District 16 board OKs $3.8 million land lease

The Spring Lake Park District 16 School Board has approved a resolution authorizing a $3.8 million land lease financing agreement with Capital One Public Funding.

he District 16 School Board approved land lease financing for partial payment of construction at Park Terrace and Northpoint elementary schools. Excavating at Park Terrace began earlier this month.Photo by Elyse Kaner

The District 16 School Board approved land lease financing for partial payment of construction at Park Terrace and Northpoint elementary schools. Excavating at Park Terrace began earlier this month.Photo by Elyse Kaner

The agreement will finance a portion of construction costs for new additions now being built at Northpoint and Park Terrace elementary schools.

The board at its May 14 meeting heard a presentation of the financing process and recommendation by Joel Sutter, senior financial adviser of Ehlers, a financial consultant hired by the district.

Sutter recommended that the district go with Capital One Public Funding of Corrales, N.M., which offered a fixed interest rate of 2.48 percent.

“In the long-term view, these are very low rates,” Sutter said.

Ehlers sent out a request for proposals in early May. Three companies, including Capital One indicated an interest, but one firm because of a change in internal bank priorities, decided not to submit. Wells Fargo was the other firm that submitted a proposal.

Sutter, in a letter dated May 14 to Amy Schultz, District 16’s director of business services, summarized three advantages of going with Capital One: A lower interest rate, resulting in lower total payments, translating to a difference of $287,020 during the term of the lease; lower upfront costs to be paid from district coffers and a guarantee of no changes in the interest rate

Boardmember Jodi Ruch asked if two proposals were an adequate number.

Sutter said fewer banks are willing to offer land lease financing. Among the reasons are tighter regulation requirements and tighter credit standards, he said.

“Two is an OK number,” Sutter said about the number of institutions submitting proposals. “One is OK if it’s a great one.”

Boardmember Jim Amundson said people often think of lease agreements as leasing a vehicle for a certain amount of time and giving it back. He asked, for the public’s benefit, a further explanation of a municipal land lease.

Sutter said under the lease agreement, the school district would pay principal and interest payments for a term of 15 years. It would continue to make payments every six months. At the end of the 15-year period, the district has the option of purchasing the building for $1.

It (the financing institution) technically own the addition, while the district retains physical title to the property and it’s leasing those back to the district, he said.

Sutter has been working with the district on the proposal since last fall.

Ehlers last worked with the district and board in 2008 in the planning process for the sale of bonds associated with the 2006 referendum, when voters approved funding for the district’s major construction and improvement projects to its buildings.

Back in 2007, the land lease interest rates for the high school track and artificial turf and for the District Services Center were at 5 percent and 4.7 percent, Sutter said.

“So, these are very, very low rates,” he said about the submitted proposal numbers.

The board voted unanimously to approve the resolution.

In addition to the land lease, the new additions at Northpoint and Park Terrace elementaries will be financed by remaining proceeds from building bonds and general fund money.

The additions of 10 classroom spaces and cafeteria expansion at Park Terrace and six classroom spaces at Northpoint are expected to be finished in time for the start of the 2013-14 school year.

The extra space is needed because of a projected 20 percent increase in the district’s enrollment over the next eight to 10 years.

The district plans to pay off the two land leases for the high school track and turf and the District Services Center early and replace them with the lease to fund the construction at Northpoint and Park Terrace, Schultz said during an earlier segment of the board meeting.

“In doing so, we actually will be reducing the amount that we are putting on the levy to taxpayers for the lease purchase for these three projects,” she said.

District 16 serves about 5,400 students in Spring Lake Park and parts of Blaine and Fridley.

Elyse Kaner is at elyse.kaner@ecm-inc.com

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