MEMORANDUM

TO: Timothy Navarre, Assembly President

Members, Kenai Peninsula Borough Assembly

THRU: Dale Bagley, Borough Mayor

FROM: Jeffrey Sinz, Finance Director

DATE: July 29, 2002

SUBJECT: Ordinance 2002-35, Seward Middle School General Obligation Bond Ballot Proposition

The attached Ordinance requests approval to place a $14,700,000 Seward Middle School Obligation Bond proposition before borough voters as part of the October 1, 2002 election. The requested approval would be contingent upon the bonds becoming eligible for at least 70% debt reimbursement from the State of Alaska. This project has not previously been authorized for such reimbursement. To become eligible, the project would have to be specifically authorized through a future action of the Alaska State Legislature. In addition, the project would have to meet statutory size and use criteria. Compliance with these criteria is subject to approval from the Alaska Department of Education and Early Development.

There are two primary advantages to obtaining contingent approval from borough voters prior to receipt of State of Alaska debt service reimbursement eligibility. First, local voter approval will demonstrate to the legislature the existence of local support for the project and the willingness of borough voters to support issuance of the necessary bonds; second, pre-approval from borough voters will enable the project to proceed immediately upon legislative approval. Putting this question before borough voters after legislative approval would add about four months to the project completion schedule.

Background

As indicated in the attached letter from the Seward Site Council to the School Board dated July 19, 2002, the project is based on the need to address significant code deficiencies with the current facility. A code review project has recently been conducted to examine the extent of the deficiencies and estimate the facility renovation costs necessary to address the deficiencies. The estimated renovation cost totals $10,700,100, including the cost of temporary classroom space during a two-year renovation period. The resulting useful life of the renovated facility is expected to be about 10 years. As an alternative, the estimated cost of constructing a new middle school facility is $14,700,000 with an expected useful life of 30 to 50 years. Based on the substantial increase in the resulting useful life for the new facility alternative, construction of a new facility is being recommended.

Financial Impact

The issuance of $14,700,000 of general obligation bonds will have an annual debt service requirement of about $1,142,620. Assuming a 70% reimbursement rate from the State of Alaska, the net annual cost to borough taxpayers would be $342,786. The resulting impact on the annual tax levy would be approximately $9.30 per $100,000 of assessed taxable property value (based on the estimated total FY2002 assessed valuation, a 5.0% average rate of interest, and a 20-year payback period, and a 70% reimbursement from the State of Alaska). Operating and maintenance costs associated with the new facility are expected to be lower than the current facility.