Burdened by expensive middle-school leases, Higley USD officials presented the governing board Nov. 16 a proposal to refinance those leases and save the district money.
Under the proposal, the district would save about $11 million over the remaining 30 years of the leases, about $365,000 annually, said Mike Lavallee, managing director of Stifel, an investment banking company working with the district.
The idea behind them is to cut out the lease owner, JMF-Higley, a nonprofit that receives the district’s payments, manages the property and pays the bank, in this case the Industrial Development Authority of the City of Phoenix, Arizona, a political subdivision of the state and the bond issuer.
Under the proposal, the district would pay less in principal, more in interest, but no fees and end up realizing the savings.
The district pays $175,000 per school annually in a capital repairs fee. JMF-Higley holds the money is held in a capital repairs fund, with money in it eligible to be disbursed to District based upon a prearranged maintenance schedule. The district has done some capital repairs from that fund but has not always been allowed by JMF-Higley to do so for repairs that needed to be made but were not within the maintenance schedule, district CFO Tyler Moore said.
Voters approved the leases in 2012 as a means to have Cooley and Sossaman middle schools built, as the district did not have the bonding capacity at the time to build them.
The district, which was then governed by a different board and administration, issued a request for proposals for a private developer, working with a nonprofit to design, finance, construct and manage the schools. The district then agreed to 40-year lease-purchases of the schools.
Educational Facilities Development Services won the contract and utilized The James Megellas Foundation and a limited liability corporation formed by the foundation, JMF-Higley 2012, to manage the leases. EFDS was incorporated only 14 days before the district issued its request for proposals.
Then Superintendent Denise Birdwell and others were indicted in July 2021 after an Arizona Auditor General’s Report alleged Birdwell conspired with the contractors to circumvent school district procurement rules and gave EFDS an unfair advantage over other vendors to win a $2.56 million project development contract for the middle schools in 2012.
The leases have proven to be a terrible deal for the district, district officials have said. If the district stays with the leases for their full 40-year terms, HUSD will end up paying out more than $178 million in principal, interest and fees. More than $124 million still remains to be paid on the leases.
“We’ve talked about it ever since I’ve been hired,” district Chief Financial Officer Tyler Moore said. “This sat on my desk. This was an issue.”
To make the payments, the district has had to transfer money out of its maintenance and operations budget each year and put it into its capital budget.
As a result, the district, under new administration and board, has tried to find a way to alleviate the burden.
The district included paying off one of the leases in a 2021 bond question, but voters rejected the proposal. As a result, the district did not include the leases in its 2022 bond ask, though that also failed.
The refinance plan represents the next attempt at lessening the burden.
The district would not move ahead with refinancing unless it can put together terms of not exceeding 30 years in length, an amount not to exceed $61.73 million at a yield not to exceed 5.75%, bond counsel Jim Giel from law firm Gust Rosenfeld said.
“Let me stress, this lease financing that you could do to take out these bonds is very straightforward,” Giel said. “We’ve done it a number of times for other school districts in the Valley, and it’s really what the school district should have done 10 years ago rather than do this IDA financing. This is tried and true.”
Gust Rosenfeld was the district’s bond counsel before the leases, but Giel said they were let go at the time because they did not want to go along with that method. He told the board he knows of no other school district that has funded schools in the manner of district’s lease purchases.
An authorizing resolution to move ahead with the plan is expected to be presented to the board at its Dec. 14 meeting. The resolution would allow flexibility on when to move ahead so the district could work within a time frame for favorable rates and terms, officials said.
Board Member Jill Wilson praised the district for working to find a way to reduce the burden on the district.
“Since I joined the board four years ago, this is something that has always been — paying off the lease, paying off the lease, paying off the lease — and I’m excited to see we’re working on something and not staying stagnant with our previous agreements,” she said.
Other items
The board unanimously approved a plan for Classroom Site Fund spending that will put $5,500 toward certified staff’s base pay, $2,300 to educational professionals and district instructional coaches’ base pay, award a $1,500 retention stipend and allow for up to $2,000 in performance pay based on evaluation.
The board unanimously approved policy updates based on new state law that will create procedures enabling parents to request access to school district and employee electronic records that relate to their child and also create a minute or two of silence for students to use each morning.
Research and Assessment/Student Information Director Marcus Berkshirereviewed for the board the state’s letter grades for each district school, with all district schools receiving either an A or B.
Secondary Schools Executive Director David Loutzenheiser reviewed course guide changes for the high schools, middle schools and Higley Virtual Academy.
Moore summarized how the district is spending money this year from the Elementary and Secondary School Emergency Relief’s third round of funding, commonly referred to as ESSER III, which Congress passed in March 2021 to help schools alleviate the effects of COVID-19.
Tom Blodgett Senior News Editor | Gilbert @sp_blodgett
Meet Tom Tom Blodgett joined Independent Newsmedia, Inc., USA, in 2022, when the company acquired Community Impact Newspaper's Phoenix-area properties. Raised in Arizona, he has spent more than 35 years in journalism in the state.
Community: He has served as an instructional professional in the Walter Cronkite School of Journalism and Mass Communication since 2005, and is editorial adviser to The State Press, the university's independent student media outlet. He also is director of operations for an 18U girls fastpitch softball team from Gilbert.
Education: Arizona State University with a BS in Journalism.
Random Fact: He lived in Belgium during his freshman year of high school.
Hobbies: Tweeting enthusiastically about ASU softball (season-ticket holder) and grumpily about other local sports (pessimistic fan).
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