FROM THE TOWN ADMINISTRATOR’S DESK
By Gregory T. Federspiel
In just over four weeks voters will gather for a Fall Town Meeting (October 15) to debate the merits of building a new elementary school and vote on the proposed project that has been developed by the Regional School District and it’s School Building Committee. At last week’s joint meeting of the Board of Selectmen and the Finance Committee, both bodies voted to endorse the proposal.
In endorsing the proposal the Selectmen and members of the Finance Committee noted that the 67 year old Memorial Building faces millions of dollars in repairs/upgrades, that making the repairs would not yield a very high return on investment as the shortcomings of the building will still exist and it will require replacement likely before the improvements are fully depreciated, and that paying for a renovation project instead of a new building will not save the towns significant money due to no state help (and we end up with a building still not meeting today’s educational standards, which is why the state will not help fund a renovation.)
Still to be determined are the Selectmen’s and Finance Committee’s recommendations for how best to pay for the new bonds that will be required. Indeed, two of the questions that I am being asked the most are 1) what are the options for paying for the new school and 2) how will a new school project impact other capital needs the town has. Regarding financing options, traditionally, towns and school districts have opted for new debt exclusions to pay for large capital items such as a new building. This means that the funds to pay the annual debt service (principle and interest) come from new taxes that are assessed for the duration of the bonds. These new taxes are excluded from, that is, they are above and beyond, the taxation limitations imposed by Proposition 2 ½. Once the bonds are paid off (in this case after 30 years) the higher taxation goes away for that particular bond. This is how the new middle high school was funded back in 2003 and is how many non-school capital projects have been funded over the past 20 years.
Manchester’s share of the new school would be close to $27 million (principle only) and require annual debt payments (principle and interest) of $1.7 million assuming a 5% interest rate. IF all of this were funded by a new debt exclusion, taxes would need to be increased 6.5% or about $72 per $100,000 of assessed property value.
Another funding option is the use of our local receipts. The Town collects excise taxes on cars and boats, collects fees for permits and for the use of town facilities, etc. We traditionally have been very conservative in estimating these receipts. Dollars collected above what is estimated flow into the Town’s fund balance or rainy day account. Some of these funds are used to fund capital projects, but our fund balance has been growing and is above the targeted amount of some 10% of operating expenditures. Thus we could consider using some of these dollars to pay the new annual debt service on the proposed school and not raise taxes quite as high. Obviously, doing so precludes using the local receipts for other needs.
Similarly, if we find ways to cut back on our operating expenses, the savings could be redirected toward paying the new school debt. For every $265,000 in savings we find we can reduce the amount tax increase for the new school by 1 percentage point (100 basis points). Implementing new shared services with our neighboring cities and towns, deciding we can do without a particular service, or savings through higher energy efficiencies are all examples of how we might free up operational dollars.
Growing our tax base is another alternative to raising taxes. Recently, residents have expressed support for the careful expansion of uses in the Limited Commercial District or the Downtown District. Even a modest expansion of new uses could bring in hundreds of thousands of new tax revenue annually. Age 55 and older housing and commercial projects are particularly attractive from a net new revenue perspective.
Any of these alternatives can be utilized in any given year whether from the start of the new debt payments or a few years in. As always, there are choices to be made. Next week I will discuss the proposed school project in the context of other capital needs the town has.