By Randi B. Hagi, assistant editor
Updated 11:12 a.m. with comments from Council Member George Hirschmann.
To stay on schedule for opening the new high school in fall 2022, the City Council will have to authorize Nielsen Builders, Inc. to break ground this month. That has raised the stakes for tonight’s public hearing and vote — potentially the last chance for council to approve a design so that the builders can proceed on time or risk delaying the new school’s opening by a year.
But it’s not just a matter of a simple “yay” or “nay.” Several different issues and priorities will collide at the 7 p.m. meeting at city hall as the five council members make their decisions and consider how to balance the long-term needs of education in a growing community with the financial implications of a roughly $100 million commitment.
It’s been building toward this moment for months as the Harrisonburg City Public Schools’ board worked through the process of approving a design for a new campus, while city staff have worried about the amount the city would borrow to pay for it and individual members of council, at times so far, have seemed to pull in different directions.
The current high school is so overcrowded that, without enough available classrooms, some teachers have to ferry their materials around on mobile carts. The existing school, which has 1,881 students enrolled is more than 500 students over capacity. In addition to affecting education, school leaders say that this overcrowding poses a safety issue. And parents point out that this disproportionately impacts students with special needs.
Paying for a new high school will almost definitely mean raising the property tax rate for city residents, in a town where around 65 percent of residents live paycheck to paycheck, according to the United Ways of Virginia’s 2017 ALICE report. Mayor Deanna Reed said she was primarily concerned about the tax rate as the council discussed the news school during the Nov. 12 meeting.
From City Manager Eric Campbell’s perspective, the city can only responsibly incur so much debt.
Amid the hand-wringing over money, Council Member Chris Jones has been gathering information from city staff about the possibility of repurposing the land and funds currently taken up by the city-owned golf course, which occupies 190 acres between Hillandale Park and Bluestone Elementary. The course has cost the city an average of about $440,000 per year over the last decade, according to the city’s Comprehensive Annual Financial Reports.
Jones told The Citizen that he intended to “direct the city manager to begin a process for repurposing Heritage Oaks Golf Course while protecting current employees and the comprehensive plan … with special consideration for immediate neighbors.”
Jones said he would not divulge how he intended to vote about the new high school.
Council Member George Hirschmann wrote in an email that, in lieu of supporting either option approved by the school board, “there are other options which essentially [have] been ignored.”
Vice-mayor Sal Romero, Mayor Deanna Reed, and Council Member Richard Baugh did not return The Citizen’s requests for comment.
Romero said in the last city council meeting that he had planned to vote to build the school as designed, including the athletics facilities up front. He then made the motion to hold the public hearing tonight.
Both Romero and Reed work in education. Reed is the program director at On the Road Collaborative, a nonprofit that provides after-school empowerment and vocational programming to city students.
Romero is the coordinator of family and community engagement for the city school district. In his election campaign last year, Romero advocated for building the new high school sooner rather than later.
Jones, running as an incumbent last year, also platformed on building the high school as soon as possible.
The school board has authorized two options for the council’s consideration:
- build as designed, with a guaranteed maximum price of $87.2 million, which would potentially require the city to issue a bond for $104.8 million to cover costs such as furniture and infrastructure like roads and right-of-ways, or
- build in phases, delaying the construction of athletics facilities, lowering the initial price to $80 million, which would potentially cause the city to issue a bond for $97.6 million.
The amount of debt the city would have to incur for this project could cause the council to raise the property tax rate by around 13 cents, from 86 cents per $100 of assessed value up to 99 cents. The increase would mean owners of a home that’s assessed at $200,000 would pay an extra $260 a year — $1,980 instead of $1,720 at the current rate.
Among other similar communities, Lynchburg has the highest property tax rate of $1.11 per $100 of assessed value.
Funding the project will also eat up most of Harrisonburg’s debt capacity, which is the total amount a community should borrow at one time.
Debt capacity, bond ratings, and the Davenport report
Harrisonburg currently carries $173 million in debt, according to the city’s finance director, Larry Propst.
As City Manager Eric Campbell told The Citizen in a previous interview, Harrisonburg’s remaining debt capacity is around $127 million. But the city has more needs than a new high school, alone.
Harrisonburg policies cap their total debt burden – which includes the $173 million as well as other obligations, such as pensions – to 6% of the assessed value of taxable property within the city. The Commonwealth of Virginia allows that cap to rise as high as 10%.
“The city’s Financial Management Policies were originally adopted by City Council in 1995. It would only be speculating as to why 6% was used, other than that was likely the common practice at that time for sound financial policies, as they still are today,” Propst wrote in an email to The Citizen. “One goal was likely to some day become a AAA rated city, and to do so requires these types of policies.”
That triple-A would be the highest available bond rating from the financial services company Standard & Poor’s (S&P) Global Ratings. According to a 2017 report by Davenport & Company, based in Richmond, Va., Harrisonburg has an AA rating – the third best on the scale. The report also includes analysis from Moody’s Investors Service, which pegs Harrisonburg at a comparable rating on their scale, Aa2.
The Moody’s ratings of Aa1, Aa2, and Aa3 “are judged to be of high quality and are subject to very low credit risk,” according to its website.
Davenport included in its 2017 report an analysis of the effects if the city were to incur an additional $50 million or $100 million in debt. The analysis showed the city could hypothetically borrow either amount without altering their good credit rating with Moody’s.
However, “there are multiple factors, other than debt, that determine a rating,” Propst cautioned. “The city wouldn’t know what impact borrowing may have on Moody’s until the credit rating is actually completed.”
What’s changed since the report
Appendix C of the report contains the Moody’s credit opinion published in March 2016, which describes Harrisonburg as having a “strong local economy stabilized by the presence of James Madison University, the city’s stable financial position with satisfactory reserves, and an above average, but manageable debt burden.”
At that time, the “above average” debt burden referred to almost $205 million in debt, plus pensions and other obligations, “which means we have more debt than the average municipality,” Propst wrote.
That credit opinion also outlined Harrisonburg’s primary revenue sources were property taxes that make up 38.7% of revenue and other local taxes —such as the hotel and food and beverage taxes — that cover 37.8% of the city’s income. Both, the opinion noted, are “economically sensitive.”
“The exposure to a somewhat economically volatile revenue source is mitigated by the city’s conservative approach to budgeting for these revenues,” the report concluded.
In the last fiscal year that ended in July, property taxes represented 41.4% of the total revenue and other local taxes were 37.5%, Propst said.
“My opinion would be that we improved on this,” Propst wrote, but acknowledged that he couldn’t speak for the rating agencies.
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