Horry County Schools is considering several ways to pay for the five new area schools that should be completed by 2017, and the architecture firm is offering a payment plan that would cost an additional $7 million.
The district’s Facilities and Finance committees heard a presentation Monday from Robbie Ferris, CEO of First Floor Energy Positive, which is contracted to build the five schools.
Ferris’ presentation focused on “alternative” payment options, including a deferred payment plan that would net First Floor at least an extra $7 million over the already over-budget price of $240.3 million for the schools.
“The situation in Horry is unique, and we didn’t know everything about the district’s financial situation,” Ferris said. “So we thought it may be of value to them to hear several different payment options.”
The alternative plan would create about $6,887,262 in extra costs and does not include any interest costs during the pay-off of the construction contract. Interest rates could range from 1 to 5 percent, depending on the market, Ferris said.
A few board members and district employees expressed hesitation at accepting Ferris’ proposal, instead opting for a traditional payment option.
“It’s my recommendation, as chief of finances, that we go with the traditional financing model,” said John Gardner, chief financial officer with the district.
Ferris said all the points and questions brought up by board and district members are valid, and he just wanted to make sure Horry County considered every option to finance the schools.
No votes were cast during the meeting. The finance committee will meet again next month to go over the budget and how exactly the district will fund all five new schools.
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.
Traditionally, the projects would be funded through a combination of general obligation bonds, equipment lease financing and sales tax funds, according to Gardner.
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.
Ferris’ proposal extends the construction contract for nine years and allows the district to make quarterly or annual payments from sales tax revenue. The tax revenue is deposited into a lockbox and, after the lockbox has enough money for a payment, the tax money would be used for other district needs.
“One of the nice things about this option is that it would not tie up your 8 percent lending capacity, so you could use that money for something else,” Ferris said.
Gardner said the district already uses some of the 8 percent debt limits, but the majority of it would be taken up with the building projects. Though all of the debt capacity would be reserved, the district would pay off the bonds within nine years, he said.
Opting for an unsecured loan – such as the one Ferris presented – would probably mean a higher interest rate because it’s not backed by the “full faith and credit” of the district, Gardner said.
“We just want to provide the district with all the options that are available to him,” Ferris said.
The district’s bonds would carry between a 1.31 and 1.92 interest rate, which is “a very low cost of money,” according to Brian Nurick, a financial advisor with Southwest Securities in Columbia.
Francenia Heizer, a bond attorney with McNair Law Firm in Columbia, has worked with HCS on several previous projects. She said it’s not usual for a firm to offer different payment plans to a client, but it also isn’t necessarily unheard of.
“It opens some doors that they maybe haven’t looked into,” Heizer said. “It’s certainly not anything wrong or illegal.”
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,” education board chairman Joe DeFeo said earlier in November.
Claire Byun: 843-626-0381, @Claire_TSN