Oconee County Board of Education Member Tim Burgess, in discussing earlier this month the Fiscal Year 2024 Budget the Board is expected to adopt on June 5, expressed concern about the “substantial debt” Oconee County Schools is facing.
Burgess praised Chief Financial Officer Liz Harlow for setting aside $11 million in the Budget to help retire the bonds the Board of Education sold in 2021 to build a new middle school, add classrooms at three elementary schools, and build a new administrative building.
Burgess had not expressed concerns about those bonds publicly previously, but an analysis of reports Harlow has been providing to the Board since the first of the year shows the basis of Burgess’ anxiety.
The Board sold bonds three months after voters approved the Educational Local Option Sales Tax referendum in March of 2021 that will require $46.7 million in principal and interests payments against those bonds.
Harlow is projecting ELOST will generate only $37.9 million over its five year life.
Harlow’s documents also show that bond sales, state contributions, interest, and a transfer of $6.6 million from the General Fund will result in a budget for the constructions projects presented to voters before the ELOST referendum of $55.2 million.
Expenditures, including the constructions costs and repayment of the bonds, will total a little more than $118 million.
If ELOST produces the projected $37.9 million, that is a gap of $24.9 million between projected revenue and expenditures.
ELOST collections are likely to exceed the projected $37.9 million, if current collection rates hold, but ELOST collections are capped at $48.5 million by the referendum voters approved, and the gap between that cap and budgeted expenditures is $14.3 million.
Only A Start
Burgess told Harlow he hoped she would add to the $11 million she has set aside in the Fund Balance in the 2024 Budget over the next five years, while ELOST monies are being collected.
|Board Voting To Approve Tentative Budget |
The primary local source of money for the Fund Balance is property taxes, and the budget the Board is expected to adopt on June 5 holds the millage rate steady at 15.5 mills.
That means increased revenue will come from increases in property assessments, which Harlow projects to grow at 7.3 percent.
At the May 1 meeting of the Board, when Harlow introduced the Fiscal Year 2024 Budget, Burgess said “we've known since this ELOST started, since we began this process, we've got a pretty substantial debt service in front of us that has to be serviced over the course of the next five years.”
“I hope over the next several years we're able to continue to add to that ($11 million) to a level that will be sufficient so that based on projections and everything else that happens over the next five years that between that committed reserve and other collections we'll make and we'll be able to easily meet that debt service without any problems,” he continued.
At the meeting seven days later, Burgess again praised Harlow for designating $11 million in the General Fund for retiring the debt.
“There’s a lot of moving parts in this budget,” Burgess said. “You did a really good job with this, putting all of this together, balancing all of them.”
“Most importantly,” Burgess continued, “the steps you’re taking to address the debt that will occur as we build all of these projects over the next five years is a really important one, and I appreciate you starting the process.”
What Harlow Did
In the Fiscal Year 2024 Budget Harlow gave the Board, she divided the $34.8 million projected Fund Balance for June 30 of this year into three parts: $11.0 million Committed Fund Balance, $8.0 million Assigned Fund Balance, and $15.8 million Unassigned Fund Balance.
She defined Assigned Fund Balance as money set aside for specific purposes, including $0.9 million for opening the new Dove Creek Middle School, $1.2 million for new school generators, and $750,000 for tennis court lighting at the system’s two high schools.
The Assigned Fund Balance does not include the $6.6 million Harlow showed on her report on the spending for the current ELOST VI as coming from the General Fund.
Committed Fund Balance, Harlow said, is for future debt payments on the 2021 General Obligation Bonds.
That leaves the $15.8 million as Unassigned.
The overall Fiscal Year 2024 budget that Harlow has presented to the Board shows a 13.0 percent growth in revenue over the budget the Board adopted a year ago and a 17.5 percent growth in expenditures.
The Board of Education held public hearings on that budget on June 17 and 22, and no citizen showed up at either meeting to comment on the budget.
The Board will be required to hold public hearings, probably in July, once Oconee County Tax Commissioner Jennifer Riddle calculates the size of the tax increase resulting from proposed millage rate of 15.5.
What Voters Approved
The ballot language approved overwhelmingly by voters on March 16 of 2021as part of the ELOST referendum authorized Oconee County Schools to issue a maximum of $42,950.000 in General Obligation Bonds.
The maximum amount that could be raised by the bonds was set at $48,500,000.
Money from the bonds was to be used for new schools and administrative facilities, infrastructure and technology, and purchase of property as well as for paying the costs of the bonds, according to the ballot language.
The ballot language also called for approval of a 1 percent sales and use tax for educational purposes to run for five years and to raise not more than $48.5 million.
Oconee County Schools launched a campaign in support of the 2021 referendum that listed as the first item construction of Dove Creek Middle School, followed by classroom additions at Colham Ferry Elementary School, High Shoals Elementary School, and Malcom Bridge Elementary School.
Near the bottom of the list was construction of a new administrative building, called an Instructional Support Center.
Oconee County Schools did not list cost estimates for the projects in its campaign materials and refused to provide those cost estimates when asked.
The ELOST in effect in March of 2021 was ELOST V, and it did not expire until the end of 2022.
The Board of Education approved without public discussion Superintendent Jason Branch’s request to put the new ELOST VI referendum on the ballot in a special election a year in advance of what was necessary.
The Board then approved on May 18 the sale of bonds authorized by the March 16 vote even though tax collection on ELOST VI did not begin until January of 2023.
The resolution approved by the Board authorized $37.2 million on bonds with the provision that they could be sold at a premium.
The resolution stated that the bonds were to be retired by revenue from ELOST, to the extent possible.
“(I)f the proceeds derived from the imposition of the Sales and Use Tax are not sufficient to pay the entire principal of and interest on the Series 2021 Bonds when due,” the resolution reads, “then such unpaid amount shall be payable from a direct annual ad valorem tax, unlimited as to rate of amount, on all property within the School District subject to taxation for bond purposes.”
ELOST VI Budget
Oconee County Schools doesn’t make public a traditional budget for ELOST or for Capital Projects in general.
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It is possible, however, to create a budget for the current and past ELOSTs based on the reports that Harlow gave to the Board at its meeting on May 8.
That report for the current ELOST VI shows four income sources: Net Bond Proceeds, Approved State Funding, Interest, and General Fund, for a total of $55,209,206.
It isn’t clear if the General Fund contribution of $6.6 million is part of the $11 million that Harlow has listed as Committed. A separate list of the $8 million Assigned in the Fund Balance also does not include that figure.
The Net Bond Proceeds is shown at $42,971,704.
The document also shows the first three ELOST VI collections (mislabeled on the report as ELOST V collections), for a total of $2,841,010.
Sales tax revenue is very cyclical, so it is difficult to project from three months. Collections are running ahead of last year, however, in part because of the opening of Costco in November.
The report also lists seven budgeted expenditures, totaling $71,275,707.
And it lists bond payments of $46,742,400, for total expenditures of $118,018,107.
The difference between the Revenue and Expenditures in the constructed budget is a negative $62,808.901.
If ELOST brings in $37,900,000, as projected, it will be necessary to use $24,908,901 from the General Fund to cover the gap.
If ELOST brings in the capped amount of $48,500,000, it will be necessary to use $14,308,901 from the General Funds to cover the gap.
If the General Fund contribution to the budget before ELOST collections began is combined with the amount that will need to be transferred because of the ELOST shortfall, the General Fund (property taxes) contributes 42.0 percent of the non-bond revenue if the projected collection is used and 27.9 percent if the capped ELOST collection is used.
By comparison, ELOST contributes 50.5 percent if the projected ELOST collection figure is used and 64.6 percent if the capped ELOST collection figure is used.
The document Harlow shared with the Board shows the first bond payment for this calendar year of $864,625 and the final bond payment in Calendar Year 2033 of $3,830,100.
That final payment is nearly 12 years after the 2021 bond sales and six years after Oconee County Schools stops collecting taxes from ELOST VI.
As of April 30, the ELOST VI account had $21,587,976 available because much of the budgeted spending for Dove Creek Middle School, the Malcom Bridge Elementary School additions, the Instructional Support Center, and the technology upgrades has been allocated but not yet spent.
Harlow also gave the Board a report on ELOST V at its May 8 meeting.
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ELOST collections exceeded projections by nearly $5 million and came in just under the $45 million cap.
The spending had been much less ambitious in that five-year ELOST, with bond proceeds of $23.5 and debt payments of $25.9 ending on April 30 of this year.
As of that date, $10.4 million in ELOST V funds remained available, but the report shows that $4.7 million of that is now committed.
In addition, one of the projects originally scheduled to be funded in ELOST VI was switched to and funded by ELOST V. This is the renovations at Oconee County Primary School and Oconee County Elementary School.
The revenue part of the budget also had included just more than $3 million transferred in from ELOST IV and $3.2 million taken from the General Fund.
In the reconstructed final ELOST V budget, just 5.7 percent of the total non-bond revenue comes from the General Fund. And that amount had been allocated long before the final ELOST collections had been completed.
ELOST collections make up 78.2 percent of total non-bond revenue.
Open Records Request
Informational materials used in the runup to the March 2021 ELOST referendum had not included details of the financing. The listed projects were simply presented as those to be covered by the referendum.
School officials refused to release the costs of the projects or the time line, and the projected amount of revenue to be generated by the sales tax was not part of the informational materials released to the public.
After Burgess made his comments during discussion of the Fiscal Year 2024 budget earlier this month about the need for General Fund revenue to cover construction costs listed in the ELOST promotional materials, I filed an open records request for details of the bond sales.
On May 11, I asked for “summary bond documents, including payment schedules, for all bonds sold by the Oconee County Board of Education to be financed by proceeds of the current Education Local Option Sales Tax, referred to as ELOST VI.”
Oconee County Schools does not acknowledge receipt of open records requests, but Steven Colquitt, Director of Communications for Oconee County Schools, who also serves as the system’s open records officer, sent me a 79-page document on May 15.
The document Colquitt sent me on May 15 says it is a resolution for “the authorization of the sale of $37,200,000" in General Obligation Bonds for 2021.
It also states that it is for “a portion of the debt authorized to be issued” as a result of the ELOST election of March 16, 2021.
The documents contain two payment schedules, neither of which matches the debt schedule Harlow provided to the Board on May 8 of this year for ELOST VI.
Harlow also reported Net Bond Proceeds of $42,971,704, and that figure does not appear anywhere in the 79-page document, a search of the document shows.
I wrote to Colquitt on May 22, pointing out these discrepancies, and asking him for the complete set of documents.
Colquitt responded on May 22, saying: “The resolution document provided is responsive to your request.”
I wrote back shortly after receiving that message, asking: “Can you then explain the discrepancy between the document you provided me and the document Liz Harlow gave the Board showing a larger bond amount and larger payment schedule amounts?”
Colquitt did not answer that message.
Analysis Of Document Received
I asked three neighbors, one a businessman with extensive financial experience, one an investment banker, and the third a financial journalist with extensive high-level, international experience, also to review the 79-page document Colquitt provided.
The resolution approved by the Board authorizes the sale of $37,200,000 in bond sales and provides a payment schedule for bond sales of that amount.
The documents show that these bonds were sold at a premium, producing $46,488,605.05 in revenue. This is under the $48,500,000 in maximum revenue authorized in the ballot language approved by voters in March of 2021.
From that $46,488,605.05 amount, $42,963,970 was transferred to what the document calls a “Construction Fund.” This is close to, but not an exact match with, the $42,971,704 Harlow lists as “Net Bond Proceeds” in her May 8 report to the Board.
In addition, $2,987,759.72 from the bond sales was placed in a “Debt Service Account,” and another $536,875.33 was placed in a “Cost Of Issuance Fund.”
Harlow, in her report to the Board on May 8, lists no debt service payments in 2021 or 2022. The first payment of $864,625 is scheduled, in Harlow’s report, for Calendar Year 2023.
The Debt Service Schedule shown in the document Colquitt provided lists payments on March 1 of 2022 and March 1 of 2023 of $2,987,759,72, or the amount deposited in the Debt Service Account on the sale of the bonds, meaning the borrowed money was used to make those two payments.
Harlow as well as the document provided by Colquitt list another debt payment, due on Sept. 1 of this year, of $864,625.
To receive the $42,963,970 (listed by Harlow as $42,971,704) in net bond proceeds, Oconee County Schools paid $6,766,189.72 in principal and interest and another $536,875.33 for Cost of Issuance, for a total of $7,303,065.05, which is 14.5 percent of the total of the $46,448,605.05 raised plus $7,303,065.05 paid to raise that amount.
ELOST VI Building
With voter approval of ELOST VI in March of 2021, Oconee County Schools launched a $71.3 million building program.
It did this with bond proceeds of just less than $43 million and total budgeted revenue of $55.2 million.
Oconee County School has capped proceeds from the ELOST VI at $48.5 and projected revenue of $37.9, creating a large gap between expenses of the building program and projected revenue.
The only way to close the gap between budgeted spending under ELOST VI and revenue is through additional transfers from property taxes from the General Fund.
Burgess flagged that need in his comments to the Board at the May 1 and May 8 meetings.
In contrast, in the five-year ELOST V, spending, even with the addition of projects originally planned to be funded by ELOST VI, is expected to be $47.4 million, compared with the $71.3 in ELOST VI. (I left out the bus spending because the total figure is not stated.)
For ELOST V, the revenue cap was set at $45 million, and actual collections were at $39.9. The revenue cap for ELOST VI is $48.5, or only $3.5 million higher.
ELOST V has a surplus of $10.4 million, with the current documents showing at least $4.6 million of that committed.
Reason For Building Program
Superintendent Branch and the Board of Education cite growth in enrollments as the driving force behind the ambitious ELOST VI construction program.
Enrollments, however, have been growing at a modest rate in recent years. In the Autumn of 2022, Oconee County Schools added only 108 students systemwide, for a growth rate of 1.3 percent.
The U.S. Census Bureau also is showing slowed population growth in Oconee County, with the county adding only 563 new residents from July 2021 to July of 2022, or a little more than half the 1,102 estimated growth from July of 2020 to July of 2022.
Based on preliminary estimates by Oconee County Schools, the new Dove Creek Middle School will open next year with 478 students, or less than half the 1,000 student capacity of the school.
Malcom Bridge Middle School is projected to have 611 students, and Oconee County Middle School is expected to have 844 students. Both schools also have a capacity of 1,000 students.
Both of the system’s two high schools currently also are under capacity, but Branch and his staff are projecting that North Oconee High School will be over capacity by eight students next year.
Branch has said it is time to consider adding classroom at the two existing high schools or building a new high school and that he will put in place meetings with the community in the fall to discuss that possibility.
Branch and the Board will have to find some way to fund either of those options, while it continues to pay–through 2033–for the projects now underway under ELOST VI.