Cobb Schools likely to take loans for SPLOST III projects

The Cobb County school board appears poised to adopt a SPLOST III construction project "…

Georgia (Oct 28, 2010)The Cobb County school board appears poised to adopt a SPLOST III construction project "acceleration plan," which would require the district to take out three short-term loans in coming years to help pay for construction projects. Two local economists seem to think the plan could be a good idea, considering the construction market. 

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The purpose is to accelerate remaining construction projects in SPLOST III, moving up projects from 2012 and 2013 to 2011 to take advantage of the current construction costs. To pay for the influx of projects, the district plans to take out a short-term construction note in each of years 2011, 2012 and 2013. 

In 2011 and again in 2012, the district will take out loans of $62 million, but in 2013, that loan amount would be cut in half, to $31 million. Since the loans are short-term notes, the district will have to pay back each loan by the end of each calendar year, presumably using sales-tax revenue. 

At the board's Oct. 13 meeting, SPLOST manager Doug Shepard told the members that although the loans will costing the district $637,000 in fees and interest, the savings in construction would be a long-term benefit to the district. Shepard said the district is projecting interest rates of 0.3 percent in 2011, 0.4 percent in 2012 and 0.5 percent in 2013 for the loans.

"A better way to look at it is that it could be considered an insurance policy - costs are not going to be any lower, based on the consensus of economists," Shepard said. "So this is our opportunity to lock in these costs and to lock in the savings, just as we've done with Bells Ferry, that we can then return the excess funds to other non-technology or non-construction items, so that they, in turn, can have their budgets restored as best they can."

Economics professors Dr. Don Sabbarese, of Kennesaw State University, and Dr. Roger Tutterow, of Mercer University, agreed with Shepard's reasoning.

Sabbarese - who helped refine the district's SPLOST revenue forecasts earlier this year, given the down economy - said, "From the cost side, it would make a lot of sense for them to lock into something now, given the construction industry, rather than wait until later when possibly the construction industry picks up where it would become more expensive." 

Tutterow said, "It's fair to say that now's a good time to be taking on construction projects. Some of the material items are lower. And it could have stimulative effects for employers in that area … I think the argument that now is a good time to be doing those kinds of expenses from a cost perspective is probably valid."

But board member Alison Bartlett said Wednesday that she is still on the fence about the acceleration plan. While the district has taken out short-term loans before with its SPLOST projects, Bartlett said she is worried about the district's ability to pay back the loans in this economy. 

"I am very concerned about where the state of Georgia and where Cobb County is financially," Bartlett said. "SPLOST is dependent on sales tax, and I don't believe in the numbers we're currently receiving from the state … I think in today's economic outlook, that is a very very dangerous thing to do. Any other time that the school system has done a TAN (tax-anticipation note) we knew that we were going to earn money on the money that we had and we were not going to have a loss of revenue."

The district took out short-term loans for SPLOST projects nearly every year between 1998 and 2007, Shepard said. 

Sabbarese, however, said that if the district's SPLOST projections are relatively decent then it should not have any issues with paying back the loans. In February, KSU economists helped to revise the district's revenue forecasts for SPLOST III, projecting a 20 percent decrease in the original projections of SPLOST III revenue. In September, the board voted to slash the budget for each of the SPLOST III construction projects by 20 percent. 

"If the forecasts are halfway decent forecasts, then they should be able to pay them," Sabbaresse said of the loans. "If they're reasonably accurate, one would have to guess that the timing of this makes sense."

But the loans are not without risk, Tutterow said.

"Any time you take on any kind of debt, you've got to make sure you monitor your debt level against the size of the entity," Tutterow said. "The problem is that you're making a bet that the sales tax revenue will come in … It is not riskless any time you take on a debt that has to be paid back." 

At least two board members are in support of the acceleration plan.

"It makes good business sense," Holli Cash said. "It's good for the district and it's good for the kids. We need to take advantage of everything the market has given us - good and bad."

Board Chairwoman Lynnda Crowder-Eagle also said that the acceleration plan makes good financial sense. 

"It is a different time, but I'm not worried about us paying them back," Crowder-Eagle said. "And I think the savings we will have by us being able to expedite some of these projects will be an advantage and it will be a fiscally responsible thing for us to do." 

David Morgan said he was still weighing the benefits and risks of the acceleration plan, but would not elaborate on his concerns. Dr. John Abraham said he needed clarification on the district's plan to pay back the loans and to pay the loan interest.

Members Dr. John Crooks and David Banks could not be reached for comment.


 

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