Ask. I'd like
to call the Finance Committee meeting to order for June 27, 2022,
and announce that this meeting is being audio
recorded and livestreamed.
I will go around and do a roll call.
If you just introduce, announce your name and your affiliation.
Cathy Secker Treasurer.
I'll go to my right.
Stacy Winslow Superintendent.
Lindsay Drew Board Member.
Erica Schmidt Board member.
Mike DAVIES is an advisor.
Cheryl Purcell Business Manager.
Michelle Schwartz Secretary.
The Director of Technology.
And Mike Rizzo Board member.
Okay.
We see if we have any panelists or attendees online.
I don't see any.
I'm here.
Paul Latham, Citizen Advisor.
Okay.
I do see Paul and Brian.
But that was a couple of muted brain cells.
So the supervisor.
Okay, great.
Thank you very much.
The meaning minutes are attached.
May I have a motion to approve the minutes from the May meeting?
So move Mike Rizzo.
Second, Lindsay Drew.
Is there any discussion?
Okay.
All those in favor say I, I.
All those opposed say no.
Okay. The summary minutes are approved.
Where's no unfinished business?
And today we have a presentation by Lew Bradley
about our bond finance review and future financing projects.
Mrs. Posselt, did you want to say anything about that?
Sure.
Good evening, everyone. So tonight.
So now that we're coming out of budget and we have the facility study underway.
So I think it's important that we start laying some groundwork
and thinking about the cap needs coming up
when we get into and get the results back from the elementary facility study.
So so tonight, we're going to take a look at our bonds
and think about what we need to be thinking about as we go
through the next year and start planning for some major renovations.
See, all of you,
as Cheryl and I talked a little bit about,
you know, this topic and what we thought would be helpful for everybody.
And I was providing a little bit of the history of of the district
in terms of how long it's been
since there's really been any type of large scale borrowings here
that it probably made sense to kind of do this
as almost like a bonds 1 to 1
kind of take inventory of what your current financial picture is.
Talk a little bit about what the process is, especially under Act One,
which when it was passed in 2001,
really kind of changed the way school district,
large scale construction projects have to be budgeted for
and financed in Pennsylvania when you all have to live with it.
The Act one index, which you know, typically most of that increases eaten up
by the biggest parts of your budget that increase from year over year.
And there's usually not much left for additional debt service.
So kind of our world of helping school
districts finance large projects really changed under Act one.
And we've certainly seen lots of different strategies. But
given what the topic was,
just thought it would be helpful to kind of do the debt review.
Talk a little bit about your credit rating and talk about how you prepare
for a larger borrowing and really then what the options are given.
It really comes down to what does somebody's existing debt profile
look like as to whether or not you have to be thinking about a plan
that's building tax increases in advance of a project to be able to afford it,
or whether it's trying to meet a current budget,
a budgeted amount for the debt service that you already have, and
can you live within that and still finance the project that you have?
So that's kind of where we're going to end up in this presentation.
So we've circulated this
and have a couple bullet points here that I thought we would review.
In general, just kind of the big picture, and then we'll get into
some of the specific schedules and charts that I've prepared for you.
So on page two, under current
situation, the school district's credit rating is currently
there's two rating agencies, Standard
Poor's and Moody's, and we have a Standard Poor's triple A rating.
So the highest possible rating that you can get from Standard Poor's is triple-A.
So that's where we are.
There are 500 school districts in Pennsylvania, and there's only about
ten in the entire state that have a triple-A rating.
We're the only one, and that's outside of either Chester or Montgomery County.
That's where all the rest are.
So it's something that we had worked on for for many years,
dating back a couple of business managers before before Cheryl.
Back to Steve Reiner.
We worked on kind of the
the plan to what it would take to get to a triple-A rating.
And so we've been there for quite some time.
So that's something that's important.
And I have attached the most recent credit rating report at the very back.
I will take you through all that today, but it's probably something
I would definitely encourage all of you to read through that.
At some point
you'll note that it's
and I pointed this out to Cheryl and stated, November of 19,
which is the last time we did a bond issue for the school district.
So that's the last time the district's been through that rating process.
So I gave her the head's up that there's probably going to be
an email coming from an analyst at Standard Poor's soon
because they like to do surveillance check ups where they basically will call
and kind of put her through the the normal rating questions, a rating call
that takes an hour with a page and a half of questions to answer.
And since it's been since November of 2019,
I would think we're probably going to get that call
maybe before the end of the calendar year where they're going to want
to check in and say, how are things going at the district?
It's been a couple of years since we've checked in,
so that's probably something that's on the horizon
and obviously something that,
you know, she needs to think about when you're thinking about budgets.
And those are all the questions that the rating agencies are going to be asking.
You know, how's the fund balance doing, our revenues performing
anything unexpected with your expense expenses.
So stay tuned that there might be more on that.
But currently we have a wonderful credit rating.
Obviously, the importance of that is it translates into your borrowing costs.
So there's a direct correlation and the higher
the credit rating is when we go to market and market the bonds
to investors, the lower the potential interest rate is.
And as each notch as you go down from triple-A
to Double-A plus and in Standard and Poor's rating scale,
the next one down would be a Double-A plus.
The interest rate is going to tick up a little bit as you make each one of those
steps, depending upon where markets are and where credit spreads are,
sometimes that differential between each notch might be ten or 15 basis points.
So if you're borrowing two or 3 million, it doesn't make that much of a deal.
If you're talking about much larger borrowing amounts
and you multiply it ten or 15 basis points over the life of the borrowing,
that adds up to hundreds of thousands of dollars,
if not millions of dollars of lower interest expense.
So we certainly work with school districts that have single AA ratings
in their interest rate when they go to market would be a lot higher than yours
when we've gone to market historically.
Next bullet point existing debt.
Currently, the district has about $21 million of debt
remaining from the previous loans will get into the breakout of all that.
And you'll note I mentioned with rapid repayment, we've always
tried to repay the debt very quickly.
That reduces interest expense over the life of the loan.
So we've always kind of shortened the debt as much as we could to keep it
within kind of what the budget was for debt service at the district.
And that's one of the things that you will note
if you read the debt section of the credit rating report
is that's a positive thing.
The way the rating agencies measure that is
they look at how much of your principal you pay down over the next ten years.
And if it's a high percentage, you're paying your debt down rapidly.
You kind of get an extra bonus in that category for rapid debt repayment.
Also, under existing debt, you'll see the second bullet point I have there.
The state has a borrowing capacity calculation
for every school, district or township in the Commonwealth.
It's under the Local Government Unit Debt Act that has a formula.
And when we plug that formula in for you, currently
the remaining borrowing capacity is about $116 million.
So obviously only having 21 million of debt outstanding today,
there's a lot more of borrowing capacity and it's basically driven,
it's a calculation
and we'll show you the exact calculation in a couple of pages,
but it's basically driven off of the average of your last three years.
Revenues.
So as revenues continue to as the budget gets bigger every year, that
that calculation is basically just growing automatically over time.
Third bullet point
financing projects in the ACT one area
and I mentioned on this a little bit kind of there in the in the opening
comments, there's really two options
and that's either that if it's a large project
and you're going to have to do a substantial borrowing for it
if you don't have the money in your budget for that
debt service right now under Act One,
when at certain times the index has been 2% and 3%
in other parts of the budget are eating up that or using that two or 3%.
If you can only afford a little bit of the millage increase to go towards
additional debt service,
you're going to have to start building that into the budgets early.
So recent large projects, some significant high school financings
that we did down in the Lancaster County, those school districts were literally
putting the millage in place four and five years
before opening bids for the project.
Little by little to be increasing the debt service budget
so that eventually when the borrowings came online,
there was enough money in the budget to be able to afford that.
And so large
scale projects, again, it depends on your debt structure.
If there's no ability to restructure things a little bit or the debt's
not dropping off very quickly, that's kind of all you're left with in the Act.
One era is starting very early with the the budget increases
to be able to afford debt service on a large borrowing.
The other option that I mentioned here is that debt restructuring
with the new borrowing, where your goal is to basically maintain
the debt
that you already have built
into your budget, the amount that you're paying each year currently.
And that's what we'll get into.
And we ran some of those numbers because you really fall into that category
because your debt is so short and it's paying off so rapidly
that you're a prime candidate and basically you'll see
you can borrow a fair amount of money
and stay within the amount of debt service that you're paying right now.
Some basic rules that I just wanted to mention, again,
given your timeframe that you're just looking at
getting the feasibility study back now, it's important to to remember,
and this is a tax law that an IRS tax law that allows the debt
that you issued to be tax exempt so you can borrow at the lowest possible
interest rate is that you have to have reasonable expectations when you borrow
tax exempt money that you can spend at least 85% of it in three years.
So that's really the critical one to think about.
That's a really important one.
Like over the last two years when we were at historically low interest rates
and we had clients that had projects that were on the horizon
and then it started to look like interest rates would be climbing,
that we could go to them and say, If you're really going to do this project,
we should get into the market before interest rates go up.
And so that's where that rule really comes into play
of being able to certify that, okay, I think I can spend this.
My projects going to be awarded and under construction and that I'm going
to be spending the actual bond proceeds within that three year window.
And the good news about that is it's pretty flexible
in that it's something that you attest to when you borrow the money.
But if if the bids come in high and rebid the project or
something slowed the project during construction, there's no look back
that you would ever get in trouble, that if you didn't spend all of that money
by the three year period, you're not in trouble.
It's basically as long as you're proceeding
with due diligence to do your project, the only time you would be in trouble
would be if you went out, borrowed the money, said you had a project,
and then a year later voted and said, No, we have no project
and you still had the money in that situation.
You'd have to basically pay to pay the debt off
bond proceeds.
That's the other important thing that sometimes comes up.
But we just want to make it clear that when you do borrow money through taxes
and bond issue, that the proceeds can only be used for capital projects,
things like an actual structure building or,
you know, fixing tennis courts or a ball field.
You can't use bond proceeds for something like paying salaries or benefits.
They can only be used for capital costs.
So that kind of ties in to the first one that if you're not using your money
for the project, you can find some other non permissible use for it.
So just like to be clear on that and then timeline
is typically
it takes 60 or 90 days to put a financing package together
from the time that the board would say, okay, we have a project
and this is the amount that we need to borrow, let's go do it
and get an interest rate locked in.
You'd be in that timeline of 60 to 90 days
to go through a credit rating process and update the the borrowing documents.
So that's just kind of a generic overview of some of those topics.
I'll stop there real quick.
Any questions that
next page is your real numbers
of the current debt that the school district has outstanding.
And I'll just take a second for those that haven't seen this page before
and just kind of give you the layout of what's going on here.
Columns across the top
on the left, we have it labeled gross debt service.
So here this is the principal and interest payment
that's due on each one of these loans
or bond issues on an annual basis
over the life of it, of what's left of of each borrowing.
So you can see we're starting with the fiscal year
that you're about to begin on July 1st,
and we're showing what the total payment is on each
one of these issues, principal and interest
and then over on the far right column
ten, we add all of that up and you can see that
it adds up to just under $4 million is your total payment.
That's due on all of the debt that the district has outstanding right now.
And if we just go down column ten, because that's kind of important
to look at the baseline and hopefully that makes sense
from everything I was just talking about with the rapid repayment of your debt,
you can see there the $4 million we have a couple more years
after this coming year and then the debt
really starts to drop off pretty rapidly.
So this is mean for an average Pennsylvania
school district does not have debt that looks like your debt.
It's very short. It's a minimal amount.
We have lots of clients where this column is eight or 9 million
and it runs for the next 20 years because they've had to build
a lot of schools the last the last five or ten years.
So this is a pretty good scenario to be in right now in terms of
how short the debt is and that we run at this run rate of about $4 million.
Some of the board members that have been around the last couple of years know that
we have done transactions over the last two or three years
to really kind of stay at this run rate of 4 million.
There were some opportunities when interest rates were low
over the last few years to restructure this, refinance a little bit.
And that was something we were trying to stay
with that target of about $4 million a year of debt service.
So that's the top portion of the page middle section
that says net debt service over on the the left banner or left column.
This just is where we net out any reimbursement that the district gets
for what's called plan con reimbursement from the state.
State used to help out on construction projects
and they would reimburse after you make your principal and interest,
the state would make a reimbursement payment back.
There's not much of that anymore.
So that's what the middle part of the page is doing it
all in, that's out on I guess that's column 20.
And you can see that it's only reducing your gross debt service
from 4 million to about 3.85 million per year.
So you're getting a little bit of help
from the state that reduces the annual payments on this debt.
And then at the bottom is just kind of more of the things
that we keep track of in terms of what the use of the funds was,
some of the
call dates in terms of future opportunities
to refinance the debt, if there are any.
Basically, we're at the point where all of your debt is so short
and we've had so many opportunities the last few years when interest rates
were so low that there's not really any future refinancing
opportunities to look at because you're paying your debt down so quickly.
So even if interest rates went back down to zero
like they were a couple of years ago, it's not like we would be able to show up
and say, well, we can probably save you $600,000 by refinancing something.
Simply the debt now has gotten so short.
And we took out there,
there's a lot of those opportunities when you do look across the purpose.
The third line down in the lower section there,
any time you see are C.R.
That means either current refunding or advance refunding.
Most of the debt
has has been refinancings where we were taking advantage of lower rates.
And it has been quite some time since the district is actually
or a new money for any new construction.
I know there were some for this building that was borrowed a couple of years
ago, but, you know,
we haven't had any large scale projects really since the SCC building.
And and when we did the borrowing for the new high school.
So any questions on this page.
This is Kat BIESECKER
in five and six are those are bank loans
from 2019 not bonds.
Yes okay.
You see where they say GIO notes.
Notes that says, no, it's not bonds right now.
I know that we had done that just so that everybody realized some
they're mostly are bonds and some are bank loans. Yes.
Yeah. Okay.
Hi, this is Eric Fishman.
I do have a question.
I'm new to all this. Sure.
So traditionally, we just.
We've only borrowed.
Money for these couple of projects.
In the last ten. Years or so.
Is that.
Like this building and the SCC,
or is this kind of like a running.
Tab from.
Yeah, yeah.
So, I mean, right now the oldest outstanding financing
we have goes back to 2015 and you can see that
in the purpose both of those were refunding
the new money which is
notated as an M was in the two
notes that we just looked at
the 2019 borrowings had some new money.
So probably prior to 2015
I think there was a little bit
the middle,
the middle school roof and that addition on the end.
And then there's some issues at the high school with the the new bus
and the turf fields. Wasn't that a bond?
I would not know.
There, there has.
So there there hasn't been a lot of large scale borrowings.
Like I said, the probably the biggest, most recent was when the money
was borrowed for the UCC building and that's how old now 12
or 13 or 15 years old.
On the sink, like.
DA When it was built into.
The original construction,
the original construction of it would have been the last big, big borrowing.
There was, you know, some small borrowings that might have been a million or two
for some of these other projects, but really the UCC
was the last large scale borrowing to the high school borrowing.
I think that was 1993 and that was
I think it was 28 million was borrowed.
So that was probably the biggest borrowing that the district ever did.
Okay. Thanks very
well.
So that's the current debt on page four.
Just wanted to show everyone the calculation of the
how we have to do it under the state formula to determine.
Sorry to interrupt.
I just before we moved on to far, I thought it might be helpful,
too, for new board members to understand what it like
in columns
five and six where it says taxable at the top.
We had to split the bonds when we
took the new money for the repairs on this building
because the section of Penn State health is considered taxable
since we leased that and it's not use used for school district space.
So that's why it was those two separate.
Yeah, no, that's a good point.
So when I was saying tax exempt purposes there on the opening page
that you can't use tax exempt proceeds for like paying
salaries, taxable bond proceeds, you can kind of use for anything.
And so Bond counsel had given the advice that because the portion of the building
you were receiving rent, so it wasn't really the traditional tax
exempt purpose that we had to take a portion of that money
and do it on a taxable basis, which means the interest rate was a little bit higher
because at the end of the day, the the borrowing itself is all the same.
The payments look the same.
It just had a higher interest rate because it had to be taxable.
And that's very rare.
There's typically not taxable borrowings done, but you do have a unique situation
where you kind of have private enterprise interacting with you.
So like if when they leave Penn State,
right, and then you have we want to maybe
put renovations or whatever in there will then
will they then ask specific like, what are you going to use this for.
Even if you don't know. What you're going to use it for?
You know what I mean?
Like, that makes sense.
Like we wanted to renovate it for school use right then.
Yeah, you could do it.
You know, the fact that any money that you spent on the building
was actually borrowed on a taxable basis doesn't really impact
how you use it in the future.
You know, it was such a small amount of money
that probably if you did that and it was going back to the school
district, only purpose we could look at is there any ability to refinance that
with tax exempt debt since it's
going back to a permitted purpose and save a few dollars?
You pay it off so quickly and it's such a small amount,
there's probably not much savings there to do that.
But that's a good question.
So you wouldn't be in any trouble if you changed the purpose back to school
district use, even though some of the building was fixed
with taxable proceeds.
That's a good quick question. Thank you.
So real
quickly on the borrowing capacity calculation
across the top, we take the general fund revenues
for the last three years and you can see those those amounts.
There are some deduction ones that we have to calculate.
But then you basically take that net amount and take the average of that.
And then under the state local government Unit debt Act, you take that average,
which is the borrowing baseline of about 61 million
and you multiply that by 225%.
So 225% of that gives you the maximum amount of debt
that you would be permitted to have is 137 million.
Subtract from that the 21 million that you have outstanding today.
So your remaining borrowing capacity is
116 million,
Lou. Does that
does that change our $4 million annual payment?
I mean, the 16 116 million?
So if we would go to bond for that, would that change our annual payment
above 4 million?
Well, so you're going to see here that we've calculated
that at current interest rates, you could probably stay at about 4 million
a year and borrow up to about 50 million would be the. Max.
That you could stay at that run rate.
So it's about 50.
But this is really just showing you that the pure dollar amount
that under state law you could borrow if you had to.
Right.
Obviously, I don't think we're talking about a number
like that, but it's just helpful that,
you know what your maximum borrowing capacity is.
I guess, you know, as soon as you because we could potentially need to do something
like this to build a new elementary school or renovate an elementary school.
I mean, we're talking big numbers.
Would
would we ever want to
I mean, I guess the only way
to go over the $4 million payment a year is what you said originally
is think about a tax increase like these other debtors have done
way years prior to going even going out to bond.
Because how do you come up with if if our debt service
increase is more than 4 million, that has to come from somewhere.
Exactly. Yeah.
So that's why you're saying these districts plan ahead for four years
to build their base and actually possibly increase taxes
in anticipation for that fund that your debt service payment raising.
Right.
So, I mean, just to think about, you know, some simple numbers, if your run rates
for and the amount of borrowing you need to do to pay for a project
that say was $70 million meant that you had to get up to a run rate.
Once you borrow all of that money of
maybe we could get let's just use 5 million.
So you had to go from 4 million to 5.
And you know, the budget where all the money's going right now
each year, year over year, if you had to get an extra 250,000
and each budget that you could set aside for debt service
under the current saw that you're operating under,
you know, how many years would it take you to go from 4 million up to 5 million?
You know, that might be three or four years
of allocating that extra 250,000 a year to get there.
So it all comes down to, you know, what would that new
run rate be based upon the amount that you need to borrow.
And so that's always the calculation.
And where some of these numbers that that you'll see get to.
But in fact, one that's it really comes down to that.
I mean, some of these districts that have had huge, huge projects,
they have to be very clear with the public and say in order for us to build this
brand new high school, we're going to have to start raising taxes
and we're gonna have to do it for the next five years to have that type of
debt service in the budget.
I think that's an important thing to keep in mind here,
because as we've talked about this over
the last few years, and it's interesting, if 50 million is currently our,
you know, borrowing capacity to stay at the debt service level,
it was 75 million a couple of years ago in a different rate environment.
But that's something that keeps coming up
when we have the conversations about
what total project cost
we could really be able to take on without that impact,
because we could do a $50 million building
without having to worry about
finding the revenue to increase the debt service.
But if we were looking at $100 million project, we'd obviously need.
To. Do that and plan, you know, in advance.
So I think that that's something as we go through the process of looking
at the building things, that's important to keep in mind
for what we can take on in a short amount of time without the need to
to raise taxes, to increase revenue for debt service coverage.
And if you got into that scenario, that's where we have a page.
It's called our Military Impact summary, where basically we try to level that out
and there's districts where we have it's it's
six or seven years of,
you know, a point to part of the millage increase each year.
Point two is being dedicated towards building towards
a higher debt service number.
And so what we do,
we work with the business managers and typically the best thing to do is
so you haven't borrowed any money yet, but you're building that in.
So as you put that extra money in the budget
each year, it's not going to be used for anything.
So you put it aside over into a capital projects fund.
So while you're preparing your budgets to get ready for that future run rate,
you're also that money that's not being spent, as you put it,
you know, So the first year
you put 215, in the second year you go up by another to 50.
So now you have 500,000 that you haven't spent
and you keep transferring that over to the Capital Projects Fund.
So what that eventually does is at least you can use that money to
reduce the amount that you need to borrow when you get to the project.
And so that's at least the one kind of benefit of the early planning.
And as you're building that into your budget,
you're at least accumulating it, that it can help
you reduce the amount that you need or you vice versa.
We also see districts that they still borrow the same amount,
but maybe they're just trying to massage the impact of the budget
and they'll use some of that money to kind of one year.
If there's a really rough budget, they'll use two or
300,000 of that towards that debt service payment.
So it's not as big when it when it hits the budget.
And then there's other strategies that
some of you have heard us talk about where you start to break up the borrowings
to keep it at 10 million and less for bank qualified purposes
because you get a slightly lower interest rate if you issue
10 million of bonds or less per calendar year.
Now, as projects have gotten larger, unfortunately,
and the cost of construction,
as we all know what has happened there, some of these numbers that we hear
on school projects today really don't permit us from kind of doing
10,000,001 year and ten, the next year and ten the next year and breaking it up
to try and do that just because the project costs are so high.
But there is just
I wanted to mention, since you're kind of laying it out,
there is at least a way that you can, as you're building
that in, you can kind of channel that money.
It's not like it's just getting wasted and you're saving it
to prepare for the project when it eventually happens.
But realistically, under Act One, there's
when it when inflation's at two or
3% and the schools are at two or 3%,
there has been no other way to finance a large 80, 90,
$100 million project in Pennsylvania in the last ten or 15 years.
Now it will be different to see what happens
with the saw index, with what's going on with inflation.
But so are all of your other costs are increasing by that amount too.
And when
you do the calculation for the 50 million,
how many years are you taking that bond out?
So why don't we jump jump to that right now since we're talking about it so much?
Page seven
is is the numbers that we ran
to kind of show you, okay, under that drill
and this is usually the target that we first solve for is
if you just wanted to stay at your current run rate, how much could you borrow
and to your question, Mike, how far would you have to go out?
So on this page, a lot of numbers here, but the really the ones
to focus on column to, you've already seen those numbers.
That was the first column, your total debt service that we looked at
after reimbursement, that 3.8 run rate and a yellow highlighted
the kind of the high watermark is the 3,000,009
51 So we'll call it 4 million just for this conversation.
That's what we were solving for is over with your existing debt.
Kind of your max amount of debt service is the 4 million.
What would it look
like to get you the new money?
So we had to do a little bit of of debt restructuring to accomplish it.
I was assuming you wouldn't do this
borrowing until the fall of 2023.
So time will have passed.
And then the new money
borrowing column is column five.
And so when you look at column five and you see those payments,
if we're doing this,
the borrowing would be in 2023,
we were going out to 2053
to stay at the run rate of about 4 million per year.
So column seven shows
how the existing debt with a little bit of restructuring,
you would still be at the $4 million run rate.
And that's
in today's world with construction materials and estimated lives.
We see a lot of the new school projects that we
the amortization go out 25 to 30 years because you certainly expect that
the building is going to be in good shape, at least for that period of time.
So again, another thing that we always remind people
of when we talk about whether it's a sewer project or a or a school building, is
you don't want to finance this over ten years
because then just the people that live here,
the next ten years are the only ones that are going to pay for it.
You take an asset like this and you finance it over the useful life
where everyone that's going to benefit from the project
is kind of paying their fair share towards the project.
Obviously, if you tried to pay it off in ten or 15
years, you'd have much, much higher annual payments.
So it's also an affordability thing.
But kind of to your point, you know, I wouldn't show you a 50 year
financing because that that would be a little bit out of the ordinary.
But it's pretty normal for Pennsylvania schools and municipalities
to do 25 to 30 year financing when it's when it's basically
new renovate, you know, significant renovations or new construction.
Yeah.
So maybe just to circle back, Kathy,
for your purposes, column seven,
you know, the 50 million number
that's in the new money column gets you to that 4 million.
If you bumped that up to 70 million, that column
probably has to get to some number, like 5 million a year.
And that's where you could do all of this, do the restructuring.
And if the number was that still be faced with
how do we get from 4 to 5 million, say, over the next five years,
and that might be allocating 200,
$200,000 a year for the next five years
of additional debt service in the budget?
It's it's just a lot to think about because
when we saw the numbers for that elementary school up probably what,
three years ago, 50 million is not going to get you elementary school.
Yeah.
Less than half of one.
Yeah.
No, the projects
I'm working on a new middle school for a district down near Conshohocken.
New Middle School. Just came in at 114.
Yeah, Or a brand new.
That's brand new middle school. Yeah.
Unbelievable.
And, you know, we're a unique district where we build one elementary school
and others build five, four or five all over town, like Palmyra.
So it looks it's more palatable.
But this we build one for everybody.
So it's going to be a bigger number.
Yeah, Yeah.
But the good news is
we're having this conversation now, which is what we always encourage you to
in any significant project, you have to be in the Act one World.
You have to be thinking about it because if you called us up and said, Yeah,
we're going to do this project next year and we're ready to borrow for it,
sometimes the answer is no, you literally can't afford it.
There's no way you would do it without literally without going.
You know, the only other option
to raise taxes above the index is you could go to referendum
and ask for a referendum on the basically on the project and then,
you know, there's been a few of those done since Act one was put in place.
I think the approval rates like 50%
have been have been passed.
That's your really the only other way.
If you don't start early in the planning process of
how do you budget for a significant project.
I know this is kind of
do you mind just explaining the act one little bit more.
In detail like not.
Sure.
So and Cheryl, certainly help out here.
I'll explain it kind of in the big picture that Act one said,
you know, the tax increase from year over year has to correlate to the statewide
average weekly wage index, which is calculated for the whole state.
You have your own formula.
And that's when he kept saying small.
That's what the statewide average.
Okay, sorry.
Yeah, I know we've.
Gone over this, but I just was like, now I'm seeing it in here.
I'm kind of like, okay. That's
but so that
increase, you know, under when it was first passed,
they had put in some exceptions that could be used.
And now we're 20 years into it.
And most of those exceptions have really expired
and aren't really applicable anymore, but under that.
So if you can only if the soul ends being 3%
and you can only increase, have your tax increase be 3%,
you know, all of the things haven't been through the budget that drive that
salaries and benefits and transportation costs.
And so oftentimes we see that 3% gets eaten up by all of those things.
And we're saying, well, okay, you need more money for debt service
if you want to do this project.
And there's nothing left then under the index.
So that's where you kind of have to start planning early and saying,
okay, well, we have to make room in that index
that every year we know at least some portion of it is going
to have to be used to build our run rate for debt service.
So Act one, that's where Act One really kind of changed
because prior to prior to Act one, if you had a bad budget year
and you wanted to raise taxes by 10%, you could raise taxes.
But that was that was a little bit
my question to like what made them, you know, put the hammer down.
Okay.
The only things anymore that really will allow for
the exceptions is increase in special education.
Peter's used to took two kind of work because Peter's there
for a bunch of years was was escalating very rapidly.
So in order to keep up with appeasers growth,
they allowed you to go to exception and go higher than the state act one in. Yes.
Now pretty much it's only the cost buckets
that that is escalating rapidly in special education.
So if you can prove you're over year, whatever that increases, you can
increase your S1 indexed
proportionately by that increase in special ed
has only special ed that the exceptions for anything that's
going to work anymore for schools that's really working.
Yeah they're one of the exceptions for example was
there was debt that had been incurred prior to an act one became effective.
And so obviously we all ran around and had a bunch of districts incurred debt
prior to that. So they had an exception.
But that debt has all now kind of burned off.
So you can't really you can't do that one anymore.
So that's where it's really just down that special.
Ed is your is your only exception.
Thank you.
Yeah.
So that's good discussion.
I had also brought along some interest rate charts.
You know, that was just kind of give you the update on that,
that rates have moved higher.
But I think what we were just talking about is really the vital part
of any type of planning for any type of future project.
So I'll stop there and see if there's other questions.
This is Cathy Seger.
So I think I appreciate you coming.
This is great information.
I think there's a lot of good news here, right?
So we have we are prepared
prior boards, prior business managers have prepared us
well, right where we have 21 million in debt service
and we have a rapid payment plan and we have the ability to borrow.
We know we have some big capital plan needs coming.
So I think this Finance committee perhaps
now this year can work on thinking.
I know in October,
November, we'll get our feasibility study back on the elementary school.
Maybe we'll see some more numbers at that point.
Will then know what the Act one index is.
And so I think
as we finish this budget year and move into another budget year,
it sounds to me like any excess money we up with
needs to be put aside or transferred to cap fund or the fund balance.
Put that money where the fund balances low.
The CAP fund is low.
Those do need to be replenished.
But even looking forward to these projects,
we need to think about that as well in our budget planning.
Right.
I think that's a great point on on really two fronts.
One is anything that you can put in there
can eventually reduce how much money you need to borrow for a large project.
It may be still there.
You may have another project that pops up that you have to fix something
and it gets spent, but some of it might be there.
That helps reduce how much we would have to borrow on a large scale basis.
Your other point
there of kind of replenishing those funds is important that I mentioned.
The triple-A credit rating that you have right now.
I would say if you had no projects in the next five or ten years,
I would say we don't
really need to worry about our rating because it does us no good.
It's it looks good on paper right now.
But unless you're using it, unless you're actually going
into the market and borrowing money, that you're going to benefit from it.
Why would you care that you absolutely stay at the triple-A rating?
But if you do have projects where you are going to be borrowing money
and you have the ability
to lower the interest rate, when you do those large borrowings,
you should do everything you can to try and preserve that good credit rating
because it's going to have a direct correlation
to how low your interest rate is.
So I do think, as Cheryl and I talked a little bit about, you know,
where the fund balance numbers are in some of the reserves
compared to the benchmarks to keep a triple-A rating.
That's some of the biggest drivers of the rating that they looked at is
fund balances.
Are you in that triple-A category, which are typically big numbers like 15,
20, 25% fund balances to stay in the triple-A category?
We've always made a strong argument
to get the rating to where it is is that we're really fortunate
that we have a super, super strong tax base, right?
Solid anchored by the Hershey Company, anchored by Milton Hershey
Med Center, Milton Hershey School, Hershey Entertainment Resort.
We've got this super solid tax base that's performed through,
you know, downturns higher than normal income levels that support that.
So we always really make the argument that we've got
some super strong factors that fall into the triple-A category.
But I think as
this group thinks about your your charge in terms of budgets
and looking out for that rating, if there are projects on the horizon
and borrowings on the horizon, trying to maintain that rating
will be really important.
Again, if it goes down one notch, it's
not the end of the world, it's ten or 15 basis points.
But if we can keep it where it's at, that's going to save,
it's going to save everybody money in the long run.
Okay, great.
Does anyone have any further questions?
But I do think your point's important one.
Just to reiterate, I think the low debt level where we're at right now
is very helpful, where the credit rating
is the amount of debt service that's in the budget.
That's one of the things that you might notice
when you read the rating report.
I think we're at about 8% of the budgets on debt service.
And that's viewed as as kind of
we have a lot of districts
where they spend ten or 15% of their budget on debt service
every year, places that are growing a lot more rapidly and have a lot more debt.
So we're in a in that good position
that to tackle a large project over the next couple of years,
you're in a much better position than certainly many other districts are.
Right.
Thank you.
I really appreciate it.
Sure.
And happy to come back and continue this discussion.
Obviously, the other driver is interest rates that
this all was calculated out at today's rates,
which are much higher than if I had run these numbers a year ago.
So as rates move around and and maybe rates will be lower next year
if the economy really starts to slow down
and you're thinking about the timeline of your projects,
that's when we also need to be cognizant of what's going on with rates.
Your project estimates are in
and then we start thinking about strategically, okay,
should we be taking advantage of some amount of borrowing
once you're ready to commit to the project?
If you saw a downturn in rates, say, a year from now.
Okay. Right.
Thank you. Okay. You're welcome.
Okay.
We will move on to the Finance Committee goals.
You can see those on the agenda, the goals that
Mrs. Purcell and I worked on together.
They're very to the goals that we've had in the last two years.
So it would be a monthly review of current and future revenue
and expenses, which includes
2022, 2023
budget projections and then a timeline for the next budget.
2324 And I did break out
two things that I think we should monitor closely this year.
In particular is the capital plan and the fund balance
kind of building off what Mr.
Bradley just said about making sure that those are properly funded
and that they're healthy.
So when we go through bond rating and reviews
the quarterly updates, we would continue to get updates
on the trust performance food services budget.
And then I did add two things here.
Based on our conversations in the last few months,
cyber charter school enrollment and health care expenses.
So this committee could keep a good eye on these expenses
and see if they can we can get them down or work to change that in the budget
and then as needed, I have long term capital planning.
I pulled that out of a quarterly review.
Since we do have the facilities ad hoc committee so that they would
just be bringing things to us as needed
for future financing needs.
So the new items would be capital
plan, fund balance, cyber charter school enrollment and health care expenses.
Otherwise it's pretty much the same.
And I did did want to keep food services on there because considering
that the free lunches are going away after two years,
so we should continue to keep an eye on that budget.
Does anyone have any additions or objections to this?
The said these goals would be starting July for the next
school year for this committee.
Can I a quick question
about the food service budget was were we like kind of in debt?
Was that prior to COVID or how we were.
Yes, we've always been it's
it's hovered right sometimes in the red, bounces back to the black
and then the biggest concern prior to COVID was if we were going
to stay on the healthy lunches program at the high school or not.
And we did go back on it for for COVID and we were monitor
that the ala carte sales, there was concern about that.
And then expenses with equipment and things that Mr.
Hummel needed to buy to provide those healthy meals at the high school.
So I just think it's something we still want to take a look at.
Yeah, no, I agree.
And it's just that
the cost of the food obviously is going up and
okay.
We were also getting to a point where for many years
it had for the most part, sustained itself, you know, inside of it.
And a few years ago, we kind of restructured
the way we looked at the budget for that and pulled the director salary out of it
because it was really skewing what the true impact was.
We've had this on the budget because in addition to having not opted
into the USDA waiver reimbursement program for the high school alone,
we were starting to anticipate needing a transfer
from the general fund to be able to balance the budget there.
So that's when we really started looking
a little bit more because when it was breaking even
and not requiring money from the general fund,
obviously, you know, there wasn't as much either.
There was an attention paid to it, but, you know, not as deep of a look.
So as projections look that the loss will continue,
you know, could continue to grow based on sales
and food costs and all of those different factors.
It's really moved up in the list of things we want to keep an eye on.
So if I guess.
Are you.
Because we're providing. More.
Free lunches and breakfasts is that
that's okay.
So we're not.
So it was.
Been paying for we're.
Buying what was happening.
And so for every meal there's a reimbursement rate.
If it's a full meal of like all six items that are required and at the elementary.
Yeah.
So but prior to 2020 and opting into the program
for the high school,
the middle school Elementary and SCC were already all on there.
So they were getting that reimbursement rate and so it wasn't
as strong there of, you know, an impact.
They don't the la carte services that the high school did.
When you jumped over to the high school, we had the majority of it was l'écart.
There weren't as many people buying and the food costs were a lot different.
So we weren't getting the reimbursement there at all.
And that's why we ended up moving on to the program.
Kind of the timing worked out really well because then this past year we received
waivers for 100%, not just, you know, the the staggered ones on need,
but that's
where the cost was really kind of like bleeding out.
And we had some of us on the board had gone and done a pretty in-depth
tour and visit with Mr.
Hummel just to look at those things because
like some of the buying opportunities
for the high school versus the middle school, it just seemed like
we could shore it up a bit more and make it healthier at the same time.
Yeah. Yeah.
Okay.
Well, I appreciate your questions because maybe one of our things
when we do a quarterly review is to have Mr.
Hummel come and explain everything again to the committee since we reorganized
because we didn't to do that last year and last two years
because we got reimbursed.
Right. So it's maybe it's time to do that again. Yeah.
Okay.
So, Mrs.
Purcell, do you want to go over a monthly update on 2122
general fund revenue expenses?
I can just do this real quickly.
I think as I was looking at the numbers
for both revenues and expenses, now, there's
not much of a projection in here right now for where I think we're going to land.
I think we still have a lot of them.
There's going to be a lot of cleanup to do with
the system work and everything but anyway, if you look at
go ahead to the next page, please.
You go down to the next page.
I kind of want to focus since we don't have much time on on totals.
If you look at
revenues year to date for the last couple of years,
where they were May 31 and June 30, where we actually ended the year,
you can see there's still a lot of activity that will get posted
for the month
of June and then especially the following months during audit.
So that's really what we're going to be focusing on
the next couple of months is all those year end adjustments
and getting everything into the last the last month.
Go ahead, fill to the next page.
And it's the same for expenses.
You can see basically we've got a good $10 million pick
up, probably from May to where we land the year.
So there's a lot that's happening yet.
So when we come back in August, I'll have a much better picture
of where things look.
We'll have pretty much had some preliminary work on the audit
and have some better numbers for the 2122
school year.
And then the only other thing I had was the contracts.
If there's any remaining questions for what's on the agenda for tonight.
The increase on the stop loss
deductible, that's higher than it was before, right?
The 170,000, wasn't it previously?
100,000.
Not since this past year anyway, was 170.
I'm not sure when it went to that rate
that that did not change.
Is that one that we didn't like.
And that was one of those, as it were.
You know, I think that's a very.
I saw all the health insurer, the Highmark contracts are on
and they all have the appropriate deductibles based on the plan.
And the group of employees.
Right. Yeah.
And they're giving us the same deductible
for in and out of network of UPM C issue. Yes.
Okay.
So that yeah they are still committed to that.
It's still on a year by year basis to revisit it next year.
But for right now at least they're on. Yeah
that's one of the reasons why I wanted to put health care expenses
in the Finance Committee, because we need to start watching that
and maybe working with air to figure out some solutions for the future.
Yes, they do have some I forget what they call them,
enhancements or things that we can add
that really are not a cost to the district or the employee unless they're used.
But maybe there's some options we can put in place for for
better education or better programs or so there's definitely some things
we can talk about.
Yeah, And i know that sometimes
health insurance issues will go to the h.r.
Committee with air because we don't want to talk about anything confidential
with employees or anything.
So i think what
what i've typically shared with the finance committee in the past
for for health care is just overall costs or what might be driving a trend.
That's just not nothing specific medically.
But if there is a major driver or just to see what the costs are
and where we're kind of trending year over year and to be prepared for,
you know, a significant increase come your end
just to kind of have a better feel for what all is in it
because it's component of medical costs plus fees.
And those are you know, you want to make sure we're balancing that out and have a.
Have a good.
The air stays on top of that,
you know, is getting policies to our best
to our benefit.
Right.
Does anyone have any questions about the contracts?
Okay.
So we do not have a meeting in July, but we will be back in August.
So may I have a motion to adjourn the Finance
Committee meeting at 601?
So Mike Rizzo.
Second, Lindsay.
Drew all those in favor, say I, I suppose they now.
Have. The meeting is adjourned. Thank you.