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Shortfall in state funding forces district to borrow more money
By Rebecca Ray
During the 2000-'01 school year, the state didn't give the Saratoga Union School District the $5 million in modernization funds that district officials expected. This left district officials wondering how they could afford to finance ongoing construction projects at Argonaut, Foothill and Saratoga Elementary Schools. Now they know.
At the May 8 district board meeting, the district's board of trustees authorized the district to sell an estimated $7.6 million in certificates of participation. The certificates will effectively allow the district to borrow roughly $7.6 million, which the district hopes to repay with future state money.
The district was scheduled to sell the certificates July 12, district business manager Ellen Tipton said. The price of the certificates will depend on what the interest rate is on that day. Trustees chose to pay a variable, rather than a fixed, interest rate because variable rates have been lower between 1991 and now, Tipton said. According to Tipton, while the variable rate has averaged roughly 4 percent between January 1991 and January 2001, the average fixed rate has been about 6 percent.
The variable rate was up to 5 1/2 percent for a month in 1994. Variable rates were lowest in January 2001 and have recently been between 2 1/2 and 3 percent. Although the district has budgeted for a rate of 4 percent, district officials expect the variable rate to be lower when they sell the certificates, Tipton said.
Also, Tipton said, district officials chose a variable rate because variable rates are better for paying off short-term certificates. Although the district will have 25 years to repay the certificates, officials expect to repay them within the next five years, Tipton said.
District officials hope to get $5 million from the state if it puts a facilities bond for education on the June 2002 election ballot and voters pass it. Until the 2000-'01 school year, the district's construction projects, which cover all four schools in the district, were funded by state matching funds and a $40 million Measure D local bond. Measure D was passed in a June 1997 special election. But within two years, the state ran out of money, Tipton said.
While district officials maintain that the state ran out of money, Carol Shellenberger, a special assistant in the state office of public school construction, said the state never guaranteed money to the district because the district was late in submitting its application. District officials said the request for money was in on time, but that an unexpected problem with the foundation at Saratoga Elementary School made the project go over budget.
District officials also said the district needed more money because of rising construction costs.
According to Tipton, next time the state receives money, the district will be one of the first to receive it. Although the state has approved the district for about $1.4 million, the district has not yet received it. District officials are still waiting for the state to approve the other $3.6 million, but expect to receive approval within the next three months, Tipton said.
If the state doesn't put a facilities bond on the June 2002 election ballot, or if the bond doesn't pass, the district can repay the certificates with capital improvements funds. Capital improvements funds include developer and deferred maintenance fees. Developer fees are money a developer pays the district before building or remodeling buildings within the district boundaries. The district must use developer fees to provide additional classrooms. Deferred maintenance refers to fees the district sets aside for deferred maintenance projects, which include plumbing, heating and air-conditioning systems and roofing.
The Saratoga Union School District contributes a half percent of its budget to deferred maintenance. The state sends the district an equal amount of money, and the district uses both amounts to finance the projects.
Since the annual payments of approximately $525,000 on the certificates will be less than the district's average income from capital improvements funds over the past decade, the district expects to be able to use capital improvements funds to make the payments, Tipton said.
Trustees decided to prefund the first year of payment on the certificates. This means the district will use part of the money it's borrowing to make the first payment and that it won't have to make a payment on the certificates until the 2002-'03 school year. The first payment is due Dec. 1, 2003.
Trustees decided to prefund because the district has already committed its revenue for the 2001-'02 school year to construction and to getting the projects done on schedule. If the district didn't prefund the first year, and it didn't receive state money, it would have to repay the certificates with developer and deferred maintenance fees, which have been committed to construction until June 2002. After the first year, the district should have enough developer fees to begin repayment on the certificates, district officials said.
In addition to using roughly $350,000 of the certificates of participation money for prefunding, the district will use about $6.4 million for construction, approximately $600,000 for reserves and about $250,000 on administrative costs. The district will use the reserve money to make the last payment on the certificates.
District officials expect construction workers to finish working on Argonaut and Foothill a year from now and hope they will finish construction at Saratoga in time for a grand opening in September.
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Saratoga, California Since 1955
