North Penn sees financing schedule for high school renovations

 As 2025 approaches quickly, the North Penn School District is getting ready for the first of many big borrowings.

School board members heard a preview this month of the first of several bond borrowings needed to finance long-planned renovations of North Penn High School.

“The most recent draw schedule for the project puts us at about $259.5 million, so that’s kind of where we’re aiming now,” said financial analyst Zach Willard of PFM Financial Advisors.

School board members and staff have discussed major renovations to the high school for much of the past two years, and a voter referendum in January asked taxpayers to approve debt needed to build an addition for roughly 1,000 ninth graders to move to the high school complex. After voters rejected that referendum, staff and the design team began work on a new design adding a smaller addition to the current campus, and have since given monthly updates on that layout and latest plans.

During the school board finance committee meeting on Oct 8, Willard updated the board on the latest financial projections, based on the estimated project cost developed by the district's architect and construction team. To start the presentation, Willard noted that a 2017 district borrowing is callable in March 2025, and could make sense to roll into the high school borrowing depending on interest rates.

"It's not going to save a million dollars but depending on where interest rates are next March, it makes sense to refinance it. You might be able to squeeze out $100,000, $200,000, $300,000, if we're already going to market with the project," he said.

    Chart detailing the North Penn School District's current debt obligations, as presented to school board finance committee on Oct. 8, 2024. (Image courtesy of NPSD)
  

Federal law requires that at least 85 percent of the proceeds of each borrowing must be spent within three years, one reason why the district did not borrow in recent years when interest rates were unusually low, the advisor told the board. One benefit may happen, again due to timing: "positive arbitrage" may be possible if the district borrows at one rate, then invests the funds short-term at a higher rate before it's spent.

"If you borrow at four (percent), and invest it at five (percent), you can keep that one percent, towards the project. If you don't meet these spending exceptions, you have to rebate that back — it's money that you earned, but you're not allowed to keep, because this is tax-exempt money. That's something we'll pay attention to," he said.

Currently, the district's total outstanding debt amounts to just over $55 million, with payments of just over $12 million due in 2025 and '26, then dropping sharply to just under $8 million in 2027 as the 2017 borrowing is paid off, and to roughly $3.3 million from 2028 through 2035, based on current obligations, the advisor told the board, showing a chart of borrowings from 2017, '19, '20 and '21 and their respective payment schedules.

A second chart shows what the financial advisor termed "a six-step plan" to pay for the high school: borrowings of just over $30 million, paid back over 25 years, issued in both 2025 and 2026, followed by borrowings of $56 million in 2027, $50 million in 2028 and 2029, then $42 million in 2030, all timed to "wrap around" the existing debt, with payments on the new issues increasing as the old debt is paid off.

    Chart detailing the North Penn School District's projected future debt obligations, including a series of bond borrowings meant to fund renovations to North Penn High School, as presented to school board finance committee on Oct. 8, 2024. (Image courtesy of NPSD)
  

"We will move things around as the market dictates, or the project dictates. Right now, we're talking about a borrowing basically once a year through 2030, in those amounts," Willard said.

"If you go through this plan as shown here, when all the dust settles, you'll have the $260 million-ish dollars for the project," and debt service payments would be roughly $18 million per year, up from the roughly $12 million now.

District CFO Steve Skrocki said he thought the chart of the future borrowings was "pretty impactful" because of the size and scope of the borrowings, and the increased debt service payments needed each year to cover them.

"It's going to be an additional approximately $6 million a year in debt service, to the budget, from now until the year 2055. Not counting any other borrowings — this is just for the high school. So if there's any other debt that's incurred, which in all likelihood there will be, that'll add additional an amount to that extra $6 million," Skrocki said.

As for timeline, Willard said a vote by the board in mid-October would authorize the bond advisor to begin preparing resolutions and documentation, and in November or December the board could approve a formal parameters resolution. After that vote, PFM and the district would begin the credit rating process, and that rating could come back sometime in January, with changes possible depending on market conditions.

"We'd be ready to lock in interest rates in February. And we may move this timeline around if we see something in the market, and want to speed it up or slow it down, but this seems and feels like a good timeline at the moment," he said.

During the Oct. 17 action meeting, the board voted unanimously to authorize staff to prepare the parameters resolution, and Bauer and Skrocki said the actual number listed in the formal resolution may be larger than $30 million to allow some leeway during the process.

"The next step, with the board resolution tonight, is for bond counsel to prepare a parameters resolution, and that parameters resolution will be presented either at the November or December action meeting. That basically establishes a maximum amount to borrow for this phase," Skrocki said.

Project manager speaks

During the board's facilities and operations committee meeting in late September, that group also heard their first update from project construction manager Jamie Lynch, whose firm D'Huy Engineering has recently been acquired from Boston-based engineering design firm CHA, requiring a formal vote from the board to transfer the contract to the new company; the team of personnel who have worked with the district since D'Huy was hired in 2023 will remain on the project, Lynch said.

In a lengthy presentation to that group, Lynch outlined the rough timeline for the project so far, with sketch plans already presented to Towamencin Township's planning commission, preliminary drawings going to the township by late October, and permit submissions to Montgomery County coming soon. The project construction manager has already begun working with PECO, the North Penn Water Authority, with PennDOT on the traffic impact and approvals that will be needed, and the township's sewer engineer to plan utility connections for the project.

    Jamie Lynch, a Principal with D'Huy Engineering, speaks to North Penn's school board about planned renovations to North Penn High School during the board's Aug. 8, 2023 meeting. (Screenshot of NPTV video)
  

"We've gotten preliminary indications that there would not be any additional sewer capacity needed, because we're not changing the number of students and staff in the building," Lynch said.

Plans for a new transportation building adjacent to the high school and north of the current building are also being finalized, Lynch told the board, and staff are working to identify where temporary classrooms could be located in spaces like gyms or auditoriums as certain spaces are renovated. Board President Tina Stoll asked for specifics about whether the high school's main auditorium would be converted into classroom space, and administrator for secondary education and renovations Pete Nicholson said early plans call for converting roughly 400 to 450 seats under the auditorium balcony, out of the roughly 1,700 total seats there, into classrooms during the construction.

"I've had numerous conversations already with the folks impacted by this, so they're re-envisioning how they can make their magic in the auditorium" while renovations are underway, Nicholson said: "They're very aware this is happening."

Committee chair Cathy McMurtrie asked if the construction team was looking at any similar projects in the region for possible conflicts in procuring equipment, and Lynch said he knew of several similar projects, but saw no major issues, and would keep the facilities and operations committee updated in future meetings.

North Penn's full school board next meets at 7 p.m. on Nov. 12 and the facilities and operations committee next meets at 7 p.m. on Oct. 28; for more information visit www.NPenn.org.

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