Though the project awaits voter approval in May, the selectmen and the School, Finance, and capital committees now have a joint strategy for financing the nearly $54 million construction of a proposed new elementary school and administrative offices adjacent to the current Hildreth Elementary School. Members of the four boards heard welcome news that a higher state reimbursement rate, support from the schools, and a favorable cash flow schedule promise a lower cost to taxpayers than previous estimates.
The four boards met in joint session in Town Hall Tuesday evening, March 27. With a quorum present for each board and following an hour’s worth of discussion led by Town Administrator Tim Bragan, the committees agreed that paying for the project with a 25-year municipal bond, issued as early as federal law permits, would be best for taxpayers. With interest rates on the rise, “bonding” the project earlier rather than later could save the town hundreds of thousands of dollars, capital committee Co-Chairman John Seeley told the group: “The earlier we can bond this project, the better off we’ll be.” In addition, he said, the capital committee favored a 25-year bond over a 30-year bond because it would save taxpayers $4 million to $5 million over the loan’s lifetime. Still up for debate is whether the bond should be “callable,” which would allow the town to pay it off early and refinance if interest rates fall, though it is more costly than a noncallable bond.
In arriving at their decision, the two dozen board members were buoyed by three bits of good news. First, Schools Superintendent Linda Dwight reported that in a recent meeting with the Massachusetts School Building Authority (MSBA), the agency had increased its promised reimbursement by $1 million, lowering the town’s cost from $35.8 million to $34.8 million. “The state grant is now set,” said Dwight, and if the MSBA votes April 10 to approve the project as expected, that number and the $54 million total cost cannot change.
The second bit of good news was word from School Committee Chairwoman Mary Traphagen that her committee had voted 4–0 the previous night to contribute $1 million from its Devens fund to help lower the impact of school debt over the first four to five years of its repayment. The capital committee has said it could do the same, using money in the town’s Capital Stabilization and Investment Fund, but it has not yet voted on the matter. Town officials, including Finance Director David Nalchajian, have concluded that reducing payments during the first years of the loan will take some of the sting out of higher taxes.
Early bonding saves dollars
Finally, a fresh cash-flow schedule for construction of the new school shows that the town could issue its 25-year bond for the full $34.8 million cost of the project as soon as March 2019, locking in the best interest rate available at that time. Federal law stipulates that a project must spend 10 percent of its budget within the first six months following its bonding; the entire project must be completed within two years. The latest cash flow numbers from NV5, the school’s project manager, show that following Town Election, project spending could begin immediately and would likely reach the 10 percent hurdle by February or March 2019, allowing a 25-year bond to be issued. Prior to that date, the town would issue a 1-year bond anticipation note (BAN) to pay invoices due during the first months of the project. Then when the 25-year bond was issued, the town would pay off the BAN. Shovel-in-the-ground work would likely begin in June 2019.
How much these new developments can lower the tax impact on Harvard homeowners won’t be known for several days. Selectwoman Alice von Loesecke told the boards Tuesday that prior to the latest news from MSBA and NV5, she had estimated that smart bonding and subsidies could hold the increase in first-year taxes to 12 percent, as opposed to the 16 percent increase cited in earlier estimates. The new numbers are likely to reduce that percentage further.
Two scenarios
The boards have asked Bragan and Nalchajian to model two scenarios for financing the town’s portion of project construction costs: a 1-year BAN at 3 percent followed by a 25-year bond at 5 percent, and a less-than-1-year BAN paid off early by proceeds from a 25-year bond issued less than a year later. Bragan told attendees that Harvard’s bond counsel would have new payment schedules ready by the end of the week. Analysis of taxpayer impact will follow.
A public forum to unveil final numbers is planned for April 10 at 7 p.m. in Town Hall.
