What is lease-purchase? How does that affect district funding?

Post date: Jul 20, 2013 6:53:29 PM

Most of Oklahoma’s large school districts use lease-purchase financing for their large construction projects. This is conduit financing which allows a district to receive larger amounts of funding up front, allowing it to speed up construction, despite limitations in a district’s bonding capacity due to the net assessed valuation of the property within the district boundaries.

This type of financing allows a district to put new and remodeled facilities into service more quickly and reduces the probable inflation in construction costs over time. If the district could not use this conduit financing, that would delay the construction of new classrooms at the high school and the renovation of Central Middle School for several years.

If the bond proposal were approved by voters, the district would have a local public trust authority, in a conduit lease-purchase financing agreement, issue lease-revenue bonds on its behalf for most of the additional classrooms at Bartlesville High School and the renovations at Central Middle School, while funding the remaining projects through typical general obligation bond methods. The district would then pay off the leases over time using a combination of general obligation bonds and its existing building fund.

In August 2013 the city agreed to act as the local public trust authority in this regards. The conduit financing agreement between the BPSD and the City of Bartlesville creates a trust authority which is required to take advantage of the historically low construction costs and interest rates that are present today. Thanks to the agreement, while the improvements to BHS would be completed in approximately two years, all of the projects called for in the school bond issue proposal would be finished within three years. Within Washington County, the Dewey and Caney Valley school districts have completed bond issue projects which included conduit financing agreements. Many non-school projects within Bartlesville have already been financed in the same manner, including the Green Country Village Retirement Community.

One complication of lease-purchase financing over the older-style general obligation bond financing used for the rest of the projects is that interest payments on the lease-purchase bonds cannot be paid from the general obligation bonds approved by voters. Instead, the district’s building fund must be used to cover interest payments through 2018-2019. The existing balance of the building fund would be utilized, and the general fund could be tapped for several years. The worst-case projected burden on the general fund is still only a small fraction of the existing general fund balance of $5.5 million, so it would not be problematic. The shuffling of money from one fund to another is necessary because of how property tax revenues are collected and allocated to each fund.

Once Madison Middle School is shut down, the district expects to save at least $150,000 annually in operating expenses. That should offset some of the cost of the lease-purchase agreements and, over the long run, reduce the district’s net operating expenses.