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Posted September 11, 2012 | 4 Comments
Contract, business model presented for Edinburg School project
By Kim Walter -- firstname.lastname@example.org
While the Shenandoah County Board of Supervisors learned more about the educational benefits associated with the Edinburg School project last week, they were also presented with proposed terms for the contract between the county and Charterhouse School, as well as a business model and plan of finance.
County Administrator Doug Walker outlined what Charterhouse School would do for the county given the contract and facility for special education students receives approval.
According to his part of the presentation, Charterhouse School would provide the county with education services for day placement students with autism and emotional disabilities. Beginning in the first year, the organization would pay the county $300,000 in annual rent, to include utilities, for use of the old Edinburg School. Beginning in year four, Charterhouse would then pay an additional $2,000 per student per year when the average daily number of students exceeds 30.
"Keep in mind that all of this fits into Charterhouse's business model," Walker said. The contract, as presented would be good for 30 years, and Charterhouse would be able to cancel it with 365 days notice. Charterhouse could also cancel the contract at the start of the school year or semester if, after year two, the average census drops to 20 students.
From the same contract, the county is required to renovate, furnish and equip the facility "in a manner consistent with approved preliminary design for program use during normal school hours."
"They need a facility that works for them," Walker said. The county also will need to provide two teachers during the first two years of the program, and beginning in the third year, provide one teacher given that an average daily student number of 39 is achieved in the second year. The county also has the ability to cancel the contract with 365 days notice.
"There is risk and opportunity tied to the number of students participating," Walker said.
The county's budget manager, Garland Miller, walked the supervisors through a return on investment model for the project.
If the county chose to keep the building vacant and unused, Miller found that there would be a deficit in the county - almost $16,000 a year -- because funds would still be used to pay for utilities. However, if the county chose to go with partial use of the building, that deficit would grow.
While $3,350 in revenue would come to the county if Parks and Recreation used it, expenses from utilities and paying a custodian would grow to almost $60,000 a year. Miller then added the proposed yearly debt service payment for capital improvement -- about $170,000 -- to bring the yearly project deficit to a little more than $235,000 a year.
If the county chose to partner with Charterhouse School and comply to the proposed contract terms, Miller estimated that over a five-year period, the project would generate a $24,775 surplus given that the facility served an average of 40 students by year four.
Miller said that major factors were transportation and utility costs. If the building received the proposed renovations, the county could save over $15,000 a year on utilities as they would be more efficient. Additionally, since the county would no longer have to pay for students to be transported to Manassas or other locations, over $55,000 in savings would be realized.
"The transportation savings is one component that I could isolate that is directly applicable to this situation," he said. Even after subtracting funds to employ teachers and to pay the debt service and capital improvements expense, the county would see an almost $300 surplus in the first year of the project. According to Miller's figures, which he noted are "constantly moving," after 10 years of the program serving 60 students a year, the county could have an almost $350,000 return on investment.
Cortney Rogers of Davenport & Company explained that the project is able to be financed via tax-exempt bonds and presented three "viable options" for the county.
One option states that a "portion of the project could be financed via state Virginia Public School Authority; however, governmental use portion would have to be financed via another mechanism." Rogers said this option would require different financing which would increase the cost of issuance.
Given that information, he recommended that the county look closely at option two: all of the project could be financed via state pool such as Virginia Resources Authority; and keep option three -- competitively bid to local and regional financial institutions -- as a backup.
Supervisor David Ferguson asked Rogers if the project was able to pay for itself.
"It depends on the success of the program, but if rates stay the same...it makes sense," Rogers said.
The next steps for the project are for the Board of Supervisors to consider the contract with Charterhouse School, consider the PPEA Comprehensive Agreement with Caldwell-Santmyer Architects for design-build services and approve the preferred project financing mechanism, all at the board's Sept. 25 meeting.