So where do we go from here? The three schools are in pretty sad shape. M.R. Reiter, the worst of the three, is not salvageable without major renovation. I partially agree with Marlys Mihok that the site would make a great park. It would also make a great light business location too. Maybe doctor's offices or accounting offices, something like that. Why can't we make the location assume some of our tax burden and become productive? This is a debate for another time though.
Grandview is in bad shape too. This is the unspoken assumption that was there in the K-12 proposal from the previous board: All three schools are in bad shape. All of those parents who thought that the elementary schools were somehow "safe" from major upheaval once the evil K-12 building was defeated need to re-examine the situation. Renovation items from all three schools were, quite reasonably, postponed under the assumption that a new building was coming. Now they need to be addressed.
We're going to be renovating the Six Million Dollar Shell. Is that enough money to do the job? Aside from Emperor William Hellmann CPA, I'm not sure anyone else believes it is.
There are four boilers at MHS and all need replacement. Will they stay as fuel oil boilers, or convert over to gas? Where are energy prices heading? I assume that "down" is a safe incorrect answer.
The current windows assume cheap fuel prices. Will the new windows be the same size or smaller? Smaller means the walls need to be addressed as well, and the current AC units removed and patched over.
Electric? What's coming into the school, circa 1957, assumes open windows in warm weather (no AC units) and the occasional filmstrip projector being used. Today, there are multiple computers in each room (with each monitor, CPU, and printer needing an outlet), coffee makers, microwave ovens, electric pencil sharpeners, fans, televisions. I would safely assume that the electricity being used today is 10 times over what it used to be back in the Eisenhower Administration.
That's the tip of it. How many home repairs have you done only to find that the job is more that you expected? One items leads to another and soon, there's ten items to repair where there once was only one.
So this is where the engineers and architects come in. They need to survey what's there, what can be done, and the cost to do it. Has this been done yet? Where are the written reports, estimates, quotes, findings. etc? What plan is being used here, other than the plans of Emperor William Hellman CPA?
Incidentally, considering the William Hellman CPA designed and maintained borough finances are tanking too, tell me again why we're allowing him to work on the school budget. Someone? Anyone? The lack of a borough tax base is one of the reasons why this issue has arisen, and what did William Hellman CPA do to make things better or worse?
We also have to consider the capacity of the buildings. Will the physical MHS site accommodate a K-12 building? I don't have the floor plans and utilization figures available to me. My answer is *probably*, but I don't know. Reiter is a goner, so maybe renovate Grandview as well as a K-3 or 4 building, and bring the 5th grade over to MHS if there's not enough room. OK. Will six million refurbish TWO shells? Oops...maybe we need to keep $10 million? Well, since no one is doing the due diligence, who knows? We need to establish the costs involved in each of the options, along with the pluses and minuses. These are feasibility studies in the real world. Where is the MVSB's study? Nowhere, that's where.
There's a lot of emotion that goes with this whole question, and we've paid the price for it over the past few years. The seniors feel cheated out of their retirement money. The parents feel cheated out of a safe educational facility for their children. All of the homeowners feel cheated by the lack of a tax base to relieve the crippling taxes.
Let's sit back and take a deep breath and dispassionately examine this issue openly (sorry, Marlys, no executive sessions) with a somewhat open mind and in a general spirit of cooperation. The truth, and the eventual solution, lies somewhere in the middle, where it always was. We just need one of Kate Fratti's heroes to lead us to that point.
Who is going to step up?
Saturday, January 26, 2008
Defeasment, Part I
Outside of the magical world of CPAs and other money mavens, the word defeasement is not used in casual conversation. I'm not sure it's used in conversation period. However, the good citizens of Morrisville have this word on their minds and tongues quite a bit lately. Do not forget the special board meeting on Wednesday, January 30, at 7:30 P.M. in the MHS LGI room. Please, please, click on that link and read the entire text. It will confuse many of us. Keep in mind that some of the board members are confused and uncertain as well. This is an important issue, maybe even more important than the farming issue.
The root of the word is in "defeat" and there are several dictionary entries and explanations I found for the word in Infoplease, the National Council of Health Facilities Finance Authority, Wikipedia, and a California public entity law firm.
The new school is dead and anyone who supported it must accept this reality.
So now we have money left over from the $30 million bond issue less the "two million dollars that were used for Lord knows what!" that the Stop the Schoolers fondly mention.
This money was borrowed for a period of years, for a purpose, at an interest rate, and it is obligated to be paid off. It's nothing more than a new car loan with lots more zeroes at the end, except that it's hard to repossess a building, and the taxpayers are footing the bill in the form of their taxes.
So, just like a mortgage or car loan, it can be repurposed and refinanced as needed providing the legal dotted Is and crossed Ts are all in place.
William Hellmann CPA maintains that the borrowing interest rate is too high. Yes, it is high. The more money you borrow, the higher the interest rate. Morrisville also pays its bills off the backs of homeowners rather than businesses. Even the accounting community recognises this as a bad thing and raises the interest rate accordingly. Takeaway from this: Morrisville is a less than excellent credit risk. Keep thinking car dealers for a moment: Where does your credit rating allow you to buy cars and what is your interest rate?
William Hellmann CPA also maintains, quite correctly, that interest rates are going to fall. The Federal Reserve just made an emergency interest rate cut to boost the economy, and I doubt that it was the last one for the short term. Returning the money now means 1) we can retire the high interest money now, but 2) we need better current interest rates to defease the debt because the lower the rates drop, the more money we need to put up to accomplish the defeasement. We can then 3) borrow less money (say, $10 million rather than $30 million) to continue renovating the school at a lower interest rate because the principal borrowed is smaller and we're using today's rates rather than the rates of two years ago.
Once the bond is defeased, it "goes away" and in theory, the tax millage increase that borrowing this money represented also goes away.
So far, this seems fairly straightforward, and perhaps the reasoning of the rules-bound Mr William Hellmann CPA is valid up to this point. A bond defeasement does seem to be the more prudent choice at this time if these criteria were the only issue. However, this is only the first part of a very complex situation.
There's a lot more to discuss, and I really would like to stimulate some serious discussion on this issue before the January 30 meeting. In the next post, I intended to cover the Morrisville angle of where we are, and what our current reality is. At this point, any of the defeasement options I described in the poll are possibilities. They each carry an element of risk, and I'm not sure which is "more right" than any others. I'm not sure that some of the board members will take the initiative to ask Emperor William to slow down and examine the issue more closely. But there's the challenge. It's out on the table for any of the eight remaining board members to pick up.
The root of the word is in "defeat" and there are several dictionary entries and explanations I found for the word in Infoplease, the National Council of Health Facilities Finance Authority, Wikipedia, and a California public entity law firm.
The new school is dead and anyone who supported it must accept this reality.
So now we have money left over from the $30 million bond issue less the "two million dollars that were used for Lord knows what!" that the Stop the Schoolers fondly mention.
This money was borrowed for a period of years, for a purpose, at an interest rate, and it is obligated to be paid off. It's nothing more than a new car loan with lots more zeroes at the end, except that it's hard to repossess a building, and the taxpayers are footing the bill in the form of their taxes.
So, just like a mortgage or car loan, it can be repurposed and refinanced as needed providing the legal dotted Is and crossed Ts are all in place.
William Hellmann CPA maintains that the borrowing interest rate is too high. Yes, it is high. The more money you borrow, the higher the interest rate. Morrisville also pays its bills off the backs of homeowners rather than businesses. Even the accounting community recognises this as a bad thing and raises the interest rate accordingly. Takeaway from this: Morrisville is a less than excellent credit risk. Keep thinking car dealers for a moment: Where does your credit rating allow you to buy cars and what is your interest rate?
William Hellmann CPA also maintains, quite correctly, that interest rates are going to fall. The Federal Reserve just made an emergency interest rate cut to boost the economy, and I doubt that it was the last one for the short term. Returning the money now means 1) we can retire the high interest money now, but 2) we need better current interest rates to defease the debt because the lower the rates drop, the more money we need to put up to accomplish the defeasement. We can then 3) borrow less money (say, $10 million rather than $30 million) to continue renovating the school at a lower interest rate because the principal borrowed is smaller and we're using today's rates rather than the rates of two years ago.
Once the bond is defeased, it "goes away" and in theory, the tax millage increase that borrowing this money represented also goes away.
So far, this seems fairly straightforward, and perhaps the reasoning of the rules-bound Mr William Hellmann CPA is valid up to this point. A bond defeasement does seem to be the more prudent choice at this time if these criteria were the only issue. However, this is only the first part of a very complex situation.
There's a lot more to discuss, and I really would like to stimulate some serious discussion on this issue before the January 30 meeting. In the next post, I intended to cover the Morrisville angle of where we are, and what our current reality is. At this point, any of the defeasement options I described in the poll are possibilities. They each carry an element of risk, and I'm not sure which is "more right" than any others. I'm not sure that some of the board members will take the initiative to ask Emperor William to slow down and examine the issue more closely. But there's the challenge. It's out on the table for any of the eight remaining board members to pick up.
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