. In the 3 year 464, 5 year, 5 annualized average over 5 years and 6, 94 since inception the last page on page 6 is just some
DTSD Webinars: statistics of the portfolio just to share with you basically the top contributors and top to the tractors and performance for the year. Really, the value part of the market was the better performer in 2,022. The growth side of the market underperformed and was hit real hard particularly in the technology sector. So that's why it's not. It's. It's
DTSD Webinars: no surprise to see that that the contributors to performance in the in the 12 months were value components to the portfolio and detractors were growth in the portfolio.
DTSD Webinars: I'm happy to answer any questions there might be.
Joshua Smith: Hey, this is Josh Smith. I just just a quick question. Hopefully. You can hear me. Okay
Joshua Smith: on the alternative assets. How how frequently are those reappraised?
DTSD Webinars: So those alternatives are are public liquid alternatives. They're not private investments. Currently so those have a daily valuation, and or have a really daily liquidity, and those alternatives as well
Joshua Smith: understood and appreciated. Thank you.
one in a.
DTSD Webinars: So yeah. So thank you. I will say tomorrow is my last day at Fulton. It's been I've been with Fulton over 11 years. It's a great organization. It's been a real honor and privilege to be with the company. I've had an opportunity presented a little closer to home, and but really appreciate the time I've spent with this committee and and thank you. We we greatly appreciate it.
Thank you.
DTSD Webinars: We're oh, and I would say we are. We're actively engaged in in finding a replacement for Liz and my my My tenure on this was was temporary, anyway, and I would expect this to have somebody by the next meeting.
DTSD Webinars: Right? Thank you very much.
DTSD Webinars: And I just just to remind the committee. So.
DTSD Webinars: as Sherry had mentioned, we're currently taking a 5% draw down from the 7% last year with the Covid years to 5 this year. But we are looking to return to a 4. So you know, Sherry and I will be talking to see, you know, a little closer to what that number might look like, so we can start
DTSD Webinars: working that into our Budget quarterly or for this year annually. We're
DTSD Webinars: we are getting. We have budgeted about 2.3 million. We get about 5, 7, 5, 75 per quarter, roughly, so we'll see what that looks like. Then, with the valuation and going in, You know, as we budget 2,324.
DTSD Webinars: Okay, Thank you very much.
DTSD Webinars: He will move on to the next item, financial planning for capital projects.
DTSD Webinars: So today we have
DTSD Webinars: Louver, Deli and Ryan I.
DTSD Webinars: Brockman.
DTSD Webinars: here to present to us, as we start looking at
DTSD Webinars: any kind of
DTSD Webinars: significant financial impacts of capital projects coming down the pike. We want to start getting that handle on the
DTSD Webinars: What can we afford? What does that look like to the school district's Financial picture? How do we get there? What are options? You know? What what can we be doing now as we primarily, as we go into this budget season. This will take some, you know, serious consideration by the full board as to what are we going to do on? How are we going to get there
DTSD Webinars: any? They're going to present and start laying that ground workforce tonight? I had printed them in our packets. Thank you. Sorry.
DTSD Webinars: thanks, Cheryl. Good to see everybody.
DTSD Webinars: A lot of
DTSD Webinars: what we put together is a repeat
DTSD Webinars: for those of you that attended. I think now, the 2 previous sessions that we've had just kind of talking about financial planning for large scale capital projects for Pennsylvania school districts.
DTSD Webinars: But a lot of it's really important and really key to some of the decisions that all of you will have to make. As you evaluate a a new project going forward, and you think about financing it
DTSD Webinars: and the affordability of it. So I wanted to just kind of go back through some of those same bullet points.
DTSD Webinars: Interest rates have changed since we were last year in November one. The good news is that they've actually declined quite a bit since we were here, and so we've updated all of the numbers and the projections in terms of what financing
DTSD Webinars: a project would look like potential tax impact. Village impact
DTSD Webinars: is a is a new study that I thought it was time that we get to that next stage to start talking about what that would look like specific to your district. We've talked about it conceptually, and used some other districts that we work with locally as examples, but just thought we would go back through this pretty quickly.
DTSD Webinars: so I will start on page. 2 page Numbers are in the lower right
DTSD Webinars: with the current situation for the school district. You're probably all aware that we have a triple, a credit rating from standard and pores.
DTSD Webinars: We've talked about that a lot. We're only 10 school districts out of the 500 school districts in Pennsylvania have a trip away rating, and I think the last time I was here I had kind of cautioned Cheryl that one
DTSD Webinars: she might be getting a phone call in terms of a surveillance check up from S. And P. And sure enough, that happened a couple of months ago. We went through that process. Credit rating call can be intimidating to business managers, I can tell you. She did a good job of preparing for it.
DTSD Webinars: They had a list of, you know, over a page worth of questions, and as a result of that they have reconfirmed the district's Tripway credit rating. I think the final report was circulated to all of you so hopefully you had a chance to take a look at it. But that's a quick update, and obviously that happens kind of off cycle when you haven't done a financing for several years.
DTSD Webinars: and they haven't had a chance to look. They start going through, and just kind of checking in to make sure things are still okay, and that you're still deserving of that rating, so that surveillance rating happened a few months ago, and
DTSD Webinars: as you can see, it was December sixth that they actually affirmed the trip away, rating second Bullet Point existing debt. This numbers moved a little bit lower because you've paid down some debt since we were last year. So currently the district has about 17.8 million
DTSD Webinars: of existing debt outstanding, and we've talked about that we have that structured to rapidly pay down. We'll look at the actual pay down schedule here in just a bit. So based on that and the
DTSD Webinars: the formula that the State gives us in terms of calculating how much debt you can have outstanding right now, when we subtract the 17 million of debt from that Max number. You currently have a
DTSD Webinars: over almost 121 milliondollars of remaining borrowing capacity. If you were going to do something right now. That would be that calculation. And again, that number updates every year. So next year, if you have paid down a little bit more debt.
DTSD Webinars: and your revenues have grown a little bit more which drives the top line. Figure. That number would look a little bit bigger than where it is today.
DTSD Webinars: Third Bullet point, and this is the big one that I've touched on before financing projects in Act one ever since Act one was passed Act One was
DTSD Webinars: the law that limits how much of a tax increase you can do every year, and it's based on that sale index a statewide average weekly wage.
DTSD Webinars: So we now have these caps, and you have to fit all of your operations under that increase. So, while debt service might just be one component of all the other pressures you have on your budget all of that has to fit in under the index. And certainly years past, when the index has been very low.
DTSD Webinars: very difficult to also get borrowing for debt service to fit into that. So we have to be creative. We have to think much more in advance of projects than what we used to pre-act one.
DTSD Webinars: and that's really why we're here talking tonight. Why, cheryl had suggested that I was here previously to start thinking about that next bullet point that says, building additional milage into the budget in advance of projects and borrowings.
DTSD Webinars: Realistically, when the index is at 2 and 3% every year, and you know your other parts of the budget are increasing, probably by at least that number 150.
DTSD Webinars: If you thought you had to put debt service in at that number. You have very little room to do it. And so that was really why the emphasis on starting early before you get to the project to build in capacity for eventual debt service that would be coming online.
DTSD Webinars: One of the things we'll show you when we get to some actual numbers on on the last page. Is that next point that says, deposit unused funds in a capital project fund.
DTSD Webinars: and it that's just to make sure. Everybody understands that if you were to bump up in your budget what you allocate for debt service a little bit more than what's actually being paid this year
DTSD Webinars: that that money.
DTSD Webinars: typically what we recommend is then you kind of
DTSD Webinars: put it aside into a capital projects fund or a fund that's really being saved up for this future project, so you can use it to offset whatever borrowing you may need to do for that project, or use it to offset when the payments do. Once you do a borrowing, and they start hitting your budget. You kind of have this pot of money that you can use rather than
DTSD Webinars: anything in the general fund. So it's important to note that there's really always a plan
DTSD Webinars: for what to use that money for
DTSD Webinars: If, in fact, you start to to bump things up in advance of the project.
DTSD Webinars: the next one debt restructuring in a in a new borrowing to maintain current debt service amount in the budget. You'll see our first example tonight. We always try to start with a base case, which is.
DTSD Webinars: if you kept in your budget exactly what you're paying right now, which in your case is about 4 million dollars per year, has been in your budgets the last few years for debt service if we kept that steady.
DTSD Webinars: knowing that the debt drops off in a couple of years, how much could you borrow without changing that number? We always think that's important to you, as the base case number will show you that. Obviously that's always determined by where our interest rates in our assumption. So we'll show you what that number looks like, but that's always a helpful point.
DTSD Webinars: Place to start in terms of
DTSD Webinars: what you could go out and borrow what you could afford if you kept things exactly the same
DTSD Webinars: quick review on the basic rules.
DTSD Webinars: When we do borrow money that you have to have reasonable expectations, that you can spend 85% of it within 3 years.
DTSD Webinars: It's not actually getting it spent. There's no look back test by the irs or anything, but we would certainly want to have reasonable expectations that a project was occurring, and that things were going to move forward, and the in the district was going to proceed with due diligence with a project before we would go out and and borrow any money for it.
DTSD Webinars: Bond proceeds can only be used for capital costs.
DTSD Webinars: So if there were extra bond proceeds
DTSD Webinars: Sometimes we're asked. Oh, well, can I use that for some other part of the budget? And the answer really is, No, they have to be used for capital projects. They could be used for purchase of larger equipment, those types of things that have a longer useful life
DTSD Webinars: and then timeline, just as a refresher.
DTSD Webinars: From the time that you would say we're ready to move forward with the financing. The team still really needs about 60 to 90 days to go through the credit rating process again put together all the offering documents, the legal documents that have to be done per our States borrowing laws
DTSD Webinars: go into the market lock in an interest rate, and then go to settlement, so that timeline is always.
DTSD Webinars: you know. We should just think about it, probably in terms of 90 days to go start to finish. Okay.
DTSD Webinars: page 3 is
DTSD Webinars: a new page, Sure.
Okay.
back to.
Are you just meeting?
DTSD Webinars: Are you just referring to
DTSD Webinars: the taxes, then?
DTSD Webinars: Okay, so not
DTSD Webinars: going up to.
DTSD Webinars: So if we think about, I had mentioned 4 million dollars is what you have in your budget right now, and if we bump that up to say 4.5 million dollars, so that's new money in the that would be needed in the budget. That's not there right now.
DTSD Webinars: You would have to figure out how you're paying for that if you cut expenses somewhere else, or if you didn't do that.
DTSD Webinars: Obviously an increase in revenue would be needed to offset
DTSD Webinars: that increased. So that's what i'm really talking about is
DTSD Webinars: you pay 4 million. Now
DTSD Webinars: you'll see in some of these numbers depending on how much you borrow. That number has to go higher than 4 million dollars per year.
DTSD Webinars: Yeah, no. I I did understand that I just wanted to clarify that you were talking about
DTSD Webinars: a tax increase when
DTSD Webinars: they'll take additional knowledge. Okay.
Thank you. Sure.
DTSD Webinars: So on page 3. I I put this in for the first time, just as you kind of keep progressing in these discussions on the project, and I thought it would be helpful because we really Haven't talked about. Well, once you start a project, how does the money go out? We've talked big numbers.
DTSD Webinars: and some people think. Well, if is this just like getting a mortgage? If I go out to build a new house, I want to have all the money in hand before I award bids to a contractor and say, Go build my house.
DTSD Webinars: Well, with these large-scale projects, it's a little bit different, and we typically don't necessarily have all of the money in hand when you embark on a large project, because we're trying to do things like minimizing the the impact on a budget. Year after year.
DTSD Webinars: We're trying to spread the borrowings out, because there are some tax laws that we can take advantage, one that we've. You've probably heard us talk about at the district before is the bank qualified. If you borrow less than 10 million dollars in a calendar year, you get slightly lower rates.
DTSD Webinars: So there's sometimes reasons that we're staggering borrowings over multiple years. So I thought it would be helpful for all of you just to see.
DTSD Webinars: Hey, sample construction draw. This is a live project that we're working on for another school district here in Pennsylvania, and their project is about to get going, and so the architect recently sent us this.
DTSD Webinars: and we've been using it to figure out when we're going to do the various financing that are going to be needed for this project, so I just thought it would be helpful for you to see kind of on a monthly basis.
DTSD Webinars: The draws that on this project that the business manager is going to have to figure out to have the money available. Basically, When you go across the column you can see what those costs are. The big one, of course, is the middle column that says construction costs.
DTSD Webinars: That's going to be the contractor bills that are going to have to be paid on a monthly basis.
DTSD Webinars: and when you go across to the sub total
DTSD Webinars: on a monthly basis, Obviously this is a very large project. It's one middle school at today's
DTSD Webinars: kind of incredible cost for a school, and this shows how that would work, and I just thought it would be helpful again. It's over over a 24 month period that it'll take to build this school, and we will be doing, financing. And
DTSD Webinars: the first financing we put in place actually last year. The next one is going to happen in about 2 weeks, and then there's another financing that will happen a year after this upcoming one
DTSD Webinars: to meet all of those draws that are over in that second column in from the right labeled Subtotals to meet that draw schedule on this project. So just wanted to show that to you, in terms of at some point that question before we move on from that, this is Lindsey. True.
I
DTSD Webinars: in a construction project. What that is bond, finance, is it?
DTSD Webinars: The bond is funded? We receive the the money for it, and then we manage the draw schedule, or is it similar to like
DTSD Webinars: a commercial real estate. You know where you're drawing down from the loan proceeds, and not.
DTSD Webinars: you know. So the interest is not calculating on the full balance, if the you know
DTSD Webinars: the proceeds are being spent over 24 months. Yup. Good good question. And this is again. Where it's a little bit different than like a commercial financing where you would be placing draw requests and then getting reimbursed. Once you would pay those 200
DTSD Webinars: typically in a bond financing, you go to closing. And so if you borrow 30 million dollars, all 30 million come into the district, and that's then, when we also work very closely with business managers, and why you need this draw schedule? Because then
DTSD Webinars: we can invest those bond proceeds out to that draw schedule to generate interest earnings while the money is. It's yours at that point, and you're going to the bond holders interest, so you might as well try and earn as much interest on it as you can during that timeframe.
DTSD Webinars: 2 years ago, when interest rates are at 0, nobody paid much attention to draw schedules. Now, when interest rates are at 4, and you can generate hundreds of thousands of interest earnings. We really press on the architects to say, Get us a draw schedule. We need to work with the business manager because we can invest some of this money out 6 months, 12 months.
DTSD Webinars: And so the bond proceeds are yours. You basically have that 3 year. Temporary period is the tax term for it. Turn as much as you can. Okay. And so it's. Investing the bond proceeds out to that draw schedule. And then, as the invoices come in.
DTSD Webinars: the business office pays those construction bills on a monthly basis. So while it's not great that we're in a higher rate environment than we would have been a couple of years ago 250.
DTSD Webinars: The savings rates are higher, so that helps to offset some of that additional interest that we're going to see. So when we look at the you know, total numbers
DTSD Webinars: in the you know next slides that you have.
DTSD Webinars: We can anticipate some offset from investment earnings. And typically what we do in this environment is, we'll run projected interest earnings and say, okay, if it's a 50 million dollar project, we might be able to generate a 1 million dollars of interest earnings over the next 18 months and so you only borrow
DTSD Webinars: 49 million, whereas again, the last 8 to 9 years
DTSD Webinars: interest rates were 0, and we never anticipated any interest earnings to help offset. So your points a good one in that while 3 years ago, at the bottom, you could finance this project at 2 and a quarter. But you are nothing. While it was being built
DTSD Webinars: Now you might be able to finance it at 3 and a quarter, but
DTSD Webinars: you can earn up to that rate in today's market.
DTSD Webinars: Okay, this is kathy sicker. So when we look at that chart, you're one, they need 46 million year to the need 44 million, and the last you need 30 are you saying that we would do 3 separate funds
DTSD Webinars: for your 1, 2, or 3, or you, or you would do everything at one time. 123 millionSo that gets into where our interest rates, you know. If we all had the perfect crystal ball, this district would have borrowed everything 2 years ago, when they knew they were going to do the project, and rates red, too.
DTSD Webinars: But we didn't know that, and they weren't far enough along
DTSD Webinars: to have bids in hand. So just to lay this example out, since you kind of questioned it
DTSD Webinars: a year ago, we did 10 million as basically seed money to be paying the architects fees. The land acquisition cost. So they locked in their first 10 million a year ago and in 2 weeks. They're going to do about 34 million, which will get them through. You can see, you know, 12 or 13 months
DTSD Webinars: of the draw schedule, and then in the spring, of 2,024. They'll probably do another 30 or 40 million
DTSD Webinars: then. But we always say.
if
DTSD Webinars: if we see something happening, that looks like interest rates are gonna take off and start going. We want to be prepared to get in the market and get the rest of what is needed borrowed at those rates. So there's no right or wrong. Answer it's what's going on with the project?
DTSD Webinars: What's going on with interest rates, and what can the budget support? Because, again
DTSD Webinars: if you borrow it all 1 million at once. All of that impacts going to hit just a couple of budgets, and that's hard to do under the the act one index. It's just interesting because
DTSD Webinars: this the commitment to do this
DTSD Webinars: instruction and to do the financing requires
DTSD Webinars: multiple years of commitment from the board, no matter who's sitting here. So once you start the ball rolling, you've committed to a process of how you're going to increase Millage, or how you're going to go to Bond
DTSD Webinars: all at once, 3 different times over 3 years, or
DTSD Webinars: that's great kind of need to have a a plan in place as some sort, so that new members can know what to expect when they come on. And there's
DTSD Webinars: just a lay. What's what the next 5 years look like for this district. They're very important on large-scale projects.
DTSD Webinars: Would you also, in a environment like we're in right now like for this district, as the example.
DTSD Webinars: because it'll be over several years that they're issuing bonds for this with the first bond that they issued. Would that be set up to be able to have a call date that if by the time you got to the last one rate environment had dropped significantly, and it made sense to restructure those bonds
DTSD Webinars: and re-issue to level out the debt service. Is that something that that can be
DTSD Webinars: an option?
DTSD Webinars: Well, the call date is typically driven by the size of the borrowing, so we can put that shorter 5 year call on the issues that are 10 million and less. So in that case that first 10 million they did. It has a 5 year. Call these larger issues. The market investors really demand 8, 9 year calls.
DTSD Webinars: so the larger issues will have a longer call before you would be able to get back and potentially refinance. Okay, thanks
DTSD Webinars: good. All very good questions. I'm glad, Based on those questions. I'm: glad we put this in.
DTSD Webinars: So that's your sample page. 4 gets us back to your specific situation. I won't. Go through all of the numbers because you've all seen them multiple times. But just remind you on the far right. This is the annual payments right now on the existing Deb that you have. You see that number of around 4 million per year
DTSD Webinars: in the current budget year that ends June thirtieth, and then it's about the same number again 2425, 26 budgets 27 and then we have the rapid drop off
DTSD Webinars: of of the existing debt. So that's the good thing. That's why S. And P. Talks about
DTSD Webinars: one of the factors in your debt and getting the trip away. Rating is rapid retirement of debt. That's that column right there.
DTSD Webinars: But if we go, if we we did, would do. 3 draws over 3 years.
DTSD Webinars: Each time you go to bond they're going to do another bond rating right?
DTSD Webinars: So we talked about that they asked that question. They always say future financing needs of the district. Cheryl did a good job, saying, You're doing analysis. You're looking at a potential project that could be large
DTSD Webinars: as you get closer, and the answer is, Yes, we have a project, and we're starting it next year.
DTSD Webinars: depending on the size of the borrowings
DTSD Webinars: and the timing.
DTSD Webinars: you could get a downgrade of one notch because of the amount of debt that you're taking all all on at once. We've had one or 2 districts in calendar year, 22 that had big projects
DTSD Webinars: that had really good credit ratings but it was just so much debt coming on in a short period of time that the the rating was lowered. One notch
DTSD Webinars: so is that based on borrowing base
DTSD Webinars: because we would potentially go from
DTSD Webinars: It's it's more than a 1 million to 80 millionand the base of 120. It's. It's more on that annual budget number that they measure how much you know what percent is that 4 million of your total budget.
DTSD Webinars: if it gets to be a really big percent like it's 20% of your whole budget is bank that service, and we have some growing districts around the State.
DTSD Webinars: I paid 20% because they've had to build so many schools so quickly, right? So as that percent, it's really percent to budget, not necessarily total debt, right? They They may not care that under our State law you go right to your borrowing capacity.
DTSD Webinars: and there's none left.
DTSD Webinars: They'll be looking at what percent of the budget is being not by debt service. Thank you. Yep.
DTSD Webinars: Good question.
DTSD Webinars: So on page 5, right on topic. We updated this borrowing capacity. Our State. The calculation is, you take your last 3 years
DTSD Webinars: revenues, so you can see there 19923,02121 22. We take the average of that in our state formula. Then you take 225 of what that average is so at the very bottom.
DTSD Webinars: Your actual Max is the 138 millionless the 17 you have outstanding now and in the box that gives you the 120 available today.
Okay.
DTSD Webinars: page 6 is just a quick snapshot on interest rates. What's been happening.
DTSD Webinars: You heard me make a couple of references earlier to how low rates were. 2, 3 years ago I was obviously during the pandemic, and on this chart. It's very easy to see there in the lower rate. It was our lower right of this chart. It was the lowest we had ever seen. Interest rates in the municipal bond market.
DTSD Webinars: Then this past summer of 2022 interest rates really took off as the Fed was raising rates.
DTSD Webinars: and in October we hit kind of a high water mark for the last 4 or 5 years.
DTSD Webinars: but since we hit that high mark at the end of October
DTSD Webinars: The box in the lower part of the page in yellow shows that we've actually dropped 120 basis points. So 1.2 is how much rates have come back down.
DTSD Webinars: So for people like the example on the page of a few pages earlier.
DTSD Webinars: we've actually had them move that borrowing up a little bit. They were planning that to be a little bit later this summer, and we've looked at this chart and said, Boy rates have just come crashing back down. Let's stay the course and get this issue done.
DTSD Webinars: The rates look pretty attractive right now, so that's kind of just a big picture on what's happening with interest rates
DTSD Webinars: on page 7, just from a longer history, going the whole way back to 1,993
DTSD Webinars: in 30 years of in. Of these interest rates. The blue line is the average for the last 30 years of where interest rates anywhere from a 10 year rate to a 30 year rate have been, and the red line shows you that we've moved considerably below the 30 year averages.
DTSD Webinars: And so that's why a lot of people that if they have projects on the horizon, are saying.
DTSD Webinars: You know, rates have really come down quite a bit from where we were just 6 months ago a pretty good time to for proceed with our financing.
DTSD Webinars: Okay.
DTSD Webinars: Now, we're going to get specific to your situation
DTSD Webinars: and show you that base case that I described earlier. So we're on page 8
DTSD Webinars: title you can see of this scenario is maximized the new money with no millage impact. So keeping
DTSD Webinars: our goal here is, Keep the debt service exactly where it is in the budget now.
DTSD Webinars: Lot of numbers here, but i'll really just direct you to column 2
DTSD Webinars: is simply what we were looking at earlier from your debt. Summary. There's that roughly 4 million per year that you're paying each year out through 2,031.
DTSD Webinars: So if we kept that 4 million in place, and we borrow new money
DTSD Webinars: so that we end up with column 6 staying at about 4 million
DTSD Webinars: we're backing into how much can we borrow?
DTSD Webinars: And that number
DTSD Webinars: is up in the boxes at the top?
DTSD Webinars: The column that's labeled 2,024 be as in boy
DTSD Webinars: restructuring and new money. And as you go down you'll see a white line that says Project Fund.
DTSD Webinars: We could borrow about 51,650,000 at today's interest rates.
DTSD Webinars: and we could keep the debt service exactly where it's at at 4 million per year.
DTSD Webinars: Our assumption when you go down that same column column 4. That's what the new payments would look like.
DTSD Webinars: We were solving also for a 30 year financing.
DTSD Webinars: so that new
DTSD Webinars: borrowing for the project would go out 30 years, and you can see that final payment out in 2,054. We are assuming also in that box up at the top. There's a white line that says Settlement. We're assuming that about a year from now is when you would do that. So that's when the clock would start ticking
DTSD Webinars: on this repayment schedule.
DTSD Webinars: So
DTSD Webinars: several well back in November
DTSD Webinars: on this analysis, at the interest rates that we're much higher than where they are today.
DTSD Webinars: The borrowing amount was under 50 million, and we were actually not even able to hit the 4 million. We were actually at a run rate of about 4.3 million.
DTSD Webinars: So we were over that we could have adjusted all of that, and and just back down the borrowing size.
DTSD Webinars: but at that point in time we were just trying to solve for for 50 million as a borrowing target. So this shows you how much interest rates dropping by over a percent really impacts that that we've been able to bring that number back down to 4 million.
DTSD Webinars: and the borrowing amount would be 51,000,650.
DTSD Webinars: So if we viewed that as
DTSD Webinars: step one for potentially financing
DTSD Webinars: a project.
DTSD Webinars: we know that we can do that amount and maintain debt service at 4 million.
DTSD Webinars: So then, what Cheryl asked us to do on page 9
DTSD Webinars: was basically solved, for
DTSD Webinars: if you needed a 100 milliondollars for a project.
DTSD Webinars: What does that look like? And what does that run rate get to? So we know the answer to the scenario we just looked at. Now we drop in that next column at the top. It's labeled series of 2,025
DTSD Webinars: we borrow the balance, which is the 48 million dollar number. We assume that would be like about 18 months later. So you see that November of 2025 is when that comes online, and as you go down that column and see a column 5 where the payments start.
DTSD Webinars: and how we've structured them. We assume the same final maturity.
DTSD Webinars: I'm sorry we we also went out 30 years. So it goes one more year than the the financing that would have been done the previous year.
DTSD Webinars: and you can see over in column 7.
DTSD Webinars: We now have to get to a run rate of about 6.9 million per year.
DTSD Webinars: So we're at 4,
DTSD Webinars: and the impact of really that second half of the financing.
DTSD Webinars: Get you up
DTSD Webinars: to a number that's pretty considerably more than where we are today. 4 million up to 6.9 million.
DTSD Webinars: Okay.
DTSD Webinars: So on page 10, then to kind of boil it all down. And this is a page that when we're out talking to
DTSD Webinars: your other school districts that
DTSD Webinars: are doing and tackling the same types of projects. This is really the page, this last page 10,
DTSD Webinars: where I think Board members, when you talk about planning and committing to a project can visually see what is needed. So all we've done here. Just so. You understand a lot of numbers
DTSD Webinars: column 2. There's that same
DTSD Webinars: annual debt service of about 4 million per year, and the columns that all have the color shading 4 through 7. There's those same
DTSD Webinars: new financing is coming into your budget.
DTSD Webinars: but the important number there is column 8. It equals that same amount. We were just looking at getting you to 6.9 million.
DTSD Webinars: and then we use the right side of this page to kind of help you think about
DTSD Webinars: the millage, the budget impact, and how you get from where you are to where you would need to be. So Cheryl gave me the latest number that one mill of taxes that you Levy right now produces about 2.1 million dollars of revenue for you.
DTSD Webinars: So if we think about the 4 million dollars of debt service that you have in the budget.
DTSD Webinars: Let's think about that as how many mills of all the mills that are levied on taxpayers goes just to debt service. So column 10
DTSD Webinars: simply is dividing the debt service by that 2 million dollar number. And so we can think that right now, as we sit here about 1.8
DTSD Webinars: mills of our total tax bill that we pay is going just to pay debt service. Okay.
DTSD Webinars: So if we need to get from the 4 million that we're at now, up to the higher run rate.
DTSD Webinars: we basically know we're going to have to go up by the number in Column 11, and we'll start at the number at the very bottom.
DTSD Webinars: We need to have about 1.4, 6, or one in a, you know. Call it one and a half mills, more
DTSD Webinars: revenue coming in than what we have now to pay the debt service.
DTSD Webinars: and
DTSD Webinars: we always try and break it up and start with a uniform format of how much you would need to go up each year to be ready when all of the debt services in place. So in your illustration column 11,
DTSD Webinars: you would have to increase by about point 3, 6 mills
DTSD Webinars: for each of the next 4 budgets
DTSD Webinars: To convert that to a percentage of the next sheet is something that we're familiar with. So if you look at the real estate millage in tax millage increases.
DTSD Webinars: So if I added the point, 3, 6, 5 to our
DTSD Webinars: current, 19.4, 3, 4, 8.
DTSD Webinars: You can see
DTSD Webinars: It's actually about a 1.9% increase committed just for debt service. In.
DTSD Webinars: That would be a 1.9%
DTSD Webinars: call it 2. Take away 2% tax increase that is then planned for cap reserve
DTSD Webinars: and would go right to cap reserve, and it would sit there, and that would keep building, but that would build up our base. That will help increases over time. Is that the same amount each of those years for the point. 3, 6, 5, 1.9
DTSD Webinars: roughly. Yes. So the number 4 years for 4 years. You're pretty much to at least just to pay the debt service on a 100 milliondollar new building 1.9
correct. You would need to commit to that
DTSD Webinars: that doesn't count for like any increases in salaries or
DTSD Webinars: supplies.
DTSD Webinars: and that's not factoring in
DTSD Webinars: like building off of the increase. So like if it was 1.9 or 2% the first year based off the current millage, and then you need the point 3, 5 the next year. It's obviously a lower percent, so it wouldn't be declining increases. So it's just looking at it for for for one year. You'll have some. You'll have some growth. You'll have.
DTSD Webinars: and I think
DTSD Webinars: if you want to go ahead. So, Colin, 14 as you so in those early years, that's 773,000, so that's and if you look at the 1 point, one that comes out to about 767. If this is very fluid, and we'll keep looking at it. But it's just
DTSD Webinars: mit ctl. And to start the conversation. As to you're still well, it might not be the full 2. It might come down or do. Do we scale back and have those conversations a year to year but 250,
DTSD Webinars: knowing that for 4 solid years there is a significant tax increase just for debt service, that
DTSD Webinars: again, we would not cover any other increased expenses in the budget.
DTSD Webinars: So it's a very plan. Mindful set aside to get us up to that. So then, but then we do have some savings sitting in Cap Reserve that will help offset cost of this project costs of another project. So it's it's going to help build up that cap. Reserve a little bit, too. That's still our money set aside.
DTSD Webinars: And is that where we start having conversations from just like a long term budget planning.
DTSD Webinars: you know. At the beginning of this meeting we were talking about
DTSD Webinars: the draw on the Trust, and where we're going back down to You know the pre-pandemic
DTSD Webinars: distribution on that
DTSD Webinars: is that where you know we have to look at all parts of it. If we're able to minimize
DTSD Webinars: the tax increase impact in order to
DTSD Webinars: finance a project like this. Do we offset some of
DTSD Webinars: that gap, and those are the conversations that we will. This is just to really set the stage for that large arena. As to pretty much 100 millionis a, you know. I think the takeaway, at least for me. And looking at all of this, 100 millionis a 2% tax increase.
DTSD Webinars: Do do we scale it? Do we do some other things. And do we keep looking at all of it? Yes, it's a starting point. I did build a budget model sort of projection. Can you pop that up there real quick, and we can come back to this.
DTSD Webinars: And I just wanted to not going to work on it tonight.
DTSD Webinars: but just kind of wanted to share so exactly to your point, Lindsay.
DTSD Webinars: where we can go with some
DTSD Webinars: long-term planning.
DTSD Webinars: So is it not accurate to say that you need a 1.9 for the next 4 years, or you just cause you're just constrained on this year, because I need the report to the full board.
DTSD Webinars: I would say 1.9 for 4 years, but then it it could be subject to change if there is growth, but that I would I would leave it at the it's a plan, 1.9 for for 4 years. Okay.
DTSD Webinars: So this is a budget model that I that I use when I was at my previous district, so as we get into it, it's a working, so i'm not going to be posting it out there as a working model, but it's a 5 year project. And so basically you can see. So it takes all of our fund balances.
DTSD Webinars: There are
DTSD Webinars: items
DTSD Webinars: tax, base, the the tax increase. So if we start football plugging in a 1.9, or if we want to do you know.
DTSD Webinars: 2 for debt and a point and a. You know one and a half of what is it? 3.5, but then it's going to roll this thing out for 5 years, so the green or our board options. There's blue that are fixed costs. So those are built in that's like the peasers. The peasers growth rate the social security. You know the plan, Con: Those things that are our debt service, the things that we know that are fixed at this point.
DTSD Webinars: and then we can start the there's! There's yellow boxes that we can start plugging in like. How? What do we think? Just a generic even for 2,024, just to start it just to you know. Just throw in a 2% plan expense. But this will give us
DTSD Webinars: whatever we do in 24. What's that gonna look like going out a couple of years, and then 2. It's built in there that you know, planned transfers to Cap Reserve, that that we can watch our our Gen. Fund and our cap reserve balances go up and down so it.
DTSD Webinars: This will. This will help us start getting that long-term Look, and we can make those
DTSD Webinars: decisions as we go through budget, but still keeping in mind that that 100 millionis a big number
DTSD Webinars: on the the growth question column 9. We assume no growth.
DTSD Webinars: the value of your mill, and we all know from history Here things are growing. It'll get better than that, so that would decrease that number a little bit, but I think for planning purposes we always try to be very conservative on something like this.
DTSD Webinars: Certainly, if you add in your mind 2% per year and 2 years from now, and the new factories online. And there's a big bump and something else happens.
DTSD Webinars: And
DTSD Webinars: you look at your debt service getting up to that new projected run rate. Maybe you don't have to do 2, but it's something good to think about as you embark on such a a big project that has a lot of costs associated with it
DTSD Webinars: to be asked with you. It's not as bad as I thought it was going to be
DTSD Webinars: so.
DTSD Webinars: I mean because a 100 milliondollars is a big number.
DTSD Webinars: but because the index is 4. Point 1,
DTSD Webinars: and you're not saying that we? Oh, we have to go to the index for the next 5 years, or something like that. We're just saying you to do small for 4 years to make this happen.
DTSD Webinars: so I don't know.
DTSD Webinars: but that's just for debt service.
DTSD Webinars: I get that. But there's other growth potential, you know. If we
DTSD Webinars: it it grows naturally in other ways. Hopefully.
DTSD Webinars: we've seen that
DTSD Webinars: we've also seen tax payers get very upset at 3.1 or what we did this year. So now you want to do it like the next
DTSD Webinars: 4 or 5 years. That's
going to be
DTSD Webinars: tough pill to swallow for a lot of people it is, I just keep picture in a dilapidated elementary school, for i'm not saying that we don't that's not what I say, but we also have to deliver that which is going to be hard for people. Yeah.
DTSD Webinars: And I think that's where it's important to remember that this is a first look at like what it would take
DTSD Webinars: all things
DTSD Webinars: as they are today, not looking at other ways of being strategic around.
DTSD Webinars: whether it be
DTSD Webinars: looking at the trust, disbursement, or, you know reallocation of funds. What the contracts, you know, impact to the budget would be over time. Where we have savings. We had an increase in
DTSD Webinars: state funding, you know, this past year that, like we haven't really applied from
DTSD Webinars: the budget perspective. So there's a lot left to to shake out, so
DTSD Webinars: I would
DTSD Webinars: hesitate
DTSD Webinars: to say a 2% increase every year for 4 years.
DTSD Webinars: because that's what I think will stick in the mind like, you know, people want to hear a percentage. And
DTSD Webinars: and no, that's what that is. And I think that we've seen that in
DTSD Webinars: the townships history before and talking about. You know fun financing when the community center was built and
DTSD Webinars: where it ended up versus
DTSD Webinars: what it started at, you know, from a discussion point
DTSD Webinars: was very different. So I think it's just important to keep the perspective like that. We have to start a conversation somewhere. This is where the conversation starts, but I I mean for me to report out. I have to
DTSD Webinars: be honest and see if the numbers are. I mean, I can't. I don't. Yeah, i'm not saying, don't people not saying, don't be honest. I think it's just really important to emphasize.
DTSD Webinars: These numbers are based on where we are right now, and it's not factoring a lot of things in, and we're still.
DTSD Webinars: you know, pretty far away.
DTSD Webinars: I think we have to
DTSD Webinars: really look at the budget and see
DTSD Webinars: what other places we can find money, you know.
DTSD Webinars: There's a lot that I think would go into it versus just saying Yep, no matter what 2%
DTSD Webinars: that that's not the the to complete. Take away, but it is something that we have to keep in our minds. And and we started those conversations with our administrative team. But we do have some tough budget conversations coming up and and really be discerning as to the needs versus once, and and to really start taking a little harder. Look at this. This is this was.
DTSD Webinars: you know, the Post Covid year. So now, next year, and going forward, we need to take some hard looks at at programs and and how we spend our funds, and there there is a lot of it. But this gives us framework to get started. As to the why, we really need to have those those hard conversations, too.
DTSD Webinars: But it is going to be a tax increase, maybe not 2. But whatever it is, it will. It is going to require. And this is this is 100 millionSo that's that's the number we're looking at, too. So
DTSD Webinars: it's a plus minus game at that point regard, you know, depending what we choose to do going forward.
DTSD Webinars: but it gives us, at least
DTSD Webinars: gives us a place to start, because we have to build it into this budget if we're going to get started. Right?
Okay.
DTSD Webinars: Do we want to? We have about 7 more minutes. So we
DTSD Webinars: did. You. Are you finished with this? I really appreciate this. This is this is what I've been waiting for
DTSD Webinars: to see that the numbers more clearly because we need to figure out what we're going to do for next year, and it's January. So we'll we'll get a better idea of the next 3 months.
DTSD Webinars: Yeah, yeah, and that, you know you heard me say it the last couple of times I was here. I I think if if there's a real real project that's happening. And you look at this timeline, and you're trying to
DTSD Webinars: start to budget for some of it.
DTSD Webinars: you know. If you could get if the project slips a year. Then maybe this is a a 5 year phase in, and that percentage comes down a little bit more. But I think the point is the sooner you start to increase that debt service number
DTSD Webinars: kind of the the more
DTSD Webinars: delicate it might be in terms of the overall impact of the taxpayer.
DTSD Webinars: Anyone have any further questions?
DTSD Webinars: All right, Thank you very much. I appreciate it
DTSD Webinars: All right. We'll move on.
DTSD Webinars: We have the audit update.
DTSD Webinars: Want to give you just I, and everything's in here. We'll go through it very just quickly, boy, and Ritter, Matt Welderson. They will be here at the February finance to present the completed audit. We did have a clean audit.
DTSD Webinars: but again there we we came in pretty close to where I had projected. We were right around 3 million that we were at a preliminary.
DTSD Webinars: and when we looked at it in November we did end up just with
just under 2 million.
DTSD Webinars: just under 3 million rather 2.9.
DTSD Webinars: I put on this sheet just so you can see, kind of. We were the revenues that we were up 4 million dollars in revenues, and we were up almost 2 million in expenses, to which again is just that bringing everyone back.
DTSD Webinars: and it's still those same
DTSD Webinars: revenue drivers that we had looked at, but they vote
DTSD Webinars: in our local. Primarily in our local
DTSD Webinars: collections, current real estate taxes earned income, tax, transfer, tax and amusement tax. So they were all significantly
DTSD Webinars: up for the year ending June thirtieth the 22. So there's no no big surprises here again. Just wanted to kind of tell you where we landed on it, and that we will present the full audit in
DTSD Webinars: February. Hey? Thank you. Do you know where we are with the contract with Boyer and Ritter.
We have one more year.
DTSD Webinars: Okay. So next year's their last year. Okay, because we have gone out the Rfp. For that in the past, if we need to.
DTSD Webinars: and it's so good practice to do that after next year. So we'll okay.
because, you know, we
DTSD Webinars: a lot of transition on both sides on their side on our side. So
DTSD Webinars: we'll be looking at it. Okay, Great. Thank you.
DTSD Webinars: I'll move on to quarterly fiscal updates just real quick food service. I can tell you food services that our next
DTSD Webinars: between Tony and myself. Primarily, Tony, this is this is her big area she's going to be delving into with with Mr. Hummel, but just a snapshot here, too, of and and some history I wanted to go back to, because I wasn't sure exactly where the audited report. So I look back to audit reports for the 1,92021 years.
DTSD Webinars: This year actually ended up positive 631,000. Now I will tell you in that 600 3,300 of it came from
DTSD Webinars: Gen. Fund.
DTSD Webinars: So about half of it was their actual, and that most of that was because the
DTSD Webinars: the Federal, the the reimbursements for
the free free
DTSD Webinars: meals, the free year.
DTSD Webinars: So they ended up pretty good.
DTSD Webinars: We're at this year, and I can tell you these are the 1130, 22 numbers were
DTSD Webinars: provided to us from Mr. Hummel. We have not had time to really delve into them. So that's going to be a real, a working process as we come back. So then, the next quarter, I would hope, by the when we present in April for
DTSD Webinars: the quarter ending March 31, that we'll have a pretty good handle on on what's going on.
So.
DTSD Webinars: But again just want to kind of wanted to lay that out. So you can see the updates. Next one was char School tuition. I'll go into that real quick, very good news in this front you can see for last year
DTSD Webinars: 109 students this year we're currently at it's sitting at 84. I didn't put it on here, and actually I ran the numbers after I had already printed everything but projecting this out, so if you see at 84 we're currently, and this is actually 7 months through through January, so
DTSD Webinars: roughly 700 you know all but 800,000. If I project out, we should probably come in under 1.4. We're budgeted at 1.5. So we actually might
DTSD Webinars: be okay in this line item
DTSD Webinars: based on our current numbers, which is great. So there's been a lot of effort with
DTSD Webinars: bringing back some families
DTSD Webinars: so good news in that front.
DTSD Webinars: and then the next one I won't go into too much of the financial. The financial information is there. If you, as of 1,231, you will notice when you do look at the 1,231 numbers.
DTSD Webinars: We are down right now in revenues. Local revenues primarily in the current real estate taxes, amusement taxes off taxes only because right now I am the tax collector, so to speak. So
DTSD Webinars: some of the
DTSD Webinars: that's my next project is to get the tax Collection Aid Association all their financials. I have not moved the money. Typically. We record revenue on our side as the district and the township. When those monies are moved right now that we've just been processing and trying to do all of the things on a day to day Basis haven't moved money. So the association definitely owes the
DTSD Webinars: to the district and the township funds. So we'll get this caught up and and restate things, but just kind of wanted to point that out.
DTSD Webinars: But everything else is
DTSD Webinars: we're working to get caught up. So
DTSD Webinars: can I ask a quick question from the the 1,231 number. We talked last time because they were still preliminary, but since we did end up at the 2.9 million dollars budget surplus was it worked out on the act 93 component of that. That was. So we did. We did take care of that. Okay, thank you. In December, Thank you
DTSD Webinars: and then contracts. That's all. I have any questions. Yeah. Anything for the good of the order.
DTSD Webinars: Okay, May I have a motion to adjourn the finance committee meeting.
DTSD Webinars: So the Microsoft
DTSD Webinars: Second: okay, meeting is adjourned. Thank you.