Cost for new Horry County Schools over budget by $72.9 million

Horry County Schools has carved out ways to pay for an over-budget contract to build five new schools, but the district does not expect to have to raise taxes to pay for them.

The Horry County Board of Education voted to award the contract to build five new schools Monday night, which was more than $50 million over budget.

Add to that an extra $20 million for off-site work and contingency costs, and the total jumps to $72.9 million over the original budget. Officials have come up with a funding plan that will include a combination of general obligation bonds and sales tax revenue, among other things.

“In the Request for Proposals we asked for a specific type of school, and it was more important to build those better schools than stick to the low budget,” Board Chairman Joe DeFeo said.

But two board members voted against the over-budget contract, saying they were concerned that if the district spent that much on schools now, they might have to shortchange other projects later.

“I’m just really concerned that we’re going to spend all our money on these schools and there won’t be anything left,” said board member John Poston, who voted against awarding the contract.

The plan includes new middle schools for Carolina Forest, Myrtle Beach, Socastee and St. James attendance areas. Socastee will also get a new new elementary school.

The cost to build the schools by First Floor Energy Positive – a firm based in Raleigh, N.C. – is $220.6 million, but emergency and work funds brings the total up to $240.3 million, according to documents from the district. The new figure comes from including “owner’s contingency” costs and estimated off-site work costs, which must be factored into the final price.

“Everyone involved knew that these schools were over budget, and honestly the budget was too low to begin with,” DeFeo said.

That doesn’t mean the real cost of the schools will total $240 million, but the district has to budget for emergencies and the cost of land work, DeFeo said.

The over-budget projects will be funded through a combination of general obligation bonds, equipment lease financing and sales tax funds, according to John Gardner, chief financial officer for the district.

Equipment lease financing means the district can purchase items needed for the new schools – such as technology, HVAC units or kitchen equipment – and pay a lease over the useful life of the item, Gardner said. Because leases are not subject to the district’s 8 percent debt limitation, officials can “repay any debt or lease payments during the life of the Education Capital Improvement Sales Tax,” he said.

“We’re going to borrow the money for the new schools, which was our plan all along,” DeFeo said. “Nothing has changed except the amount.”

The board awarded the over-budget contract Monday night in a 9-2 vote; Poston, district 7 representative, and Neil James, district 10 representative, voted against the motion.

Poston and James said they voted against awarding the contract because it was over budget. After the board meeting Monday, Poston said he’s concerned the district will not have any capital funds left for any other projects in the future.

He said he understands the desire to build these schools as quickly as possible, but he would prefer not to spend an extra $50 million on five schools.

“There’s a price to pay to go fast,” Poston said. “I’m just worried.”

As of now, no tax increase is needed to fund the new schools. Ray Winters, board member, said he trusts the district’s finance department “when they tell me the money will be there.”

“If the economy keeps improving, and we keep getting the tax return revenues that we’re getting now, there’s nothing to worry about,” he said.

Winters represents a district that will get two new schools: Carolina Forest and the new Myrtle Beach middle schools. Both schools are meant to ease overcrowding at the current middle schools – Ocean Bay Middle has battled overcrowding since 2012 – and the district must replace a small, aging Myrtle Beach school.

All five schools will be “high performance, energy positive” designs, which means they save energy and include features to produce their own power, if necessary. The increased cost of this design will pay off in the long run in terms of lower utility bills and savings on operational costs, Winters said.

Over the 50-year life of the school, savings in facilities costs should exceed the front end costs of building expensive schools, he added.

“As I see it, the investment on the front end may well provide us additional long term revenue to be able to do other projects that a lower performance building with higher operational costs would not allow us to do,” Winters said.

Increasing the budget for the schools will not cut any other funding from current district programs or projects, Gardner said. However, additional projects in the short term facilities plan may “require additional funds upon their procurement and receipt of bids,” he said.

“Whether or not we do a bond referendum for future projects is something we’ll look at when we get to those projects,” DeFeo said.

The contract promises a May 1, 2017 delivery date for all schools and does not allow for any work order changes, which will keep costs stable and expedite the work, DeFeo said. The contract also states that First Floor use local labor to build the schools.

Each firm’s bid was above the district’s budget – even after negotiations – which means no “negotiations were technically satisfactory under [procurement] code,” according to the written determination. However, the board agreed that the previous budget of $167.4 million “did not adequately take into account the energy positive and high performance design criteria” the board wanted in the new schools, the determination said.

It was better to change the budget than to change the scope of the work, especially if work would end up costing more after the board approved the final contracts, DeFeo said.

“I would not have wanted to raise the budget during the process,” he said. “It was better to just get the proposals and go from there.”

This story was originally published November 7, 2015 at 7:00 AM with the headline "Cost for new Horry County Schools over budget by $72.9 million."