PROBLEM 96

PLAN OF FINANCING A PROPOSED HIGH SCHOOL BUILDING

Problem: The Board of Education of St. Thomas, N. K., has presented to the community the plans for a new high school building and has asked the community to vote $650,000 for the erection and equipment of this new building. The superintendent of schools has prepared a plan of financing the cost of this building. This plan has been printed and sent broadcast throughout the community.

The cubature of the high school building is 1,130,000 cubic feet, and, according to the architect's estimate, the cost of the building will be as follows:

St. Thomas is a community of 10,000 people. It gives promise of very rapid growth. It is almost entirely a residential community and will probably remain so to a large degree. Its low tax rate, its street and park development, and its program for schools have attracted and will continue to attract many people of moderate means. The literature issued by the Board of Education proposes a 40-year serial bond issue. The following excerpts are taken from the pamphlet prepared by the superintendent of schools:

The provisions of the state law, when applied to a 40-year serial bond issue of $650,000, make it desirable to pay off at least $17,000 two years from the date of issue and $17,000 for each of the succeeding 9 years, then $16,000 for each of the remaining 30 years.

In addition, interest on principal then remaining each year has to be paid.

Assuming that the rate of interest on the bonds will be 5 per cent (although efforts will be made to place the bonds at a better rate), the annual payments on account of principal ($17,000 per year for 10 years) and interest will total $49,500 for the year in which the first bonds are paid, and this will decrease $850 each year for the first ten years. On the eleventh year, principal of $16,000 and interest will total $40,000 for that year, and will decrease $800 each year for the balance of the bond issue until all is absorbed and paid off.

The present rate for school tax is $1.74 per $100 of assessed valuation. At the same rate, $49,500 a year for retiring the first year's principal and interest would require a tax of $0.30 per $100 which would make the school tax $2.04, and this would gradually decrease each year.

The increased cost of operating the new building will be chiefly the cost of coal and janitor service. The new building will not in itself require new teachers. That will result only from the increased school attendance. The decrease in interest and the increases in assessed valuations which may be expected will reasonably offset in taxation any increases in administration expenses.

This proposed bond issue of $650,000 should be looked upon as an investment of a capital sum which will produce a commensurate return in future years. That return will be measured by the better equipment of our boys and girls. There will also be a definite financial return. No one factor will help to draw desirable citizens to St. Thomas more than good schools. Good schools increase the ratables of a municipality. The business men of St. Thomas appreciate this.

St. Thomas is experiencing a wonderful growth just now. It is one of the most charming communities in this part of the state. There is no better test of the modern educational system than the fact that young people throughout the United States and in St. Thomas are staying in school much longer than in former years, consequently more people are being educated and better educated than ever before. There is an increasing demand for high school education. We must have a new school. The only question iswhat kind and how large? An adequate building constructed now, with provision for enlargement at small cost, as here proposed, will in the end be the most economical.

This cost is not due to extravagance of plan or material but to demands for space and the present building costs.

Assignment

1. In what way do you disagree with the methods of financing as proposed?

2. Draw up a table showing the payments of interest and principal which this community must make within the next 40 years on account of this issue.

3. "Good schools increase the ratables of a municipality." Have you any scientific evidence to prove this point?

4. Do good schools draw desirable citizens more than any other factor? What evidence is available on this point?

5. Is it wise for a superintendent to propose that a new building will not require new teachers? Under what conditions is such a conclusion true?

6. Comment upon the adequacy of the plan of financing as it appears. Is the whole truth told to the community? If not, what other facts should be presented at this time?

7. Indicate the variations that may occur in the reckoning of school building cubature.

8. Comment upon the cost per cubic foot as estimated. 9. With this cost of cubic foot, what type of building construction is anticipated?

10. Would you agree with the estimates of the other items of costs as far as can be judged from the facts as presented?

BIBLIOGRAPHY

ANDERSON, H. W. School Bonds. American School Board Journal 59:37, 95, July, 1919.

DIETRICH, H. O. Some Fallacies in Raising School Money. American School Board Journal 56:30-31, 82, March, 1918.

ENGELHARDT, N. L. A School Building Program for Cities, Part 3, pp. 111-24. Bureau of Publications, Teachers College, Columbia University, 1918. FOWLKES, J. G. How to Issue School Bonds. Bruce Publishing Co., Milwaukee, 1923.

LINDSAY, E. E. Selling Bonds for School Buildings. American School Board Journal, 62:49-50, June, 1921.

MCELHANNON, J. C. Judicial Interpretations of Law Relating to School Bonds. Elementary School Journal, 23:215-26, November, 1922.

MEYER, C. H. Marketing of School Bond Issues by Small Cities. American School Board Journal, 53:36-38, 125, August, 1921.

TRUSLER, H. R. Issuance of School Bonds. American School Board Journal 58:58-59, June, 1919.

WORK, H. B. Planning for a Bond Issue. American School Board Journal, 57:35, November, 1918.

PROBLEM 97

BUDGETING A BOND ISSUE FOR A NEW BUILDING

Problem: The city of Osler, N. K., has appropriated $250,000 for a new high school building to provide accommodations for Grades 9 to 12 inclusive. The bonding debt limitations of the community will be reached. The Board of Education is experiencing difficulty in making its current expense budget meet all demands. The costs of building, equipment, preparation of grounds, planning services, and other work incidental to this new building must be met from this bond issue. The superintendent realizes that it is his responsibility to make this program successful.

To ensure success, the superintendent has made a complete outline of all of the steps which must be taken in the planning of the building and its equipment up to the point where the building is to be occupied for its educational purpose. In presenting this outline to the Board of Education, he emphasizes the need for a budget for this bond issue which will cover all necessary steps. He stresses the fact that the building must be actually ready for use when the bond money has been expended and that the citizens will be impatient with any building or equipment charge above what has been provided.

In presenting the case before the Board of Education, the superintendent has used Diagrams 1, 2, and 3 showing developments according to the methods employed in handling bond issues.

Diagrams 1 and 2 represent the procedures which are followed where no budgeting of the bond issue has been effected and where accurate estimates have not been arrived at in determining the amounts of the original bond issue. These conditions invariably call for new appropriations, or floating of warrants drawing a high rate of interest, or reduction in the

amount of equipment necessary, or the leaving of portions of the building to be completed at a later date, all of which must

Bond appropriation has sufficed for building only. New appropriation required for equipment

Board of Education consolidates the building and equipment budget but permits the latter to be encroached upon.