North Penn Details Tax Impact of High School Renovations, Ninth Grade Addition

Dan Sokil | The Reporter•

North Penn CFO Steve Skrocki speaks about the financial impact of a proposed expansion of North Penn High School during a community forum meeting on D

What will the planned renovation of North Penn High School mean to the average taxpayer?

District officials dove into that question on Tuesday night, breaking down the potential costs of renovations, how they plan to pay for that work, and what the average taxpayer could have to pay.

"One of our goals was to make sure our community was informed about this project, when casting the vote on the special election date in January,” said CFO Steve Skrocki.

All year, district officials have advocated for a major renovation to the current high school, which currently holds roughly 3,000 students, and parts of which date back to the early 1970s. In October the board scheduled a voter referendum for Jan. 16, 2024, asking for taxpayer approval to exceed the state Act 1 index of a tax increase permitted each year to fund the borrowing of $97 million in debt needed to move ninth graders from the district’s three middle schools to the high school.

If the referendum passes, a $403 million renovation would add classroom space for 1,000 ninth graders to move to the high school complex, and if the referendum fails, district officials have proposed a $236 million renovation meant to update the utilities through the school, but with minimal expansion.

During a community forum on Tuesday night, Skrocki gave updates to budget estimates discussed earlier this year, explained how those estimates have been revised based on the latest versions of the high school plans, then showed how the average taxpayer would be affected.

Rough cost estimates for each project were presented this spring, and have since been refined by the district’s architect and engineering consultant that project a $403 million price tag for renovating the current school, building a new addition of roughly 313,000 square feet, and reconfiguring the campus to add a new access driveway running between Sumneytown Pike and Snyder Road, compared to a $236 million price tag to only renovate the current building.

Both estimates include four percent annual construction inflation increases, and both include moving the district’s current transportation center, where over 100 school buses are fueled, maintained and dispatched, off of the high school campus.

Of those total cost estimates, Skrocki said, roughly $180 million is estimated to go into hard construction costs, an additional $77 million for soft costs such as permits, approvals, legal fees, furniture and fixtures, roughly $25 million for site work, another $17 million for moving the current transportation center and bus garage offsite to another location, and $6 million for hazardous material abatement and offsite traffic improvements, adding up to roughly $306 million in costs that fall outside the referendum. Voters will be asked to approve $97 million in debt to cover the addition, which breaks down into roughly $63 million for hard construction, $20 million for cost costs, and $14 million for site work, all related to moving ninth graders to the high school.

"This is not determined by the school board, it’s not going to be determined by administration. It’s going to be determined by you, in the community,” Skrocki said.

"You have the choice, between the yes vote and no vote, option one or option two. It is entirely in your hands, with this referendum,” he said.

Each year, the district passes a roughly $300 million annual operational budget, and each year the board is constrained in building that budget by the state’s Act 1 of 2006, which sets a level at which the district can raise taxes without voter approval. In the current fiscal year the Act 1 index is set at 4.1 percent, for the upcoming 2024-25 fiscal year it’s projected to be 5.3 percent, and the average index since the act took effect in 2006 has been 2.8 percent, he said, which the district can only exceed using exceptions granted by the state.

"The reason why we’re seeking the electoral debt referendum, is simply because we can’t pay for the entire $403 million for this project, and fit that debt under the Act 1 index. It’s as simple as that,” Skrocki said.

"Taxes could be raised — could be raised — above the Act 1 index to pay for that $97 million. The remaining money that we’re talking about, the $306 million, that can be absorbed in the general fund budget within the Act 1 index. The $97 million could not,” he said.

Staff have worked with financial analysts PFM to develop 32-year projections that show when a series of seven bond borrowings would take place, and how long each would take to pay back, and the tax levels needed to do so.

"In all likelihood, that $97 million, we will pay that money back by exceeding the Act 1 index, in all likelihood, based on our projections,” he said.

What does that mean to taxpayers? The CFO then showed a chart detailing the projected average annual costs for the high school renovations for residents with properties assessed at $100,000, at $150,000 and at $300,000, and explained how those assessed values equal implied current market values of $282,000 or $423,000 or $846,000 respectively. For the taxpayer with the average assessed value of $150,000, the borrowings needed to finance the renovations would be 25-year bond issues staggered over seven years, with a total 32-year payback period.

"Over that 32 years, with a yes vote, for an average property in North Penn School District, just for this project, not counting anything else in the general fund budget, a yes vote would mean an average annual cost of an additional $244 per year,” Skrocki said.

"A no vote would mean $73 a year over those 32 years. You notice, there’s not a ‘Do nothing’ option here. I think we’ve made it clear, that it’s either option one or option two, yes or no. There’s not an option here to do nothing. Something will happen,” he said.

Splitting the difference between the yes and no votes yields a difference of $171 annually in that average resident’s tax bill from the district, and multiplying that number by the 32 years leads to an additional $5,473 in taxes for that resident over the 32-year period.

"If you continue to own your home, for the next 32 years, for an average home, you would pay approximately $5,473 over 32 years, in additional taxes for this project,” Skrocki said.

One qualifier: those projections were last updated in late October, based on interest rates at the time, which have "fallen quite dramatically” since by roughly 75 basis points or 0.75 percent, the CFO added, meaning the total tax impact could be lower if borrowings are done when rates are lower: "We’re hoping we’re presenting a worse-case scenario here, but everything is going to be market-driven.”

He then showed a chart depicting the district’s current tax millage, when that millage would need to be increased to pay down the debt, and the corresponding dollar amount for that average resident based on the $150,000 assessed value. For that taxpayer, a $48 increase over current levels would begin starting with the 2025-26 schoolyear, followed by an additional $65 increase in 2028-29, another $129 increase for 2030-31, then another $75 increase for 2031-32, resulting in a total annual increase of $319 above current levels, running through 2050-51 when the tax increases for the debt payments would begin to expire — all above and beyond any annual increases approved by the board for the annual operational budget.

"Tax bills come out in July, so July 1 of 2025 would be the first year you would see an impact on your taxes. That’s the first year we would phase in the additional mills required to pay the debt for the project. Whether it’s option one or option two, that’s the first year,” Skrocki said.

"In the ’28-29 year, you’re now paying an additional $114 for that year. On to the next year, 2030-31, more phase-in of millage at that point: it’s an additional $129 at that point in time. So now your tax bill would be up $243. The final phase-in would occur in the ’32-’33 year, $75 now brings the tax bill up to a total cumulative $319, and it stays at that amount ’til the year 2050,” he said.

State law requires that once the bonds are paid down, the millage must be removed, so starting in 2050-51 and ’51-52 the tax millage required for the borrowings would begin to roll back, with the final payments to be made in 2055 — all based on October interest rates, which could drop by the time the borrowings are made next year.

"These are estimates at this point. Hopefully, they will be lower,” he said.

During the subsequent question and answer session, one resident asked if the staggered seven borrowings meant the district would be exposed to any risk of interest rates being higher at that time. Skrocki and financial analyst Zach Willard of PFM Financial Advisors said the seven borrowings would be done at current interest rates at the time, with fixed interest rates, and options to refinance in future years if rates drop.

"We don’t know where rates will be as you go through this, so you will hit the market at slightly higher times, you will hit the market at lower times, but the thought is that, over that period, you are hedging your interest rate risk,” Willard said.

Another resident asked about the long-term financial presentations presented that night versus figures shown by PFM in March, that detailed the district’s legal debt limit of roughly $621 million, the roughly $65 million in outstanding debt at that time, and the roughly $556 million in available borrowing capacity the district had at that time, and asked if a figure over $800 million in total debt presented at that time was accurate.

"In our presentation earlier this spring, it was a total of $800 million, when you include principal and interest for the repayment: that includes existing debt as well, in that total. That number was on a chart, but that included — at the time— roughly $70 million of existing principal and interest,” Skrocki said.

"The total repayment — just like a mortgage: when you buy a home, you’re paying interest as well, there’s interest payments that we would need to make — that total, over 32 years, would be roughly $730 million,” he said.

That resident also asked if the annual tax increases at the Act 1 index level were included in the projections of annual costs to taxpayers, and Superintendent Todd Bauer said they were, starting with the projected 5.3 percent increase for 2024-25.

"The rates that we know as of late October were reflected in the modeling. The 5.3 (percent) for next year, and so forth, that is reflected in the modeling. We do have updated numbers, and we get them every month or two, so we continue to model as the new numbers come out,” Bauer said.

North Penn’s school board next meets at 7 p.m. on Dec. 12 and the facilities and operations committee next meets at 6 p.m. on Dec. 18; for more information visit www.NPenn.org and for more on the proposed renovations visit www.ReimagineNPHS.com.

This article appears courtesy of a content share agreement between North Penn Now and The Reporter. To read more stories like this, visit www.thereporteronline.com.