Capital Projects Chapter 11 in Guthrie Dr. Len Elovitz Peabody College Series. Copyright © Allyn & Bacon

Objective 2  TLWDTAT:  Describe processes involved in constructing and financing capital projects

Capital Construction Peabody College Series. Copyright © Allyn & Bacon  Outside the normal current expenditures budget  School construction directly related to demographic trends  Changes in building use

Demography and School Construction Peabody College Series. Copyright © Allyn & Bacon  From WWII to the end of the 1960’s building schools proliferated  Built to accommodate the baby boomers and immigrants  1970’s brought a decrease in the populations straining systems with possible closures of underpopulated schools  Today, shift from Northeast and Midwest to the South as well as the flow of immigration calls for an increase in facilities  Possible quick fix measures include: year-round staggered schedules, renovating existing facilites, and building new schools

How do we pay for new schools? Peabody College Series. Copyright © Allyn & Bacon  School are built through bond issue rather than through taxes  Capital expenditures of this size on the backs of local and state governments  Larger financial and capacity impact on smaller districts  Big districts - Chicago & New York can smooth out capital expenditures and spend about the same amount each year  Exercise is politically delicate

Building a New School Peabody College Series. Copyright © Allyn & Bacon  Components  Determining need  Determining location  Land acquisition  Architectural planning  Bidding  Construction  Completion and preparation use

Determining Need Peabody College Series. Copyright © Allyn & Bacon  Ascertain the extent of the need  Need projections of student population for at least 5 years  Analyses of present building capacity  Investigate alternatives to building  Space in non-school buildings  Consolidate selected operations  Multi-track year-round schooling  Mobile classrooms units (MCUs)

ASSA

DEMOGRAPHIC STUDY KEARNY SCHOOL DISTRICT Dr. Len Elovitz

Methodology  Cohort Survival  Enrollment History  Average survival ratios  Application to current enrollment to predict forward

Pre K K Elementary High School Sp. Ed Total Kearny Public Schools Enrollment History

SURVIVAL RATIO BIRTH – PRE-K0.519 BIRTH – K0.907 K – – – – – – – – – – Kearny Public Schools Average Survival Ratios

K Elementary High School Pre-K Special Ed Total Kearny Public School Enrollment Projections Current Organization

According to Town officials, 2 new housing projects have been approved. The Project on Hoyt Street includes 7 2-bedroom townhouses, 36 1-bedroom and 6 2-bedroom apartments. Schuyler Crossing Located at the intersection of Schuyler Avenue and Bergen Avenue is currently scheduled to include bedroom, bedroom and 12 3-bedroom units. According to the developer, the construction of these units is 1 to 2 years away. In order to project the number of public school students that would result, we used multipliers developed by the Center for Urban Policy Research at Rutgers University. The following table lists the multipliers used:

ELEMENTARYMIDDLEHIGH SCHOOL Apartments 1-Bedroom Bedroom Bedroom Townhouses 2-Bedroom Multipliers Used for Projecting Public School Children The following tables list the projected numbers of students for each project. Numbers are rounded-off, therefore, totals may appear different than the sums.

ELEMENTARYMIDDLEHIGH SCHOOLTOTAL Apartments 1-Bedroom Bedroom2103 Townhouses 2-Bedroom1001 Total4317 Projected Public School Students – Hoyt Project

APARTMENTSELEMENTARYMIDDLEHIGH SCHOOLTOTAL 1-Bedroom Bedroom Bedroom63110 Total Projected Public School Students – Schuyler Crossing

CONCLUSIONS AND RECOMMENDATIONS The cohort survival calculations result in the prediction of an increase of 308 students (5.3%) over the next 5 years. If the 2 housing projects are completed as planned, it would add another 45 students to the projections for an increased enrollment of 353 students (6.1%). Most of the increase is projected at the elementary level (5.7%) followed by the high school (4.5%). The largest increases are projected for grades 6-8 at 10%. This is significant should the district move ahead with plans to redistrict to a middle school The current housing projects should not have that much of an impact. However, it is recommended that the district monitor enrollments coming from these units once they begin to be occupied. The confidence of enrollment projections decreases as we move further into the future particularly when the numbers are small. Therefore, it is recommended that enrollment changes be monitored on a yearly basis.

Enrollment Projection  Enrollment History Enrollment History  Enrollment Projection – District Enrollment Projection – District  Enrollment projection – School Enrollment projection – School

Determine Location Peabody College Series. Copyright © Allyn & Bacon  Where do kids currently live?  Building a new school in another neighborhood could increase transportation costs  What other development is planned for the community?  Do existing infrastructures in the community have the capacity to support the new building?

Land Acquisition Peabody College Series. Copyright © Allyn & Bacon  There are two basic ways to acquire land  Negotiation with other entities  Can increase the value of the development  Condemnation - eminent domain  Can acquire the land at a court-enforced price

Architectural Planning Peabody College Series. Copyright © Allyn & Bacon  Choice of architect  Key component of the project – Educational Specifications  Understanding the goals and objectives of the education plan  Knowledge of student population needs  Knowledge of community culture  Preparation of the design sets the budget

Bidding Peabody College Series. Copyright © Allyn & Bacon  Fair  Transparent  The district is required to accept the lowest responsible bidder  Architect must be a part of the selection team  The contractors’ track records and financial status should be thoroughly investigated – prequalification in NJ  NJ – General and 5 trades,

Construction 26  Players  Architect  Supervises project  Calls and chairs all job meetings  Approves contractors invoices attesting to completion of work and/or materials on hand  Approves all change orders  General Contractor and Subcontractors  Full-time inspector hired by the district – Clerk of the Works  Always on the job site  Inspects all work

Completion and Preparation for Use Peabody College Series. Copyright © Allyn & Bacon  Final Construction step - accepting the building from the architect  Final payment made - although some monies held back for liens, etc.  Equipping the facility - Usually purchased from current revenues rather than bonds - Arbitrage  Surplus facilities created by new construction  Convert to other community uses  Put on the market

Long Term Debt 28  Commits repayment over many years – Usually 30 yrs for new construction  Requires a vote of the district residents - referendum  State restrictions on debt incurred  Takes burden off of current property taxpayers  Spreads principal and interest payments out over many generations  Extra millage in other states builds a construction fund that earns interest

Authorizing Bonds Peabody College Series. Copyright © Allyn & Bacon  The steps involved are numerous and complex. The first order of business is hiring a financial consultant specializing in bonding  Bond Counsel should be secured  A campaign to secure the bond referendum should be mounted

Authorizing Bonds Peabody College Series. Copyright © Allyn & Bacon  Work of the financial consultant includes  Surveys issuer’s debt structure and financial resources  Gathers all financial information affecting repayment  Advises on the timing and marketing of the bond issue  Prepares an overall financial plan  Prepares and distributes documents to all prospective underwriters and investors – The Official Statement  Assists the issuer in winning over the public  Keeps in contact with rating services  Advises when sealed bids are opened  Supervises bond printing, signing & delivery  Advises on investment of bond proceeds

Bond Counsel Peabody College Series. Copyright © Allyn & Bacon  Specialized law firm  Ensures that bonds are indeed a legal obligation of the district  Ensures no reasonable legal challenge to the indebtedness represented by the bond  The same firm may serve as financial consultant as well as legal counsel

Referendum Peabody College Series. Copyright © Allyn & Bacon  “Selling the bond issue”  Moment of truth  District determines whether it is possible to borrow money  Percentage of bond elections has declined while percentage of dollars approved has grown  Rise in population and geographic shift will cause more bond referenda in the future

Selling Bonds Peabody College Series. Copyright © Allyn & Bacon  If bond approved, must find a purchaser  School districts sell the bonds to a dealer, usually a bank, rather than individuals  Bidding for the bond  Credit rating by bond rating agencies  Bond brochure describes an issue  Assures prospective purchasers that interest and principal will be paid in full and on time

Selling Bonds: the use of Moody’s and Standard & Poor’s Peabody College Series. Copyright © Allyn & Bacon  Rate issues from highest quality to extremely risky  Ratings determine interest rates of the bond  Looks at debt capacity

Interest and Principal Payments Peabody College Series. Copyright © Allyn & Bacon  Term bond  Large repayment in the future (maturation)  Only interest paid until maturity  Rather..  Establish a sinking fund annual deposit to pay off the bond  Staggering of bonds’ due dates  Schedules so that sum of the principal and interest payments for the district are about the same each year  Year of maturity, owners present the bond for redemption on face amounts

Ways of Financing Capital Improvements Peabody College Series. Copyright © Allyn & Bacon  Current challenges  Bond issues way down  Cost of borrowing increasing substantially  Municipal bonds not as attractive to investors  State limits amount of debt a district can take on  Can burden future generations and locality  Property-poor districts with strong instructional programs must make hard choices  Possible solutions  Loss of local control  Lengthen process  Percentage equalizing technique

Schools Development Authority 37  On July 9, 2008, legislation was enacted authorizing $3.9 billion in additional funding for the New Jersey Schools Development Authority (SDA).The legislation allocates $2.9 billion for 31 special-needs districts, known as SDA Districts. The SDA manages and funds 100 percent of eligible project costs in the former Abbott districts. The legislation also allocates $1 billion to leverage construction in New Jersey’s Regular Operating Districts (RODs) and includes $50 million for vocational schools. The SDA administers grants for RODs, which manage their own projects.

Summary Peabody College Series. Copyright © Allyn & Bacon  In addition to the daily operations of schools, system are responsible for siting, planning, building, and maintaining schools. This process is intricate and brings socioeconomic, financial, and political influences into play.