Corrected and updated May 25, 2017
Newly released estimates show that the cost of renovating or rebuilding the Hildreth Elementary School is going to require a dramatic hike in local taxes.
Of the two plans being considered by the HES School Building Committee, Option A, which proposes thoroughly renovating the existing building would increase the annual tax on an average home by approximately $1,400 (12 to 13 percent) in 2022, declining thereafter over the next 25 years. Option B, which envisions constructing a new building at a cost of $35.6 million, would cause an initial tax increase of approximately $1,630.
These numbers are based on recent estimates that Option A would cost Harvard between $28.6 million to $30.8 million, after reimbursement by the Massachusetts School Building Authority, and that Option B would cost $35.6 million. The estimates assume a 2017 Harvard house valuation of $563,315, a figure provided by the town’s assessors and that Harvard’s portion of the cost would be paid for with a 25-year municipal bond at 5 percent interest. For details and implications of the two options, see “Proposed HES building project alternatives” below.
The new figures were presented to a joint Monday morning meeting of the Capital Planning and Investment Committee and the Finance Committee by Town Administrator Tim Bragan and Finance Director David Nalchajian. In addition, Selectwoman and capital committee member Alice von Loesecke had prepared an analysis of the project’s impact on Harvard’s level of long-term debt if the entire amount for either option were borrowed.
The HES project would at least double the town’s annual debt payments, according to von Loesecke, which would jump from $1.25 million in fiscal 2018 to a maximum of either $2.2 million or $3.2 million in fiscal 2026, depending on which of the two options is chosen. Her analysis included current debt as well as additional borrowing approved at this spring’s town meeting. As for the future, although the town’s 5-year capital plan foresees spending money to open the front entrance to the old library, expand the Hildreth House senior center, renovate the DPW building, purchase new fire engines, and more, these amounts are not included in the analysis.
A bond rating risk?
In addition to forcing a tax increase, officials worry that the new debt could lower Harvard’s Standard & Poor’s AAA bond rating. Bragan told the committees the plan “would suck the air out of any future borrowing.” The numbers, said Finance Committee member Jon Seeley, represent a level of debt funding higher than what the town has been used to. “It’s like a totally new operating environment,” he said.
But in a Tuesday afternoon interview, Nalchajian said that from a “financial perspective” he was not alarmed. It has been a long time since Harvard has taken on such a large project, he said, adding, “It’s time.” Because the project is being financed through the Massachusetts School Building Authority, he added, the borrowing for the project will not count against the town’s debt capacity.
The Monday morning meeting was convened at the request of the capital committee, whose five voting members are Seeley, von Loesecke, School Committee member SusanMary Redinger, and citizens-at-large Debbie Ricci and Teresa Jardon, both appointed by the selectmen. While the committee took no votes, three of the five members spoke in favor of renovating the existing building (Option A) and setting a limit on the amount to be spent on the project. Seeley, von Loesecke, and Ricci said they would vote against a new building (Option B), Seeley saying he didn’t like either plan and was “concerned for the financial health of the town.” Jardon told the group that she leaned toward rebuilding the school. If the school were renovated rather than rebuilt, she said, the town would be looking at a 60-year-old building in 20 to 30 years. Redinger said she thought a new building was best for students and teachers. “We should build the building we need now … I think we can find a way to make it work,” she said.
A spending limit
Summing up the 3–2 consensus of the capital committee, Ricci told Redinger and Superintendent Linda Dwight that she believed there was support for spending $26 million to $27 million, but not more than that amount. In a later conversation she said she had chosen those numbers because they were less likely to affect Harvard’s bond rating, a conclusion she drew from von Loesecke’s analysis.
In her analysis, von Loesecke found that debt service as a percent of the town’s annual budget could rise as high as 7 or 10 percent by fiscal 2026, depending on which option is chosen. That number is well above the town’s current 4.4 percent and, should the more expensive option be chosen, above Standard & Poor’s recommended 8 percent. A debt-to-budget ratio of 10 to 12 percent is a limit commonly set by Massachusetts towns that have adopted a formal debt policy, according to the Department of Revenue. Harvard finance officials discussed such a limit two years ago but decided against it.
Von Loesecke’s analysis suggests that a rise in debt ratios could cause Harvard’s S&P ratings on those measures to increase from their present perfect 1 to 2, 3, or even 4. But, she added, debt ratios are only one of seven components that the rating agency uses. “Harvard is strong in the other metrics,” she wrote, so as long as debt components remain low, Harvard should retain its AAA rating. A score of 3 would make Harvard “borderline” for a AAA rating, but other positive elements to this borrowing, such adherence to the Massachusetts School Building Authority process, will help. A score of 4 on the debt component “definitely kicks us out of AAA down to AA+,” she wrote. The impact of that would be a 0.5 percent increase in interest on money borrowed by the town.
Lessening the shock
Whichever option is chosen, the new level of taxation will be a shock to residents, Nalchajian acknowledged. At Monday’s meeting several ideas were proposed for lessening the impact. Dwight said she and the School Committee were discussing the possibility of using some of the money the school receives for educating Devens students to pay a portion of the debt service. Nalchajian said that by making a fixed payment of principal each year on the 25-year school bond, the town would save $800,000. Finance Committee member Bruce Nickerson suggested tax relief for senior citizens, and Jon Seeley wondered if the town could sell land to cover some of the costs.
At the meeting, new Finance Committee member Mark Buell of Littleton County Road complained that the building committee had settled on the two most expensive options; neither was “frugal,” he said. Dwight replied that the building committee did not want to put forward an option that the town would later regret.
The School Building Committee will vote for Option A or Option B on June 8. Between then and Annual Town Meeting next spring, the committee will develop detailed designs and cost estimates for the chosen option. Voters will be asked for an up or down decision at 2018 Annual Town Meeting and at the ballot box. Meantime, voters are invited to express their preference by responding to the online survey posted by the committee.
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Editor’s note: This article has been corrected and updated. The original article stated that the two citizens-at-large members of the capital committee were appointed by the moderator. They are in fact appointed by the selectmen.
