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Sunday, 30 March 2014 22:00

Bonds Race: School districts scurry to qualify bond packages as state revolving fund nears its cap

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Battle Creek Math & Science Center. Battle Creek Math & Science Center. COURTESY PHOTO

Construction and architecture firms could soon see a more than half-billion dollar business opportunity if voters across the state approve school bond proposals on May 6.

Firms hoping to secure contracts for school projects have reason to be optimistic: School bond passage rates have averaged better than 70 percent over the last three years, more than double the passage rate during the recession.

But there’s also cause for concern. Michigan’s School Revolving Loan Fund could reach its cap of $1.8 billion in May after voters decide on 32 school bond issues totaling roughly $631 million that would go toward improvements, renovations and new construction projects. That compares to 20 bond proposals worth roughly $230 million in May of last year, according to information from the Michigan Department of  Treasury.

“It’s definitely a peak,” said Josh Szymanski, director of business development for Grand Rapids-based Owen-Ames-Kimball Co., referring to the volume of bond packages appearing on the May ballot. “There isn’t really a time in recent history where there has been this kind of volume in K-12 work.”

The state’s School Loan Revolving Fund was designed to be self-sustaining and make loans to districts to help them with loan repayments on state-qualified bonds for improvements not covered by their operating budgets. When the fund gets repaid, the dollars go back into the fund for future use by other districts. School districts can only borrow from the revolving fund if the bond issue is qualified by the state and if they levy at least 7 mills for debt.

Legislators instituted the $1.8 billion cap with P.A. 437 in December 2012 because they were not comfortable with the “financial gymnastics of some of these schools districts,” said Szymanski, noting the move drew criticism from groups such as the Michigan Association of School Administrators.

“These (bonds) are basically like mortgages, but when you have several stacking on top of each other every few years, things gets complicated, so school districts with weaker financial positions just continue to extend them out longer with no real substantial payback,” Szymanski said.

If the fund does max out in May, school districts likely won’t have access to the revolving loan funds until possibly August 2016 as older loans get repaid, he said. That’s why many school districts are racing to qualify their bond packages while the revolving loan funds are still available, Szymanski said.

O-A-K is currently active in five school districts around the region.

“I think half of the situation is school districts racing to get in under the cap. The other half is … the pocketbooks are little looser. If there is something [the public is] going to support, it’s community schools,” he said. “Most communities just want safe, warm, dry facilities and to keep these buildings going.”

Barry County’s Thornapple Kellogg Schools is one of the dozen or so local districts that has bond proposals going before voters this spring. The district’s $6 million bond package would fund capital improvements in technology, transportation and both academic and athletic infrastructure. One of the primary components of the bond package is improvement to safety and security — a common theme among many of the bond packages.

“People want to know their children are safe when they drop them off at school,” said Tom Enslen, superintendent for the Thornapple Kellogg School District. “We are addressing this matter in our bond proposal.”

Across the region, many of the packages would help schools add security vestibules with more secure routes for visitors, new hardware and glass and surveillance equipment, said Steven Hoekzema, senior principal and K-12 focus group leader for TowerPinkster, which is currently working with the East Grand Rapids, Rockford, West Ottawa and Watervliet school districts on building projects.

Additionally, school districts are trying to update facilities to support current teaching methods. This includes more modular classrooms, more multipurpose space and overall efficiency improvements.

“As education evolves, buildings need to be more flexible,” Hoekzema said. “Building design initially was grade structured and lecture format. We’re seeing much more group work now and the use of technology where the traditional desks-in-a-row lecture environment doesn’t work for learning today.”

With a lot of school districts “hanging on by their fingernails,” Hoekzema said a good portion of facilities work involves just upgrading building systems and trying to save energy with retrofits. Many of the school buildings in the state are between 50 and 60 years old and many are in need of the basics such as roofs, parking lots and lighting, he said.

For districts such as Thornapple Kellogg where class sizes are “bursting at the seams,” the passage of the bond issue is critical, Enslen said.

“We can’t be in the business of borrowing to sustain or we’re going to die on the vine,” he said. “We have to receive these funds somewhere, somehow and so we have to go to voters.”

The Thornapple Kellogg situation serves a microcosm of what many school districts around the state are facing in trying to scrape together the necessary funds to keep buildings safe and secure for students, sources said.

“There is a serious need for school districts to make improvements to their facilities,” Hoekzema said. “They’ve been struggling with budget issues for the last several years and the primary vehicle to improve facilities is via the school bond loan program. (With the cap) on the program, the legislature has really put the brakes on how much money can be borrowed through that program.”

But even with the cap in place, construction firms could see substantial work for the next few years if a majority of the district millages pass in May, sources said. At O-A-K, executives think the work could carry on through 2016 not including follow-on projects, said Szymanski, noting the firm is also focused on developing business in other markets.

“We’re a little concerned about what happens beyond (2016) because every time you accelerate at this pace and push work forward, there is this gap behind it,” he said. “There are some districts still talking about going out (for bonds) in August and February, but no one has addressed how they are going to go out for financing.”

The expected gap in projects is pushing Szymanski and leaders at O-A-K to focus on diversification.

“It’s kind of hard to think about business going into ’17, ’18 and ’19 already, because we can’t predict how the other markets are going to perform, but going into those years, we’re making sure we’re diversified,” he said. “That means going after higher education, medical and industrial projects and making sure we’re taking advantage of the opportunities there.”  

EDITOR'S NOTE: This story has been changed from its original version. Steven Hoekzema is senior principal at TowerPinkster, not GMB Architects + Engineering.

Read 3996 times Last modified on Monday, 31 March 2014 14:51