Inflation on construction costs is impacting every builder and developer in the region, and the School District of Manatee County is no exception.
Tim Bargeron, the associate superintendent of finance for the School District of Manatee County, said the cost of construction has increased about 20%, which means the cost of each of the district's capital projects will significantly increase as well.
The projected cost of inflation for the 15 major capital plan projects on the five-year plan is projected to be just under $42 million.
The School Board of Manatee County approved a resolution in October 2020 that allows the school district to borrow up to $100 million for capital projects.
School board members now must decide whether to borrow now, and even expand the amount that can be borrowed to $135 million or more, in order to have the ability to fast-track several projects that are scheduled late in the five-year plan.
The thought is that building sooner, even though interest must be paid on loans, will eventually save millions on possible inflation costs.
The district already had projected the $100 million in borrowed funds to fast-track renovations at Carlos E. Haile Middle School, and Blackburn and Tara elementary schools, as well as replacing a building at Southeast High School, doing grandstand replacements at Manatee High School, and installing security improvements at various schools within the district.
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During a School Board of Manatee County workshop Aug. 12, Bargeron recommended the school board consider borrowing up to $25 million more (than the originally suggested amount of $100 million) to cover the cost of inflation on those projects, which right now is projected at $21 million.
“Without having information on revenue changes, we were thinking, ‘OK, we’re going to have to increase the amount of the borrowing or we’re going to have to drop some projects off,’” Bargeron said.
More money needed
Bargeron said the district first considered a recommendation of borrowing an additional $50 million for a total of $150 million but after calculating the projected capital tax collection over the next five years, the district backed off to a total of $125 million.
Bargeron said although inflation has risen higher than the 7% he projected in 2021 when the district was developing its five-year capital plan, interest rates have not risen as much. As a result, he said borrowing money and continuing with the capital projects makes more sense than stopping any projects.
“We want to get them completed as soon as possible, not just to save money, but as we talked about before, it’s good for staff, students and the community,” Bargeron said. “The sooner we get these projects completed, the better so we can save money, renovate and improve schools and build new schools.”
Bargeron said if the school board allows the district to borrow up to $125 million now, the district can save about $24.6 million between fiscal year 2022-20223 and fiscal year 2027-2028 in inflation costs.
“We borrow and we have to pay interest, but we’re avoiding a significant amount of expense,” Bargeron said.
The district and the contractors chosen for each project settle on a guaranteed maximum price for each project, so if there were to be a reduction in inflation and the contractors spend less money on the project, the district would receive money back on the project.
Joe Ranaldi, the chief operations officer for the district, said the district has implemented a new post-construction audit for each project in which the district and auditors will evaluate the bid documents from the subcontractors and if the district should be paying less for anything, the district would go back to the contractors for a refund.
Question of how much
Mary Foreman, a member of the School Board of Manatee County, suggested the district look at borrowing more than $125 million with the thought of eventually building a new Oneco Elementary School. Onceco Elementary currently is in line for a renovation, but Foreman said an entire new school is needed.
The Florida Department of Education conducted a Castaldi Analysis on the school that determined the school didn’t qualify for a rebuild and the district could only renovate the school at this point. But Foreman believes the state would approved the new school in the not-too-distant fufutre. Postponing a renovation would give the district time to find land in the area where it could build a new Oneco Elementary.
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“I’m just throwing it out there for my fellow board members that we could borrow an extra $25 million (bringing the overall loan amount up to $150 million), do something better for Oneco than what’s planned, and if it doesn’t work out, we retire that portion of the debt,” Foreman said.
Chad Choate, a school board member, said the district should be looking at a loan of about $135 million.
“I say let’s do more than $125 (million) but I’m not saying to do $150 (million),” Choate said. “It gives us a cushion and we don’t need to come back and have another 45 minutes of presentation to talk about why we need it. We need it. There’s no question we need more than $100 (million). It doesn’t mean we’re actually going to use it. We’re just authorizing it.”
Other major projects
Other major projects that are included in the capital plan, already are funded, and will see significant increases due to inflation include projects at Freedom, Oneco and Annie Lucy Williams elementary schools, Buffalo Creek and Haile middle schools, Lakewood Ranch High School, a firing range for Manatee Technical College, the Student Support Center and a new East County K-8 school.
The total projected inflation for these projects is more than $21 million.
Projects that were added to the capital plan include a new middle school and elementary school in the northern part of the county.
Gina Messenger, a school board member, said what she found most striking about Bargeron’s presentation to the board was seeing the cost of the new schools has skyrocketed since the district constructed Barbara A. Harvey Elementary School and Dr. Mona Jain Middle School.
The new K-8 school in Lakewood Ranch is projected to cost $79 million while the new middle school in the northern part of the county is projected to cost $75 million, and the new elementary school is projected to cost $58.6 million.
The capital plan has the K-8 school scheduled to be completed in 2024-2025 followed by the new middle school in 2025-2026 and the new elementary school in 2026-2027.
“When we built Harvey in 2017, it was about $28 million and now we’re projecting $58 million (for a new elementary school),” Messenger said. “Theoretically it’s a 10-year separation, but in 10 years to just about double the cost is insanity.”