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Commentary: Count the costs

By Bryan Fleming

In the very near future, Prior Lake and Savage residents will be asked to vote whether to approve a referendum to support and enhance facilities for our K-12 students. To date Superintendent Teri Staloch and school board leadership have gone to great lengths to persuade residents that additional facilities space is needed. I am a 15-year resident of Prior Lake and a proud father. My professional career in education spans public and private schools in New Mexico and Minnesota as a classroom teacher, coach and administrator (I currently serve Minneapolis Public Schools as its director of enrollment management and student placement). As an active community resident, I serve our community as a planning commission member and chair. Suffice it to say, I am well-versed on enrollment and school finance best practices, and keenly aware of our community’s growth trends and trajectory. I am a true champion for children and families and I support Prior Lake-Savage Area Schools. However, I’m not yet fully persuaded.

Open enrollment

I have carefully studied and analyzed the district’s 10-year enrollment history, trends, physical plant capacities and student population projections. Despite the known predicted growth and rezoning of land, and the impact upon in-resident growth on existing facilities, the district continually enrolled significantly more non-resident students than the total number of students who left. The district continues to falsely assert that they only open enroll to the minimum allowed by law. Sound enrollment management practices require the prudent utilization of open enrollment strategies to balance enrollment, and/or to catalyze innovative and leading-edge curricular programming that otherwise could not be realized. In the 2016-17 school year alone, the district served a total of 1,031 non-resident students. This means the district served 268 non-resident students beyond the total number of resident students (763) who attend non-Prior Lake-Savage Area schools (339 to other districts; 383 to charters and 41 to special learning programs). For the current 2017-18 school year, the district has open enrolled more than 160 new non-resident students. Why?

Community growth

Prior Lake and Savage are indeed growing communities, and the city of Prior Lake is committed to exercising realism when determining “how” and “when” to responsibly manage growth. To bolster its need for additional facilities spaces, the district often cites the rate of growth that the Prior Lake and Savage communities will undergo in the next 10-15 years. The hard truth of the matter is that since the late 1980s, Prior Lake has experienced population growth at an approximate rate range of 3.5-4 percent per year. Further, much of the community growth over the next few years will be within the Shakopee School District. Of the three large plats along County Road 42 (Trillium Cove-207 units; Haven Ridge-133 units; and Summit Preserve-189 units), only Trillium Cove is actually located within the Prior Lake-Savage Area School District. Why is the district leading residents to believe otherwise? Other important factors to consider when strategically managing and forecasting enrollment and capacity needs are housing type and resident type – i.e., single-family detached, villa homes, attached town homes, multi-family dwellings. housing for ages 55 and over, etc.

Referendum and CAB financing

Residents may recall that in the last referendum attempt, the district sought approximately $150 million in referendum dollars. The current $109 million referendum amount was achieved by shifting $10 million-$12 million worth of services to long-term facilities maintenance, and by designating an approximately $10 million as a “lease-levy.” In addition, the estimated debt service, or added interest, to finance a portion of the $109 million amounts to approximately $9.43 million. All of these obligations amount to $141 million assuming market conditions remain the same. What, precisely, are these LTFM items, and are they correctly designated as maintenance items? Which vendor will provide these additional LTFM services and at what cost? My understanding of the district’s referendum budget plan indicates that the district will pay approximately 12 percent of the total $109 million, about $13 million, to its designated performance contractor. In addition to paying the performance contractor $13 million in fees, and paying additional fees to the subcontractors who actually do the work, it remains unclear what fees other vendors and/or sub-contractors will be receiving over and above the $13 million. What is the total amount of fees that will be paid to vendors and/or sub-contractors?

Finally, the district’s preferred method to finance approximately 40 percent of the project is capital appreciation bond financing. These esoteric CAB financing vehicles represent just 5 percent of the municipal market nationwide, they are extremely risky, and it will cost Prior Lake taxpayers an additional $9.43 million. The Minnesota Department of Education indicates that only 5 percent use a CAB financing model nationwide, why is the school district indicating that a majority of growing districts use this model? If the current 3.9 percent CAB interest rate estimated by Ehlers rises due to fluctuations in the market, the $9.43 million obligation will rise dramatically to as much as $15 million. Incidentally, CAB financing is illegal in the state of Michigan, and highly discouraged in California and in other municipalities across the nation. Typically, a district will propose several (i.e. minimally 5-7) financial models (and their variations) to ensure that both short-term and long-term facility needs are met with sound financial practices, and at reasonable risk to consumers. Did Ehlers strongly recommend the CAB vehicle without reservation? How did Ehlers arrive at the estimated interest rate of 3.9 percent? Are there similar bond issuances trading on the market that are representative? What is the actual “spread” between the CAB and the regular bonds? Did the district consider identifying a “call option” in 2026 as a way to prudently manage the district’s risk when the market fluctuates, and/or enrollment projections shift? How many financing models did the district study and share with the board for their understanding, analysis and consideration? Would a different financing model actually provide additional funds for our students and reduce our 20-year obligation to pay off the debt-service? I admit these are granular questions, but they need to be addressed and taxpayers deserve to know what the true upside and downside is to our students, faculty and staff when market conditions and forces shift – and they will.

The next steps

In the April 15, 2017 Prior Lake American and Savage Pacer newspapers, Superintendent Staloch stated, “Throughout our community engagement process, we have been transparent, listened to stakeholders, answered questions and provided additional information whenever needed.” Disappointingly, these words continue to ring hollow and untrue for some in our community.

Time and time again, Prior Lake residents from all walks of life and income tiers have shared with me that they are deeply concerned about the “cost” and “pace” of growing our community. If Superintendent Staloch and the board’s leadership is genuinely concerned about serving its students – their families – well, then I challenge them to timely, proactively initiate and sustain candid, two-way dialog with the many residents who still have unanswered questions. Certainly our community should be able to engage in respectful civil discourse on this topic, and we should model this for our children. The talking points and questions I’ve raised here could very well spark this important dialog – it’s not too late. I hope Superintendent Staloch and the board will address these questions and others at upcoming open houses and information nights. Anything less than full, transparent conversation and fact-sharing will only serve to undermine our children’s and our community’s best future.

Please read more from The Prior Lake American:

Bryan Fleming lives in Prior Lake with his daughter. He is an active community member in Prior Lake and the greater Twin Cities, a current school administrator and an entrepreneur.