Sinking Fund

On the August 2nd, 2016 ballot, a measure was approved that will levy a tax on residents for a Sinking Fund for Ferndale Public Schools. The measure asked for an increase of 1.3 mills ($1.30 per $1,000 of taxable value of your property -approximately 50% lower than your market value) for 15 years. This will raise about $850,000 per year for facility improvements or about $13,000,000 in fifteen years.

Ferndale Sinking Fund Executive Summary

What is a sinking fund?

A Sinking Fund millage is a limited property tax, considered a "pay-as-you-go" method for funding building maintenance and infrastructure projects. No debt or interest expense is incurred with a Sinking Fund. The tax is levied each year and the revenue generated from this levy is designated to building upgrades or repair. Sinking Fund expenses are audited by the Michigan Department of Treasury for compliance annually. The Sinking Fund revenues cannot be used for general fund expenditures (i.e.., to keep schools open).

Why do we need a Sinking Fund if we just passed a bond in 2012?

Over the past decade, there have been severe cuts to the state's per pupil allocation compounded by shifting enrollment trends, which is the primary source of funding for the district's ongoing operations. The only additional means to fund the district is by asking voters for approval to levy mills for debt (i.e. purchase of land for future building projects) and sinking funds (i.e. capital outlay to build or renovate facilities). The original amount of work identified in 2012 was over $30 million, but the law on bond funds prohibited going out for that amount. Without the Sinking Fund millage, major repairs would need to be paid for with operating funds that would otherwise be used to support educational needs of the district.

The District has identified $13,000,000 worth of projects over the next 15 years that are critical school safety or building and site repair/improvements (see below). Suspending these facility repairs would result in more expensive emergency repairs in the future. The Sinking Fund allows the district to systematically respond to these maintenance needs, ultimately reducing the total cost while prioritizing student safety.

Items

Estimated Cost

Roofs

$3,075,559

Exteriors

$2,888,516

Interior Improvements/Energy Efficient Lighting

$2,944,764

HVAC & Energy Efficiency

 

$3,261,100

Electrical

$1,063.320

Total

$13,233,319

 

What is the difference between a sinking fund and a bond?

Most school construction and improvements are paid for with bonds, which is really borrowing money. We have to pay that money back with interest and fees, and have a special tax dedicated to paying off each bond. Because it's complicated, schools usually only use bonds for major projects every 10 to 20 years. That makes sense for new structures and additions, but not so much for things like roof replacement or heating system upgrades. The sinking fund allows schools to pay for these kinds of smaller renovations as we go, without having to borrow money or pay interest. It also means that we're not letting our schools deteriorate for ten or fifteen years while we wait for a new bond project.

What has the school district asked of residents?

We asked for an increase of 1.3 mills ($1.30 per $1,000 of taxable value of your property -approximately 50% lower than your market value) for 15 years. This will about $850,000 per year for facility improvements or about $13,000,000 in fifteen years. Below is the impact on your property taxes.

Home Market
Value

Home Taxable
Value

Annual
Increase

Monthly
Cost

$100,000

$50,000

$65

$5.41

$150,000

$75,000

$97.50

$8.13

$200,000

$100,000

$130

$10.83

$250,000

$125,000

$162.50

$13.54

 

Please review the following documents.

Q & A

Q: What is a “sinking fund”?

A: A Sinking Fund millage is a limited property tax, considered a “pay-as-you-go” method for funding building repair and infrastructure projects. No debt or interest expense is incurred with a Sinking Fund. The tax is levied each year, and the revenue generated from this levy is designated to building upgrades or repair. Sinking Fund expenses are audited by the Michigan Department of Treasury for compliance annually. The Sinking Fund revenues cannot be used for general fund expenditures (i.e., to keep schools open).

Q: What is the difference between a sinking fund and a bond?

A: Most school construction and improvements are paid for with bonds, which
is really borrowing money. We have to pay that money back with interest and fees,
and have a special tax dedicated to paying off each bond. Because it’s complicated, schools usually only use bonds for major projects every 10 to 20 years. That makes sense for new structures and additions, but not so much for things like roof replacement or heating system upgrades. The sinking fund allows schools to pay for these kinds of smaller renovations as we go, without having to borrow money or pay interest. It also means that we’re not letting our schools deteriorate for ten or fifteen years while we wait for a new bond project.

Q: We just passed a $22 million bond in 2012. Why do the schools need MORE money?

A: Over the past decade, there have been severe cuts to the state’s per pupil allocation compounded by shifting enrollment trends, which is the primary source of funding for the district’s ongoing operations. The only additional means to fund the district is by asking voters for approval to levy mills for debt (i.e. purchase of land for future building projects) and sinking funds (i.e. capital outlay to build or renovate facilities). The original amount of work identified in 2012 was over $30 million, but the law on bond funds–based on the district’s tax base–does not allow the district to levy that much. Without the Sinking Fund millage, major repairs would need to be paid for with operating funds that would otherwise be used to support the educational needs of the district.

The District has identified $13,000,000 worth of projects over the next 15 years that are critical school safety or building/site repairs or improvements. Suspending these facility repairs would result in more expensive emergency repairs in the future. The Sinking Fund would allow the district to systematically respond to these maintenance needs, ultimately reducing the total cost while prioritizing student safety.

Q: As a resident homeowner, how will this impact me?

A: The sinking fund millage is seeking an increase of 1.3 mills ($1.30 per $1,000 of taxable value of your property–approximately 50% lower than your market value) for 15 years. This would raise about $850,000 per year for facility improvements or about $13,000,000 in fifteen years.

See the chart above for the impact on your property taxes.

Q: Is the millage applicable to all residential and commercial real estate in the Ferndale school district? In particular, if a Ferndale school district homeowner is a 'regular' owner occupier who has filed a homestead exemption, is the millage payable by such home owners?

A: Yes, the Sinking Fund millage will be levied on all homeowners and commercial real estate.  There is not a homestead exemption for this millage.

Q: You recently put three buildings up for sale (Jefferson, Wilson, Taft). What was the money made from the sale of these buildings spent on?

A: Those funds will go towards building improvement and maintenance. However, due to the complex nature of large real estate sales, it could be several years before Ferndale Schools receives the proceeds from these sales. However, our independent building evaluation from Plante Moran states that we have at least $13 million in maintenance costs over the next 15 years. The sale from these three properties will net the district approximately $1.5 million, which will not even cover the anticipated roof repair costs ($2 million) over the next five years.

Q: Our school buildings are all very old and costly to maintain. Wouldn’t we be better off building new schools?

A: New buildings are much more energy efficient and less expensive to maintain. However, it would take a bond initiative to be able to raise the funds to build even a single new school building, let alone six. Cost estimates for a single new elementary building ranges from $20-$40 million. So, while our existing buildings are costly to maintain, it is still more cost effective than building new schools.

Q: Why are you holding this election in August?

A: The August election was chosen for several reasons. Firstly, it saves us money.  There are several other ballot initiatives in August. Since there was already an election scheduled in August, Ferndale Schools will not incur the cost of holding a special election. 

Secondly, if we were to place this question on the November ballot, it would have the possibility of being drowned out in a contentious Presidential election. By having the election in August, the issue will be near the top of the ballot, affording us the opportunity to have an uninterrupted conversation with the citizens of the Ferndale School District.

Finally, the work that this Sinking Fund would pay for needs to begin in earnest next summer. In order to be able to afford the work that needs to be done in the summer of 2017, we would have to levy the mills in 2016. If we waited until November to put this question before the voters, we would miss the window to levy mills for 2016 and thus be unable to do the work in 2017. Also, for the district to appropriately bid out this work to get the best deal possible, we need to be able to plan based on the funds available. Placing this issue on the August ballot allows us almost 10 months to prepare if the initiative is successful.

It is also important to note that the remainder of the bond funds have all been spent. This spring, the district had to pay $800,000 to replace the HVAC and boiler system at Roosevelt. So, we no longer have any “rainy day” funds from the 2012 Bond. The sooner this ballot issue is resolved, the sooner we can begin to plan accordingly and have a solid plan on how to pay for and prioritize future work.

Q: Will there be a community forum for the public to learn more and voice their opinions?

A: Yes, there will be a community forum on May 26th at 7pm in the Ferndale High School Auditorium. We look forward to hearing from all of you and answering any further questions or concerns you may have.


Q: how many bids did Ferndale get for all this work? I'm not an expert but $490,000 for roof repairs just at JFK (not even replacement), for example, seems high! Replacing 20 house roofs wouldn't cost that much, and most homeowners in Ferndale know this; so a more specific explanation on what exactly that amount gets us and who bid that amount might be more helpful to the public.

A: Ferndale Schools reached out to several industry leaders to do the evaluations on our properties.  These companies have a history and strong reputation for working with school districts.  Specifically, we hired a company named Structure Tech to evaluate all the roofs. Structure Tech does not do roof installs they only conduct evaluations, so they are a non interested third party. You can find the full report on the JFK roof by clicking the link.

JFK Roof Condition Assessment PDF Document