Berwick Area School District weighs up to $7.8 million in borrowing to fund HVAC work; board told decision could come May 12

Berwick Area School District financial advisers presented four borrowing scenarios to the board for an estimated $7.8 million HVAC upgrade at the district administration building and related capital needs. The adviser, Brian Ottenstein of FSL Public Finance, said the project is treated as a guaranteed-energy-savings project and must be financed for 20 years or less.

Ottenstein told the board the district could borrow the full $7.8 million or borrow smaller percentages and make up the rest from cash on hand. "If we were to borrow the full $7,800,000 ... you'd be looking at an increase in your debt service from an annual perspective in year 1 of about $343,000," Ottenstein said, adding that the second-year additional principal put the maximum annual level debt service at roughly $615,000 under current market rates. He presented alternatives the board could consider: borrowing 75% (annual debt service shown around $462,000), 60% (around $372,000) and 50% (around $311,000).

Ottenstein also translated the debt-service scenarios into potential property-tax impacts if the district were to raise the revenue entirely through taxes. He said the full-borrowing path would imply a roughly 1.67% tax increase in year one and an additional 1.26% in year two — about 2.95% in total — if the board had to fund the full debt-service increase with property taxes. He cautioned the board those millage figures describe a maximum theoretical impact and that the district need not use property taxes if other budget sources or fund balances are available.

Board members were also told the district’s available reserves would be materially reduced if the board chose to fund a large portion of the project from cash. Ottenstein said the district’s reserves were about $1.62 million and that using several million dollars of that balance would significantly reduce flexibility for operating obligations and potential pension or state-imposed increases.

The board heard additional procedural guidance from bond counsel Brian Koslanski (Stevens of Lake). Koslanski described the standard process: the board can adopt a parameters (not-to-exceed) resolution that is filed with the state; a reimbursement resolution already passed allows the district to begin work and later reimburse itself from bond proceeds; and the district typically allows a larger not-to-exceed figure on the parameters resolution (he said figures of $10–$11 million are common) to preserve flexibility when bonds are priced. Koslanski said the district has about $30 million of principal currently outstanding and legal borrowing capacity of roughly $150 million.

Ottenstein advised the board that current estimated market interest rates implied a roughly 4.2% cost of capital at the time of the presentation and noted the district’s cash balances were earning yields near that level, which affects the comparative cost of borrowing versus using reserves. "I always err on the side of keeping as much cash in reserves as I possibly can," Ottenstein said, arguing borrowing can preserve intergenerational fairness by spreading payments over those who will use the asset.

No formal borrowing motion was taken at the meeting. Koslanski said staff could prepare a parameters resolution for the board to consider at the May 12 meeting; if the board wanted to proceed with a sale later, the parameters resolution and subsequent ads give the district the state review window (roughly 20 days) required for issuance. The board did not vote on issuance at this meeting.

If the board directs staff to bring a parameters resolution, the advisers said the next steps would be to post the required pre-enactment advertisement, return with a borrowing resolution for board approval, then file with the state for review before pricing bonds.