The cost of education

Published 11:04 am Friday, May 18, 2012

WINDSOR – Davenport and Company gave the Bertie County Commissioners several scenarios for borrowing money to build a new high school last week.

The scenarios spelled out the effect of borrowing money to construct a high school for the original $18, 030,000 the board has said they will approve as well as the possible $20.1 million that the school would cost as currently designed.

The commissioners received the bids just before they heard the presentation from Davenport.

Those cases are broken down individually below.

Case 1 – Borrowing $18,030,000 through a public sale

This scenario would see the Bertie County Commissioners seeks only the funds available through the Quality School Construction Bond funds that have been awarded to the county.

According to the numbers given by Davenport, the cost to sell the bonds through a public sale would be approximately $683,000. That would include $125,000 for a financial advisor, $65,000 for bond counsel, $145,120 for a bond underwriter, $40,000 for Underwriter’s Counsel, $35,000 for bond ratings, $215,273 for bond insurance (if needed), $12,5000 Local Government Commission application fee, $5,000 for bond trustee, $15,000 for a local attorney, $5,000 in real estate costs and $20,000 for contingency.

That added to the $17.4 million from proceeds from the sale of the bonds would mean the commissioners would spend approximately $18,140,000.

Case 1A – Level Principal

If the county borrows the $18,140,000 and sets the term at 20 years with a level principal being paid each year at an interest rate of five percent and a federal subsidy of 4.49 percent, the total net debt service will be $16,232,026.

According to Davenport’s figures, the total property tax effect would be 10.5 cents per $100 valuation. That would include an 8.9 cent tax hike in 2014 followed by a 1.6 cent hike a year later.

Case 1B – Structured Principal

If the commissioners opt for a structured principal on the same borrowing of just over $18 million with the same terms, the total net debt service would be $17,111,954.

The structured principal would allow the commissioners to raise taxes by a total of 6.4 cents and still allow for the payback to be accomplished. In this scenario, a 4.9 cent hike would take effect in 2014 with a 1.4 cent hike a year later.

Case 2 – Borrowing $18,030,000 through a bank loan

While providing this scenario, officials with Davenport said there was no bank loan that the county could count on at this time. Several banks have expressed interest, but none have made an offer to purchase the bonds.

The financing costs would be less up front in this scenario with approximately $362,000 being spent for the Financial Advisor, Bond Counsel, bank fee, bond insurance (if needed), bond trustee, local attorney, real estate cost and contingency.

The grand total would be $18,030,000.

Case 2A – Level Principal

While the upfront costs would be less to the county, the overall payback through a bank loan would be greater. If the county borrows $18,030,000 for 20 years and pays it back on a level principal, assuming a 5.5 percent interest rate and a 4.49 percent federal subsidy, the county would pay back $19,178,827.

The impact on the tax rate would again take effect in 2014, according to the schedule with a 12 cent tax hike. That would be followed by raising taxes another 0.9 cents in 2015.

Case 2B – Structured Principal

With a bank loan still in place and a structured principal payback based on the same figures as the level principal, the commissioners would eventually pay back $19,799,804 for the debt.

That would cause a total tax hike of 7.7 cents with the bulk of that (6.6 cents) coming in 2014 and the remainder in 2015.

Case 3 – A $20.1 million project (public sale)

The total cost for selling bonds and approximately the same costs as Case 1 in financing costs, except for more expense in for a bond underwriter and bond insurance, the cost would be $20,895,000.

Case 3A – Level Principal

To borrow nearly $21 million for 20 years and pay a five percent interest rate and receive 4.49 percent federal subsidy, the county would pay back $19,673,707.

The implication on the tax rate would be approximately 12.4 cents total with 11.2 coming in 2014 and the other 1.2 cents in 2015.

Case 3B – Structured Principal

For the same borrowings and payback schedule to be changed to structured principal payback, the county would actually spend $20,617,465 over 20 years.

That would cause a total 7.9 cents tax hike including 6.3 cents the first year and 1.6 the second.

Case 4 – A $20.1 million project (private sale)

As with the smaller amount, the upfront costs for the borrowing would be less through a private sale.  The total borrowing would be $20,550,000.

Case 4A – Level Principal

The payback on a level principal through a private sale would see the county pay back just over $22 million.

It would see a total tax increase of approximately 14.5 cents on the dollar with 13.9 cents coming in 2014 and 0.6 cents the next year.

Case 4B – Structured Principal

With the same parameters, the county would end up paying back just over $23 million if the principal was structured.

That would require a 9.2 cent tax increase with 8.5 cents coming the first year and 0.8 the following year.

While the commissioners received all of the reports from Davenport, they did ask the Bertie County Board of Education to work with Hite Associates to reduce the school to make it $18 million.

They also asked Davenport to proceed with attempting a private sale of the bonds while continuing to find out if any banks were interested in making an offer to purchase the bonds.