MMRHS: By the Numbers

by Patrick White

I have attended a number of presentations related to the Monument Mountain Regional High School Building Project, including the discussion between the Finance Committees of Berkshire Hills Regional School District and the Town of Stockbridge. Here is an analysis that provides a fairly solid prediction of how this project would impact taxes in the three district towns.

In a few minutes, you can gain answers to these five questions:

1. Why this matters: The decision affects property taxes, the local economy, and quality of education quality in the community.
2. Tax implications: This analysis explains how this bond will be structured and its impact on property taxes.
3. Benefits of a new school: The project proposes a vast improvement on the existing building and includes a new vocational school to address workforce shortages and provide practical career paths for students.
4. Opportunities to offset costs: New growth will offset at least some of the anticipated tax increase.
5. Why a decision is needed ASAP: Accelerating the decision mitigates the risk of higher interest rates and corresponding higher property taxes.

Introduction and Assumptions

Renovation of the existing structure, rather than replacing it, seems the least preferable option. Renovation will void the $53 million state contribution, so it actually costs more than a new building.

The new building options result in a net local cost of around $112 million for the preferred option. That sounds—and is—a great deal of money. Once you run the numbers, it is a bit less scary. Note the costs may go up with greener heating options.

While the project cost is significantly higher, that's in today's dollars. Cumulative inflation since the first vote is 29.4%. This means in real dollars, this price tag hasn't risen nearly as much as the face value comparison. Put another way, when comparing apples to apples, the local cost of the new school is $78.4 million in 2014 dollars.

Second, the current proposal includes a significant improvement: the addition of a robust vocational high school whose cost is estimated at $20 million. Approximately 50% of high school graduates in South County either do not attend or do not finish college. There is also a significant shortage of folks working in the local trades. With its significant investment in vocational offerings, this proposal is far better than the original one.

Who Pays What for a New MMRHS?

The 2017 capital agreement uses equalized values to calculate each town's share. In other words, it is aggregate property values, not enrollment, that determines the obligation of each town in the district for the cost of the new high school. The 2024 preliminary equalized values are as follows:

Equalized values in dollars, 2024 (preliminary)

Great Barrington: $2.202 billion
Stockbridge $1,311 billion
West Stockbridge $0.656 billion

Equalized values as a percentage for each town in the district:

Great Barrington: 52.8%
Stockbridge: 31.4%
West Stockbridge: 15.7%

Annual bond payments per town calculation

EQV percentages at the time of bonding determines how much of the total cost each town will pay. There are a number of bond parameters that will determine the impact on taxes, including bond type, interest rate, and term. For This example, I am using assuming a 30 year term, the currently-available bond interest rate of 3.5% for a level payment over the term. The bond market is incredibly complex and the district's advisors may elect for a different structure than I have indicated. Therefore, these numbers are for discussion purposes only.

Picking up the tab. Borrowing responsibility per town:

Total Bond: $112,000,000
Great Barrington: $59,159,710
Stockbridge: $35,212,557
West Stockbridge $17,627,7333

Paying it back. Annual bond payments per town at current rate of 3.5% over 30 years.

Great Barrington: $3,239,481
Stockbridge: $1,928,177
West Stockbridge $965,264

Impact on Taxes

Resulting budget increase. Next, we look at the total amount raised this year through property taxes in each town:

Great Barrington: $30 million currently/$33.25 million with annual debt service/tax increase of 10.8%

Stockbridge: $9.6 million currently/$11.5 million with annual debt service/tax increase of 20.1%

West Stockbridge: $5.8 million currently/$6.8 million with annual debt service/tax increase of 16.7%

Samples for individual tax burden at currently-available bond rate of 3.5%. Rates may change by the time the bond is complete.

Note that these numbers are incredibly sensitive to small shifts in interest rates. For example, if interest rates were to drop by 1 percentage point, the tax increase would drop by 12.5%. Were interest rates to rise by 1 percentage point, the tax increase would rise by 13.4%.

New Growth Will Reduce the Impact

New Growth comes in several forms. If someone tears down a small house and builds a bigger one, the new assessed value of the home goes up. New, larger projects such as a commercial or private residential development at Simon's Rock in Great Barrington or 37 Interlaken and/or Elm Court in Stockbridge could also result in a significant offsetting impact. Developments that include a hotel component have a positive impact on your taxes in two ways: property taxes and the local share of the occupancy tax, where the maximum 6% is collected by both Great Barrington and Stockbridge. This isn't an argument for or against any special permits or land use decisions; rather this is just a fiscal analysis. The sweet spots for new growth of course are examples where there isn't an offsetting need for new municipal expansion, for example new water and/or sewer lines financed at the Towns' expense.

Operating Cost Impact

What is yet unclear is whether the annual operating cost of the new high school will be less or more than the current operating cost. For example, will a more energy efficient building reduce the cost of heating and cooling? Will the new vocational offerings increase operating costs?

Interest Rate Risk

Experts tell me that if this bond were offered today, the interest rate we could expect is approximately 3.5%. This may seem low, but remember, municipal bonds are tax exempt and in high demand. Note, however, that this rate follows larger trends in US interest rates, namely the Fed interest rate, which currently stands at 4.5% to 4.75%. If you search for predictions, you will find a likelihood that we will see a decrease in the Fed rate of 0.5% to 1% over the next one to two years, which might result in a significantly lower cost (see the first column examples above). However, a number of President-Elect Trump's proposed policies could increase inflation, specifically by disrupting the global supply chain and by imposing tariffs. The Fed increases interest rates to combat inflation, so we could see rate increases depending upon administration policies. I am not in the business of predicting interest rates, so this analysis is simply an exercise in risk mitigation.

Recommendation: Accelerate the Decision

If in the short term, the Fed lowers rates a 1/4 to 1/2 point, my strong suggestion is that we lock in these rates as soon as possible. I recognize the current plan is to have a vote in October; I would suggest, if at all possible, bring the vote to Town Meetings in May. By locking in a lower rate and bonding the project immediately if it passes, our towns can mitigate risk of higher interest rates and a significantly higher burden on the taxpayers.

Other Options?

In some corners, there is talk of the smaller towns withdrawing from the district. This is unlikely to transpire. The Commonwealth makes it nearly impossible to do so. All districts, including ours, are comprised of municipalities that have entered into "forever agreements." To disband Berkshire Hills Regional School District, all three towns would need to vote for the break-up. If this were put before the district's voters, the success would be highly unlikely. For 60 years, we've been one district and we will continue to be one.

The basic question before the voters will be: do we vote for the high school and bite the tax bullet, or do we vote against it and squander the $53 million in state support for this project. If the voters vote this down, they will be faced with massive renovation costs of the current building. In fact, the net impact on taxes of those renovations may be more burdensome than the new high school when you subtract the state's $53 million that is only available for a new building.

Should the voters choose to support this project, rest assured that we will continue to identify ways to keep the Town's budget, and therefore your tax burden, in check.

Patrick White is a member of the Stockbridge Select Board