With a school bond in the offing, Town Council reviews possible scenarios
What might it cost an average homeowner in East Greenwich to borrow $100 million (or $80 million or $120 million) for school construction? That was the subject of a presentation to the Town Council Monday night, so that before the town embarks on a costly plan, everyone could be aware of what that could mean in terms of property taxes.
The “could” is important, Finance Director Trish Sunderland emphasized Monday. There are a lot of factors that go into play in determining how a particular expense will affect tax rates. Among them:
- Amount borrowed
- Amount eligible for state reimbursement
- Interest rates at the time of borrowing
- Town Council prerogatives re yearly spending
- Timing, in terms of when older debt will be paid off
While the presentation wasn’t written in stone, what did it show?
To be clear, we are talking finances in this article, not school building plans. There will be a lot of information about plans in coming weeks and months. This is just about finances and possible tax rates. The first piece of Sunderland’s assumptions was in terms of timing – that there would be a bond referendum on the ballot for voters in November 2023.
If voters approve such a school bond referendum, the town would begin to borrow that money (about two thirds of it) in May 2024 under Sunderland’s example. The rest would be borrowed two years later, in May 2026.
Other assumptions in Sunderland’s equations would be that the town would be eligible for 50 percent reimbursement from the state. Right now, the town qualifies for at least a 35 percent reimbursement for state Department of Education- approved construction costs but there are a variety of incentives available now that could boost East Greenwich to as high as 52 percent reimbursement. Because it’s uncertain the town will qualify for all the incentives, Sunderland went with 50 percent reimbursement.
Another assumption was a 4.25 percent interest rate on the bonds. (Municipal borrowers with a good bond rating – like East Greenwich – can get lower interest rates than residential or commercial borrowers.) For year-to-year operating budget increases, Sunderland estimated them at 1.5 to 3 percent, which is slightly higher than the town’s average over the past 10 years. You can see her school bond assumptions HERE.
What does all that come down to? The biggest year for property tax implications under this scenario would be 2025, whatever amount the town decides to borrow.
If the bond is $120 million, a person with a home valued at $500,000 today could see a tax increase of $866 in 2025. That’s compared to a $297 increase in 2024 and a $228 increase in 2026. Going out to 2040, the tax increases over those years would range as high as $383 (in 2031) to a tax cut of $60 in 2038. By way of comparison, that same homeowner is paying $205 more in property taxes this year than last year.
Bonds of $100 million and $80 million would yield somewhat smaller increases but the patterns are similar. You can find the spreadsheets for each bond amount HERE.
How does it work that the biggest tax hit would come in 2025?
There are a couple of reasons. First, whatever the voters approve to bond, a significant portion of that will be reimbursable from the state (as noted earlier, Sunderland used a 50 percent reimbursement rate in her calculation – it could be lower or a bit higher). The reimbursements don’t start, however, until most of the actual construction is completed. So those first couple of years would be more expensive to the town, then reimbursements would start rolling in. The other factor is the town has been building up its fund balance (i.e. surplus) for the past few years. It is now at $9.7 million, 13.75 percent of the town’s current budget. Those surplus dollars could be used in the early years of the school construction bond to help “smooth” the tax rate increases. By 2031, other town debt will be falling off the books, lowering the overall debt burden.
These assumptions include the town also borrowing $12 million for a new highway garage and $4 million for road repaving, both of which would have to be approved by voters as well. Beyond that, Sunderland’s projections do not include any additional bond debt through 2040 (Sunderland said the town is moving toward a “pay-go” approach to road repaving – with money to fix roads coming from the operating budget instead of through bonding). You can find a list of all the town’s current bond obligations HERE.
Council Vice President Mike Donegan pointed out the proposed bond amounts Sunderland worked from were made a couple of years ago, before recent inflation hikes. He also said he wanted the school district to provide a similar projection of potential future costs. Council President Mark Schwager argued such projections are difficult to make beyond about two years out but Donegan said he thought if the town could provide such figures, the school district ought to as well.
Councilors Caryn Corenthal and Michael Zarrella said the school district needed to make outreach to the community a priority. The School Building Committee (on which both Schwager and Councilor Renu Englehart sit) is planning a series of public sessions during evening hours to talk about the various plans it is considering and to get feedback.
Time is of the essence. If the town wants to put a bond referendum on the ballot, the Town Council needs to submit a request to the General Assembly in the next month or so for approval during the GA session, which ends in June.