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Nov 28

Financing the Two Proposed Building Projects in Town (Public Safety Building & Mindess School)

Posted on November 28, 2020 at 5:25 PM by Michael Herbert

Many Ashland residents know about the Public Safety Building and Mindess School projects that are going to be voted on at both Town Meeting and the ballot in January 2021. Surprisingly, there are a lot of people that don't know about them or think they have already passed. These are two major investments in our community. And whether they pass or fail at their respective votes, the impact will be felt by Ashland residents for generations. That's why it's important to try to get a handle on the financial aspects of the project so people can make an informed vote. But unfortunately articulating those aspects may not be as straightforward as we would like them to be.

First, Massachusetts municipal finance is awkward and clunky due to a variety of factors, namely state law. Second, any financing instrument used by organizations with tens or hundreds of millions of dollars (or higher) is complex. I try to use relatable terms (typically mortgage terms), because not everybody cares about things like par value, callable bonds, taxable vs. nontaxable, bond premiums, blended true interest cost, etc. But sometimes using everyday mortgage terms makes things worse when we start digging into details.

Personally I believe that people ultimately care about how much it is going to cost them. As the majority of the two projects are going to be funded through a special tax increase known as a "debt exclusion", I am showing how much the average tax bill (on a home valued at $427,000) will go up with these additional projects based on estimates, assumptions, and known costs.  For full transparency, for the public safety building I have added the $3.5 million that was previously appropriated for design & engineering to the estimated full construction cost of $33 million, bringing the total to $36.5 million. The $36.5 million includes the design and engineering costs ($3.5 million), the estimated construction costs ($29 million), and contingencies ($4 million). Ashland's leadership also decided to reduce the required amount of the debt exclusion by redirecting $750,000 in existing operational and capital funds to help pay for the building. That has also been factored into the graph below.

Updated Chart

The average Ashland property taxpayer currently pays $298 for projects that are funded with a debt exclusion. The portion of the public safety building paid with a debt exclusion would add $159 onto that figure for 30 years. And once the full cost of the Mindess School is taken on, the portion paid through a debt exclusion would add $437 for the next 27 years.  However, in FY25, several projects currently paid through a debt exclusion will be paid off. These include the Community Center,  all costs associated with the High School, and the renovations of Town Hall and the Library. In FY25, once you add the costs associated with the Public Safety Building and Mindess School to the debt excluded portion of the tax bill, and take off the debt service payments with the four projects mentioned above, the average property tax payer will be paying $658 for the debt excluded projects, which is a $360 increase over what they are paying today. 

That being said, the values above are estimates. And they will always be estimates until the final cost of the project is determined and we actually go to the capital markets to finance these projects. However, I have tried to be as conservative as I can in the hopes that this is a "worst case" scenario. For example:

1. We are on pace to spend less than $3.5 million on design & engineering, but I am still using $3.5 million as the figure when calculating the tax impact to homeowners.

2. I have used an interest rate of 3%. However, I recently took a look at October borrowings for municipalities in Massachusetts with a "AAA" credit rating like Ashland. The highest rate was less than 2%, and the average rate was 1.19%. Using that average interest rate of 1.19%, the cost for the public safety building alone would be more than $50 less. But in an effort to be conservative, the figures in the chart still reflect the 3%.


3. I am still using $29 million for the estimated construction cost. But COVID, plus the lack of work in the construction industry for public projects, is having an effect on bidding costs and seem to be driving the cost down. For example, when receiving bids for their own Public Safety Facility, the Town of Charlton saw bid prices up to 10% below their last estimate. If you apply that percentage reduction to our own estimate, it would result in costs about $3 million less. But I am still utilizing the original estimate to determine the tax impact for our project.

These charts also do not factor into account any potential operating savings we may realize. Currently, we pay to maintain 3 stations and all the costs associated with them (3 sets of utilities, insurance for 3 buildings, maintenance costs for 3 buildings). Plus, we pay $25,000 annually in rent for administrative offices for our Police Department. There are costly maintenance issues due to the age of the facilities. We have to spend money to customize our fire apparatus to fit into the antiquated bays in the fire station. There are many other examples. And while this will not result in a tax decrease, we can reinvest these savings back into our departments which would help keep us from needing a tax increase in the future. 

We also can't forget about the opportunity costs associated with a new building. A new joint public safety building gives us the opportunity to redevelop two key parcels downtown to help make downtown Ashland a more vibrant and attractive destination. There are good examples of adaptive reuse of old fire stations across the country, and a couple right here in Massachusetts. Even if we were just to make the police station additional parking, our business community would probably see increased foot traffic helping them become even more successful. And the station on Cedar Street can be repurposed into a number of different uses based on the future needs of the community.

These are only some of the important financial points to consider when contemplating where you stand on these two projects. There are several others. And this post may elicit even more questions. I am happy to answer them or direct your question to the right person.

FInally, I can't reinforce strongly enough that while the quantitative arguments in support of a new building are there, we can't forget the human aspects of this important project. Our first responders really deserve a facility that helps them help us. It's hard to imagine service getting any better from our already stellar departments, but it can and will be better if they have the right facilities and equipment. 


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