What’s the True Cost of Expansion?
As it counts down the days to a Dec. 13 referendum on its proposed school expansion, the Bridgehampton School District has upped its projected bond interest rate and extended the length of the potential bond from 15 to 20 years, resulting in a higher projected tax impact on homeowners should the referendum pass.
“At certain points, you get updated information from your attorneys, bond counsel, or municipal adviser,” Robert Hauser, the district’s assistant superintendent for finance and facilities, said during the Nov. 16 Bridgehampton School Board meeting.
While the estimated interest rate cited at the district’s Oct. 15 community forum was 2 percent, that scenario would have been dependent on the district going out immediately to borrow the money upon an affirmative vote in December, Mr. Hauser explained. However, pending a successful vote, “we would not be borrowing money until at least a year from now,” Mr. Hauser said. “Projecting the interest rate, it is probably more conservative to use a rate of 3.5 percent.” The total amount the district expects to borrow, $24.7 million, has not changed.
The school district is asking residents to vote on a bond to build a large addition and renovate other parts of the building. The school, built in the 1930s, is the only one from Bridgehampton to Montauk that has never had a major expansion. School officials have said for the last several months that an expanded and updated facility is needed to support a growing student population.
Jeff Mansfield, a school board member, pointed out during the Nov. 16 meeting that the district has also extended the life of its proposed bond from 15 to 20 years. That, combined with a potentially higher interest rate, he said, could result in a significant increase in the tax impact. He said he had received an estimate that for an average, non-waterfront house valued at $2.8 million, taxes over the life of the bond would be more than $13,000, according to the more recent projection. That figure would have been about $11,000 under the October projection.
According to a newsletter mailed to Bridgehampton voters earlier this month, on a home valued at $1 million, with a 3.5-percent interest rate over 20 years, the tax impact of a $25 million bond would be about $241 per year, or $4,820 over the life of the bond. The lower interest rate projected in October, combined with a 15-year life of the bond, would have increased taxes by approximately $4,125 over the shorter life of the bond.
“These are all just projections, but as a board and as a district, you want these to be up front,” Mr. Mansfield said during the Nov. 16 meeting.
On Tuesday, Mr. Mansfield said the 3.5-percent interest rate was a “worst-case scenario” and that he felt confident the rate would probably wind up being less.
“We’ll be updating the projections for this project as we go along,” he said. “Interest rates change every day, hour to hour, depending on what’s going on around the world. What makes this even trickier is that it’s public funding. We’re not allowed to lock in a forward rate and we’re only allowed to borrow a certain amount of money at a time.”
Mr. Hauser said in an email Tuesday that should Southampton Town’s total assessed property values increase, as has happened for the past few years, the tax impact to Bridgehampton residents would decrease.
During the Nov. 16 meeting, Mr. Mansfield also asked Mr. Hauser whether it would be prudent to apply to Moody’s Investors Service for an upgraded credit rating, which would allow Bridgehampton to achieve a better interest rate when it borrows money. The district has a Moody’s credit rating of Aa1, which is just one step under the best rating in that system. Mr. Hauser said he would analyze the benefits and potential pitfalls of applying for the better credit rating, which costs $9,000.