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Factors align in Carroll's favor

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By Christopher Brooke, Reporter

HILLSVILLE — Competitiveness in the construction markets, historically low interest rates and federal Recovery Act initiatives could save Carroll County millions — even tens of millions — if the school board moves ahead now with its school improvement plans.

Carroll County Public Schools has two scenarios for completing the countywide facility improvement program:

• spending $62.7 million to build a new high school and renovate the existing high and intermediate schools for grades 8-9 and grades 6-7, respectively.

• spending $35.1 million to renovate the existing high school for grades 9-12 and the intermediate school for grades 6-8.

However, a presentation at the Aug. 11 Carroll School Board meeting from officials with Construction Control Corporations, McGuire Woods and Southwest Securities indicated that a number of factors coming together could save the school system 30 percent on those plans.

The three consultants working on the study labored to show how much money could be saved and help develop the optimum financial package for Carroll County, said Lee McClure of Construction Control.

"Most of you are aware, I'm sure, of how dramatically construction costs have dropped," he said. Bids are coming in at 30 percent below projections. "The market is tremendously competitive."

Construction prices have dropped by as much as a third, and interest rates have fallen to "historic lows," McClure said. Rates on 10-year loans, for example, are right under 3 percent.

Plus, the federal government has issued Build America Bonds under the stimulus plan, and that could add to the savings.

The environment for school construction projects looks favorable at this point, but there's a general consensus that there will be inflation and rates will go up.

"The government of course is printing money now and often when that happens you have some inflation and this then leads to higher interest rates," he said.

Saving 30 percent on construction costs for the brand new high school scenario — plus the savings from low interest rates — means that project could come in for $24.9 million less than the earlier projection.

The Build America Bonds could help the county save an additional 35 to 45 percent on the interest costs, which translates to an additional $3.8 million.

For the renovation scenario, construction cost and interest rate savings could take $14.1 million off that project. Build America Bonds could save another $2 million.

Presenters told the school board they are uncertain how long this climate will continue.

"If interest rates return to October 2008 levels, this could increase borrowing costs by approximately $10.2 million to $17.9 million" for the renovation versus new school scenarios, respectively, according to the presentation.

Money has been allocated to the state's literary fund for school construction. To get that money, a school division has to be on the state's list of qualifying projects.

"I understand that is in the works to be there for next year," McClure said.

It's possible that Carroll could qualify for a higher amount for having missed the funding for the current year, presenters said.

Carroll Schools' Superintendent Greg Smith asked if McClure had ever seen better conditions than this.

"This is the best opportunity in the world," McClure answered.

Joe Niggel of Southwest Securities talked about tailoring the debt service payments to fit Carroll County's financial capabilities.

Carroll County could, for example, put off payments until 2012, so the financial impact would be zero dollars for fiscal years 2010 and 2011, he said.

"You tell us what you can afford and we will go to work to find a funding scenario that will work for the county," according to the presentation.

Should Carroll have to pay the original estimated price of $62.7 million for the new construction option, debt service in 2010 could total more than $5 million and rise to nearly $5.5 million in 2011, over a 25-year term, Niggel said. But taking advantage of construction cost savings and low interest rates, that cost could fall by $1.2 million for 2010.

Delaying payments for two years under a capitalized interest program would make repayments zero for 2010 and 2011 and $2.4 million for 2012.

Adding in the benefits from the Build America Bonds and delaying the principal for the new construction option could take repayments down to about $1.63 million in 2010, $1.95 in 2011 and more than $4 million in 2012.

For renovations, a repayment schedule with capitalized interest could delay payments until 2012 and would start off at $1.35 million for that year.

Using the bonds with the renovation option would lead to payments of $914,323 for 2010, almost $1.1 million in 2011 and $2.28 million in 2012.

Smith noted this meant that the county could defer debt service payments until after many of Carroll's water and sewer service projects have been completed and they begin to generate their own revenue.

The stimulus program means that Carroll could receive $723,000 from Recovery Zone Economic Development Bonds, too.

Plus there's qualified school construction bonds that have zero interest attached.

According to the presentation, the savings could total $30.4 million on the new construction option and $18.9 million on the renovation option.

The conditions of the schools demand attention soon, Smith said. The high school is 40 years old and hasn't been renovated in that time. "To be perfectly candid with you, we do not have the option to do nothing."

Carroll County has received the $723,000 in federal stimulus funds and it can be used for local public building projects, including schools, Smith told The Gazette after the meeting. Carroll has not allocated that money towards any specific project yet.

Virginia has $71 million in funding for qualified school construction bonds, though Carroll has not gotten on that list yet, because the planning hadn't gotten that far.

"The current construction market and financial market appear to be very, very soft at this time,” Smith said.

The federal funding could supplement local monies to pay for school construction, but the availability of the bonds could be a short-lived proposition.

"As the economy begins to recover, there is a significant possibility that these programs could end,” Smith said. “It is our goal to partner with the county to take advantage of every possibility and opportunity that we can in order to save as much money for the Carroll County taxpayers as we can."

The need for construction is very real, he added. Just repairing the corroded 40-year-old heating and air conditioning system at the high school has been estimated at $3.5 million.

Corrosion of the pipes blocks heat and cool air from getting to portions of the school, just like cholesterol in arteries might keep blood from circulating in a person's body.

If that system collapses, educators would have no choice but to close the high school and implement contingency plans, he said. That would involve shifting high school students to Woodlawn and the intermediate school.

One impact would be cutting instructional time for students to the minimum required by the state in order to fit all the students into the operational facilities.

The Carroll School Board would much rather be proactive than reactive, and with the school construction program continuing, they can visualize a lot of positive outcomes.

"I think the school board has a vision for phase three and the instructional programs they would like to facilitate through the renovation of these facilities," Smith said.

Students would gain many instructional benefits from improved science labs, media services, technologies and career and technical classrooms over their "virtually antiquated" classrooms now.

The possibilities spoken about in the presentation are very tangible, if county officials react in a timely way, Smith said. "The longer that we wait, the longer that we do not take advantage of the possibilities, then the less likely we can take advantage of every possibility that is out there."

One of the goals of this study is to be considerate of the county's economic development projects, like water and sewer development.

"We have pursued this to find a way to help the county to find a way to pay for these projects that are desperately needed," the superintendent said.