$41 Million Up Front?—

School Board May Request Break From Traditional Funding Practice

By John Voket

The Board of Education may ask the town to break from a long-held tradition of borrowing to appropriate $41 million in one lump sum for the proposed high school expansion. Based on discussions at the April 9 Board of Finance meeting, school officials apparently view the move as a way to save about a half-million -dollars.

But finance officials were wary about endorsing such a plan, saying similar tactics have cost neighboring taxpayers millions more in additional taxes. Finance board members learned that if Newtown continues following a policy of appropriating architect’s fee first, before the construction money, the school construction reimbursement percentage for the high school project will be decreased by 1.43 percent.

That decrease is occurring because Newtown’s wealth ranking is increasing by several points in the 2007-2008 state fiscal cycle. Every time a community advances in the wealth ranking, it triggers a proportionate downgrade in the percentage of state reimbursement for school construction. The adjustment to Newtown’s reimbursement rate for the construction phase of the school expansion equates to approximately $560,000, Town Finance Director Ben Spragg told the finance board.

That $560,000 — based on 94 percent of $41,576,000 being eligible for reimbursement — will have to be borrowed. Mr Spragg said the cost of the additional borrowing will cost an additional $39,000 a year for 20 years, less any investment income that can be earned on the $560,000 at 5.25 percent (current rate) during construction.

The alternative is to appropriate the architect’s entire estimate for the high school project, approximately $40.8 million, in one lump sum. This total allocation would then be turned over to the school board and administration to administer the project from the drawing board to completion.

In a memo to the finance board, the finance director cited numerous examples of this practice generating millions more in subsequent appropriations.

“Everyone has read…about going back to the taxpayers for more money for capital projects that were approved on an architect’s estimate [Bethel, New Milford],” Mr Spragg wrote. Mr Spragg provided an article illustrating one example of what he said could, “…go wrong when using architect estimates for capital project funding.”

“In this Connecticut town [Plainville] the original school project was approved for $16 million but now they realize they need $21.7 million — $5.7 million more,” Mr Spragg said in his memo. “But the taxpayers have refused the additional money twice this year. Appropriating first has proven it can be a financial sinkhole with capital projects.”

Mr Spragg said, “Since the town instituted a policy of appropriating the architect’s fee for design through the bid stage before going to the taxpayers for construction money, we have never found ourselves having to go back for more money for a capital project.” He said under the present practice, everyone has confidence in presenting projects that have gone through the bid process, which gives certainty to the cost.

“The question for discussion is a value judgment,” Mr Spragg wrote. “Would the 1.43 percent reduction of school building grant funds be enough to change the town’s construction financing policy, which has served us well for many years?”

First Selectman Herb Rosenthal told The Bee Thursday morning that Newtown has for some time secured funds to design a project and subsequently gone out to bid to ensure taxpayers were well aware there was a bid awarded, thus there was a cap on spending.

“That was the price, and you wouldn’t have to come back to taxpayers for more money,” Mr Rosenthal said. “People should know the full extent of the spending before they approve it. But in numerous cases locally, doing it the way the school board is proposing has either resulted in last minute cutbacks to the proposed project the taxpayers have approved, or coming back for more money.”

He likened the proposed change in procedure to tipping one’s hand to potential bidders.

“If the architect’s bid is high, because he doesn’t want to come up short in the estimate, the bidders have that higher number out there to shoot for — you’re telling them what the town intends to spend before bidding it,” the first selectman said.

Upon learning of the school district’s proposal to go for the lump sum of $41 million, finance board officials were uniformly skeptical. Finance board member John Torok, who formerly served as the school district’s business manager, said it concerned him to provide the entire appropriation for design and build at one time.

“There’s less motivation to keep the change orders down,” Mr Torok said.

“Change orders can cost you $500,000 in the blink of an eye,” he added, referring to the proposed savings suggested by appropriating the lump sum. “On the other side of the coin, the money disappears faster…it’s a deep dark hole.”

James Gaston, the finance board vice chair, said the loss of $560,000 concerned him, but recognized that Brookfield, Bethel, and New Milford all initiated school project spending the way the Newtown school board might propose, and the architect estimates in those other towns came in up to 30 percent below the lowest bid.

Mr Spragg noted that the current Newtown proposal incorporates a combination of contingencies totaling 30 percent.

“Are we setting the bar too high building this building?” Mr Spragg asked rhetorically.

Finance board member Joseph Kearney then reminded his fellow officials that they had asked for, and had not yet received, additional explanations of the contingency structure. Mr Kearney said he did not believe the $40.8 million estimate was ever “an absolute done deal,” either.

Board of Finance member Michael Portnoy agreed that the final project numbers had not been refined to his satisfaction. Mr Portnoy then pointed out that Legislative Council Finance Committee Chair Joseph DiCandido recently proposed commissioning a study to determine if a temporary 12-month high school calendar could solve the space concerns.

Mr DiCandido said at an April 4 subcommittee hearing that he suspected a temporary 12-month school year might save a substantial amount of money over building the addition, while recognizing that such a change could cost millions.

Finance Chair John Kortze then suggested to ask school board members to come in to discuss the contingency and the lump sum proposal April 26. School board Chair Elaine McClure told The Bee Wednesday that her board was scheduling a special meeting April 23 to discuss and possibly ratify the formal request for the lump-sum appropriation.