Memo to School Committee from Dr. Zrike

Memo to School Committee from Dr. Zrike

Wednesday, October 30, 2019

 

Dear School Committee Members:

 

As the day of the vote for the new middle school building proposal nears, we continue to receive many questions about the new middle school building proposal.  This letter is intended to provide you with the most up-to-date information, so that you are highly informed and can also help answer questions about the proposal.  

 

I’ve included three enclosures/links that help answer some of the questions:

*Spanish versions of all materials are available at www.hps.holyoke.ma.us/turnaround/msredesign

 

Additionally, the pages that follow include longer and/or more technical explanations to additional questions we have received.

 

If you have additional questions to be answered, please contact me.  We will post this information on our website at and continue to update it in the next week.

 

Finally, I wanted to thank Mr. Collamore for his op-ed that appeared in the Holyoke Sun this past weekend. 

 

Thank you,

Steve

 

 

  • What would happen if the middle school project is voted down?

 

Given the strong community desire for distinct elementary and middle schools, we will still move to an elementary and middle school model.  We would have 5-7 elementary schools and 2-3 middle schools. We will still need to go through a community discussion and process to determine how to rezone our schools, with the support of an expert consultant.  Unfortunately, our middle school spaces are insufficient for the learning that needs to occur at this grade levels, so the move to distinct elementary and middle schools is a little less appealing for our pre-adolescents and their families.  And, HPS’ operating costs continue to remain where they are at, so there is no funding to contribute to the City and/or to invest in new staff to support our students.

 

The Building Committee would make a determination on how to proceed in terms of another project, either construction or renovation, to MSBA.  The $75.8 million grant from MSBA goes away and another community or communities would get those funds. The feasibility study would need to be re-done, this time at the exclusive expense of the City of Holyoke since the MSBA will not fund another study.  We would have to go through an entirely new approval process. It is not guaranteed that the MSBA would fund another project. If the MSBA would fund another project, the delay in project would be at least 3 years away. At this point, the economic market could change and interest rates could be higher.  The MSBA could also not choose to fund a project, in which case the City of Holyoke and/or its residents would be solely responsible for any financing, which could have a significant impact on the City’s budget. As a reminder, it would cost $78 million to renovate Peck while only making some educational improvements.  

 

 

  • Why does it make sense to invest in the middle school buildings now?

 

The combination of the significant grant from the MSBA, favorable market conditions and City’s strong financial position makes it an ideal time to invest in the middle school buildings.

 

First, the MSBA grant of $75.8 million is only available for this project.  If this project isn’t approved, we would need to re-enter the process with the MSBA.  Given that the MSBA has already invested money in the analysis of our buildings to-date and schematic design of the two middle school buildings, they will not contribute to a second Feasibility Study, so the City of Holyoke would need to fund many of the start-up costs with exploring a new project.    

 

Second, the City’s financial position is strong.  The City’s credit rating was upgraded from AA- to AA in September, due to strong budgetary performance and economic development leads.  The Mayor shared: “The City’s stabilization fund is $13 million, the highest it’s ever been. When compared as a percent of budget, its among the highest in the Commonwealth.”  Please see the Sept. 18th press release from the Mayor’s office with the financial projections. 

 

Third, the graph below shows that the 30-year U.S. Treasury rate is hovering around 10-year lows, meaning that we are most likely to get very attractive pricing based on the interest environment alone.  The 30-year interest rate bonds are being sought after by investors so the demand alone will help the pricing on this be even more attractive.   

 

The last 3 new school district municipal bonds that have come to the market were all cities (Millis Town, Pentucket, Lowell) rated AA like Holyoke and all priced with less than a 3% yield.  

  • Pentucket Reg. was issued on 9/3/19 for $47 million.  The maturity date is 2041. The interest rate is 2.51%.  
  • Lowell was issued on 9/17/19 for $56mm.  The maturity date is 2041. The interest rate is 2.90%.  
  • Millis Town issued on 10/16/19 for $4 million.  The maturity date is 2044. The interest rate is 2.75%

 

Similar to what Holyoke intends to do, many municipal issuers have advanced funded upcoming maturities in the past 2 years as to take advantage of the low rate environment.  Hilltop Securities will assist us through this process to ensure we get a very competitive deal.

 

 

  • What percent of the total middle schools bill do Holyoke taxpayers fund?

 

Holyoke residents and businesses will pay at most 28% of the total project cost. The rest is funded by the MSBA grant of $75.8 million (only available for this project) and the annual contribution of $1 million from HPS during the life of a 30-year bond.  

 

 

  • Is this a permanent or temporary tax increase?

 

This is a temporary tax increase.  A debt exclusion was chosen instead of a Proposition 2 ½ because a debt exclusion is specifically for the debt for a particular project and after that project, the tax increase goes away.  

 

 

  • If two new middle school buildings are constructed, how does that change the HPS portfolio of schools?

 

HPS currently runs 11 school buildings, which is too many for the size of our student enrollment.  If we are able to build two new middle school buildings, we could demolish Peck, a poorly rated building, and replace it with a new building.  We could also take two other poorly rated buildings (for educational use) offline – Lawrence, Metcalf – and ideally, move McMahon to a Pre-K Center.  The City would decide what to do with those three buildings; for example, they could be sold. In the end, we would operate a newer, more efficient portfolio of 9 buildings, instead of 11.  

 

 

  • How does HPS save $4.5 million annually if the two new schools are built? How would it be used?

 

The estimated $4.5 million in savings will be realized through a streamlining of operations as a result of closing one school and repurposing three other schools. Collectively this will result in a variety of cumulative savings from reducing our electrical, heating, water, gas, maintenance and transportation costs among others. Importantly, there are no savings if we don’t build new schools.

 

HPS will also provide the City of Holyoke with $1 million annually to contribute to the bond.  (Read the original October 9th memo from Mayor Morse and Dr. Zrike to DESE (MA Department of Elementary and Secondary Education), explaining the contribution and read DESE Commissioner’s Riley October 17th letter of affirmation.)  Please note, any transportation savings goes directly to the City of Holyoke.  

 

The rest of the savings will be re-invested in some of the following ways:   

  • Hire more math and literacy tutors and interventionists to support struggling students
  • Hire more social workers and counselors to support the mental health needs of our students
  • Continue expanding dual language, world languages, arts and enrichment opportunities, and after-school programming
  • Open a Pre-K Center to specialize resources for early learning and expand the number of preschool seats
  • Purchase additional curricula, technology, and materials so teachers can effectively meet their students’ needs
  • Offer stronger, customized training for teachers and staff 
  • Reduce class sizes, particularly at younger grades

 

 

  • How can Holyoke reduce the tax burden of the project?

 

 

We have already reduced the tax burden of the project significantly and will continue to do so. Holyoke residents and businesses will pay at most 28% of the total project cost. The rest is funded by the MSBA grant of $75.8 million (only available for this project) and the annual contribution of $1 million from HPS during the life of a 30-year bond.

 

We have consulted with state and local experts including those in nearby communities, such as the City of Easthampton, Massachusetts School Building Authority, Hilltop Securities, Fontaine Brothers, Jones Whitsett Architects and more, to ensure the two new middle school buildings are of good value, balancing quality and cost.

 

  • Securing a good interest rate on the bond.  Easthampton worked with the financial advisor and treasurer to identify the best timing for their bond, so that they received a lot of bids and were in a strong place to negotiate.  (Their original estimates were 4-4.5% for the interest rate, but they secured it at 2.6%. The City of Holyoke’s September financial projections indicate a 30-year bond rate of 3%.)

 

  • Examining project costs to balance cost and quality.  Easthampton prioritized cost reductions by first looking at costs that are not eligible for MSBA reimbursement and then examining costs that exceeded the reimbursement cap set by the MSBA.  One of the most significant areas to look at reducing costs, while limiting the negative impact on the project, is site costs. For example, their initial proposal had many types of athletic fields, which they combined into one multi-use field.  They are also considering reducing landscaping costs by partnering with local career technical vocational education (CVTE) schools.  

 

  • Adopting a “whole City” approach to securing grants, both large and small.  For example, Easthampton is pursuing a Department of Justice grant to strengthen the perimeter of the school, meaning increasing safety through certain landscaping techniques, bullet-proof glass, a double set of doors to enter the building, etc, which will both augment and offset existing project costs.  Other grants they have secured or are pursuing include: a safe routes to school grant to make the new school more pedestrian and cycle friendly, drug-free community grant to supplement social-emotional learning in the schools, health community grants, curriculum grants, a municipal vulnerability grant to protect against natural disasters, and more.  

 

  • Recognizing that savings from more efficient buildings would allow investment elsewhere. Easthampton forecasted energy costs and realized they would go down dramatically down; they applied those savings to other needs in the school, such as curriculum needs. 

 

  • Continuing to champion new growth in the City.  The more businesses and residents that move into the City, the lower the tax impact on any one family or business.  So, Easthampton continues to pursue new or growing businesses and economic development and workforce development grants.  They also increased the 41C tax abatement for seniors as one way to ease the burden on seniors.  

 

Holyoke will pursue the same efforts that Easthampton did to reduce the tax burden.  It is important to note that Holyoke Public Schools has a strong record for securing grants and there are more grants that HPS is eligible for, given the percent of high needs students in our district.  Unfortunately, our application to the Community Preservation Act (CPA) to assist with the landscaping and site costs was denied because “The community preservation funds shall not replace existing operating funds, only augment them.” If any residents know of specific grants we should apply, please email msredesign@hps.holyoke.ma.us

 

Once again, Holyoke is very unique in that HPS has already committed – and DESE has approved – $1 million annually of the forecasted savings to the City, which the City will use to pay for the construction bond.  This is a commitment that no other community we know of has made – and it already reduced the tax burden by 33%!   

 

 

  • What programs would be in the new middle school buildings? 

 

 

In line with our value of encouraging bold thinking, we have piloted and implemented innovative programs, from PreK to 12th grade.  In the middle school space, we launched computer science programming across all middle grades in 2015, Summit Learning at Peck (formerly P3) in 2016, Veritas Prep Holyoke in 2018, and Holyoke STEM Academy in 2018.  And, in Fall 2020, the dual language program (which has been growing a grade level per year since 2014). Over the next two years, we will continue to evaluate our middle school programs, based on academic and non-academic results and input from families, students and staff, to determine which programs will be in our new middle schools.  We have made two commitments thus far: 1) dual language will be offered in at least one middle school, and 2) all schools will be HPS schools with HPS students.   

 

 

  • How do the new middle schools support the HPS turnaround plan?

 

 

Building two new middle schools shows our community’s investment in and commitment to our school system.  Adding new options for middle grades students is a part of our turnaround plan, which was released in 2015 and renewed in 2018, and is an important part of realizing our vision of a pathway for every student.  Based on family, student and staff input, we believe that the middle school model will lead to better outcomes for our students, since the buildings are built to promote strong relationships between students and adults, offer engaging learning opportunities and facilitate critical teacher collaboration.  

 

 

  • What protections are in place to make sure the project doesn’t go over budget?

 

 

The project budget for each school includes a design contingency, a construction contingency and an owner’s contingency to be sure the budget is sufficient to address any unforeseen circumstances, changes in material costs, errors or omissions.  At then end of the project any unspent contingency is returned to the project and would result in savings to the Owner.

 

The project budget also includes the inflationary impact of the length of this complex bonding, design and construction process estimated to the mid-point of construction with an inflationary rate of 4% per year.

 

The project is being delivered through a Construction Manager-at-Risk process rather than the traditional design/bid/build process.  A CM-at-Risk process engages the construction manager collaboratively in the design process as an advisor and cost estimator. As the design is completed, the CM provides a Guaranteed Max Price for the work that protects the Owner and that works with the Owner through an open books process to secure filed sub bids.  Since the CM is engaged earlier and is a partner to the Owner, the CM process has a lower rate of change orders and lower risk of cost overruns when compared to the design/bid/build process. A CM is pre-qualified based on previous work to be considered for this role and is required to have insurance to protect against cost overruns.  (For more information, the CM-at-risk process is governed by M.G.L. Ch. 149A.)

 

The project is managed by an Owner’s Project Manager (Margaret  Wood) who is responsible for contractual oversight and financial management during design and construction.

 

Additionally, MSBA projects are closely reviewed by the MSBA staff, and by an independent engineering team who will review of both the building envelope and the mechanical systems during design, construction and start up.

 

Finally, all MSBA CMR projects in Western Massachusetts have arrived at a Guaranteed Max Price (GMP) successfully.  No community in Western Massachusetts has had to go back to the voters for additional funds because their early estimates did not properly project the bid climate/market in order to achieve a GMP.  On a similar note, our architects – Jones Whitsett Architects – have designed and estimated nine (9) new construction, public school projects, and none has been bid for more than the estimated construction cost.

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