EHS - $5M Infamous 5-Year Lease Purchase Agreement!?!

Well, my friends over there on Mythomania Lane approved this lease purchase agreement for the additional classrooms and labs back in the November 19, 2012 Action Meeting. It’s taken this long for me to get the documents you would need to see to understand the cost, financing and tax impact of this latest circumvention of the voter on capital additions. That’s why these type thingies are infamous and not famous – because they allow the board to incur debt for capital additions without voter approval. Anyhoo, still haven’t gotten everything – but let’s see what we can piece together so far.

Now, I went to that meeting and in the typical Board of Mythomania style, the $5 million was listed on the agenda – but they said nothing about it, provided no details as to cost and financing and just opened it up to the public for comments. Maybe it’s me, but how could you comment if you didn’t know any details about the project, the cost, the financing or anything else other than it was $5 million? 

A Board of Mythomania paradox wrapped in a enigma – they can’t show you anything until after they vote and after they vote, it’s too late to say anything anyway. But, in all fairness, they did have some of their consultants there to make a presentation on the financing but the board chose to let them give their presentation after asking for public comments rather than before. That was a nice touch.

Kind of déjà vu all over again - it’s like when Super Dr. Richard ‘Build the Trust’ O’Malley’s first contract was up for a vote by the board and they asked for public comments – but didn’t hand out the contract or tell you what was in it before they asked for your comments! But I digress about the lack of transparency with this board, so let’s move on.

So, I asked a few questions, (like I did with O’Malley’s contract when the board asked for comments) like how did you come up with $5 million, are there any state grants, what’s it gonna cost a year and what’s the tax impact for residents – you know, silly questions you’d might want to know before they put us $5 million in debt.

Here’s what was said. The $5 million consists of 20,000 square feet at a cost of $250.00 per square foot. (which includes both building construction costs and other allowable costs). The debt service (payment of principal and interest) will be approximately $1.5 million or so a year but those principal payments won’t kick in until after the first two years (until after the JPS lease purchase is paid off). The tax impact for the average home will average $11 over the 5 years of this agreement. Of course, they approved the project and off to the races we go.

Soooo..I ask for the architect’s floor plans, schematics, report to the board, any correspondence between the architect and the board and their cost per square foot calculations for the project as well as the financial consultants report.

First thing I get is a report with cost per square foot estimates but not from the architect but the construction manager and not in the typical NJ DOE cost estimate format which breaks down building construction costs by building system and provides for other allowable costs as a percentage of building construction costs. His format is greek to me so I asked if he could put it in the NJ DOE format, as well provide some simple answers to help me understand his report. 

Never heard back from him. 

After following up a couple of times with him and then expressing my concern with his lack of response to the board president and business administrator, I did get a copy of an email he sent to the business administrator indicating he had sent me an email with answers a week after I had emailed him with the questions – but, wouldn’t you know it, his email response to me couldn’t find its way to my inbox for some reason and all his answers did, that he gave the business administrator, was to raise more questions. It’s now become a game of ‘Who’s on first’ between the architect and the construction manager – and it doesn’t look like I’m gonna get any answers that helps me make sense of these cost estimates – hence, I can’t make any sense of them.

Be that as it may, here’s the Summary of Construction Costs Estimates in the construction manager’s report:

Here’s what it looks like when you simply divide his numbers by the square feet in his report:

Well, there you go - that the $5 million is now made up of 16,000 square feet at a cost of $310.87 per square foot – a slight change from the 20,000 square feet at $250.00 per square foot they told us before they voted at the board meeting. But hey, it’s not a problem; it’s the same $5 million, right? The architect’s fee and the construction manager’s fee are 6% and 4% of the building construction costs, respectively. That’s a total of $445,815.

Moving on, the financing for this 5-year lease purchase; according to their numbers, the $5,000,000 has an interest cost over the 5 years of $803,200 or 16.4% for a total of $5,803,200. They’re using a coupon rate of 4% with most of the principal payments being deferred for the first two years.

Here’s what their numbers are:

And finally, according to their numbers, the fiscal year tax impact of this $5,803,200 over the 5-Years - an average of some $11.97 on a home assessed at $150,000. Of course, this assumes the 4% rate and ratables that rise to $7,114 million or some $58 million over last year’s $7,056 million. 

Ratables are more likely to drop $58 million over last year’s $7,056 million – not increase. 

Further, what they’re not telling you is that $11.97 includes an offset for the payoff of the JPS bonds and are netted against the EHS bonds – effect being that the monies used in the budget for the JPS bonds is not coming back to the taxpayer once paid-off but netted against the true cost of the EHS bonds to show a lower cost. 

So, even using their own numbers, the cost of the EHS project on the taxpayer is twice what they’re telling you. That's Not Nice!

Here’s the numbers:

And, by the way, remember that we’re in the Land of Mythomania and there’s no such thing as a fiscal year tax impact for these bonds – the tax rate in downtown Edison is calculated on a calendar year not a fiscal year. Remember that infamous $80 budget back in 2011-12 that showed up on your tax bill as $242? 

Well, it’s déjà vu all over again!!

Finally, it’s hard to take any of these estimated numbers seriously and you really have to wonder if the board really looked at this stuff before they voted. You know what this looks like to me? Seems like the estimates they used for JPS a few years back – with one difference. There was grant money then but not now. So, the taxpayers get stuck with paying more money this time around.

Here, take a look:

Geez, unlucky for us taxpayers that we didn't get a chance to vote on this stuff!