HILLSDALE—Borough officials were taken aback recently to discover that should the $82.7 million school bond referendum pass in March, it will reduce the borough’s available bonding capacity by $24 million to about $43 million, a fact that school officials did not discuss at a mid-December briefing and that the borough’s own auditor had mentioned in early January.
However, local officials stressed that the school district’s need to exceed its bonding capacity and use some of the borough’s capacity was unlikely to affect borough operations in any way, though it may affect future bond ratings and credit risk, which could potentially increase borough bonding costs.
Although the Hillsdale Public Schools District and Borough Council serve Hillsdale residents, the district and Borough Council are separate government entities. Each is separately funded by property tax revenue: 2022’s property tax bill shows the local school district received 45.2%, Pascack Regional 24.4%, Borough & Library 20.9% and Bergen County 9.5%.
The district’s use of borough bond capacity is completely legal, and allowed under state law, said officials. However, the mayor and a councilwoman appeared upset at not being given a heads-up by district officials on an issue that may affect the borough.
The $82.7 million bond referendum vote to replace George G. White Middle School is scheduled on March 14, 2023.
A virtual public forum on the referendum is 7 p.m., Thursday, Jan. 26 for the public to ask questions of consultants, Di Cara Rubino Architects and Phoenix Advisors. Check the district website for a link to the online forum. (Pascack Press coverage will appear in our Feb. 6 issue.)
Both Mayor John Ruocco and councilwoman Abby Lundy appeared surprised that they were not informed earlier of the district’s need to use some of the borough’s bonding capacity. While both said this would not affect borough operations, should the municipal bond rating agencies lower the borough’s bond credit rating, the borough might end up paying more to borrow funds on future bond issues.
However, Ruocco called that scenario “unlikely” and told Pascack Press, “It is also possible, though unlikely, that the rating agencies could downgrade the Borough’s debt rating because of the George White (replacement) bond. If that occurs, the Borough would pay a higher interest rate on future borrowings.”
Supt. Robert Lombardy told Pascack Press that the district informed “the financial arm of the borough” after receiving state approval of $5.4 million in aid for its bond referendum in late December.
Lombardy told us, “As the (middle school) bond is repaid the borough’s debt capacity margin would continue to increase until fully satisfied. It is important to remember that as a Board of Education we must ask voter permission to sell bonds.”
The district’s referendum website was updated with an FAQ that states: “The borrowing capacity of a New Jersey school district is limited by several factors, including the total average equalized value of property in that district. This could be compared to an individual consumer’s credit limit.”
“For the significant expense of building a new school, a district can borrow beyond the margin that the state’s formula assigns. Hillsdale Public Schools would use some of the borough’s borrowing margin, but the borough itself would not take on any of this debt. Its day-to-day operations would remain unaffected. That arrangement has to be stated on the ballot,” it states.
If the bond referendum passes, school officials previously said bonds will not likely be sold until late 2023 or 2024, and an average Hillsdale taxpayers would not see a $95 monthly tax hike until 2024.
Mayor’s first hearing
“This issue of utilization of Hillsdale’s legal debt capacity first came to my attention when I and other Council members received a Jan. 3 email from the Borough Administrator (David Troast) in which he recounts the issue coming up from our bond counsel,” Ruocco told us.
Ruocco said he had asked the borough Finance Committee Jan. 10 to research the issue and report back Feb. 7, adding it “was appropriate for the public to know about this matter well before the referendum date.”
Ruocco, a retired former finance officer and bank examiner with the Federal Reserve Bank of New York, said the borough’s and school board’s borrowing capacity “is a function of two separate formulas that calculate a percentage of the total averaged equalized property value of the town. Right now, the amount of ‘net debt’ that has been issued by the regional and local schools, as well as Stonybrook (pool) and the borough itself amounts to only 0.13% of equalized property valuation. That is very low (i.e. good) as it gives us a lot of headroom.”
Ruocco said If the BOE issues an $82.7 million bond, that ratio will increase to 1.33%. “It also means a reduction in the borough’s overall net debt issuing capacity limit from $69.3 million to $43 million. Why? Because the amount of gross debt that the local school will have on its books of $83.1 million will exceed their limit of $59.4 million. The excess of $23.7 million is automatically and legally applied to reduce the overall town capacity limit,” he said.
He said the $43 million borough debt limit is still enough to cover any plans the council has announced for its $10 million bond. “I suppose that the $43 million limit could pose a limitation on us if the regional high school district and the pool utility decide to embark on major projects requiring them to issue large amounts of debt. (But) that is unknown.”
Moreover, borough officials were miffed that school officials did not simply give them a heads-up about the reduced borough bonding capacity, even though it was not likely to affect any current projects the borough plans to bond for, including a long-discussed $10 million bond to pay for upgrades at Centennial Field, a community center at Stonybrook Swim Club, and possible relocation and floodproofing of DPW facilities.
School officials recently updated their Road To Referendum website with a single FAQ entitled, “Why does the ballot mention a borrowing margin?” that refers generally to the topic.
The FAQ notes, “a district can borrow beyond the margin that the state’s formula assigns. Hillsdale Public Schools would use some of the borough’s borrowing margin, but the borough itself would not take on any of this debt. Its day to day operations would remain unaffected. That arrangement has to be stated on the ballot.” The FAQ does not go into any detail.
Pascack Press requested a copy of the referendum question several times over the last two months and school officials said it had not yet been approved. (Lombardy told us a Jan. 30 approval is likely.)
Sample voter ballots are mailed out Wednesday before (March 8) a ballot referendum or election, said the county clerk’s office.
At least several concerned residents posting on Facebook said that the school board had not informed residents that they needed to borrow a portion of the referendum bond funds by using some of the borough’s borrowing capacity. Local officials were none too happy, either.
Mayor, councilwoman concerned
Ruocco said, “I am a strong supporter of transparency in government and sometimes that means going beyond what is legally required. The taxpayers put us in the positions we occupy. We owe them information and opportunity for input. I have been disappointed by the lack of it at the council, and I suppose the BOE could have gone the extra mile in disclosing more details on the effect that the George G. White bond would have on the town’s overall debt limit.”
Councilwoman Abby Lundy said, “Where I’m told the impact could be is on our bond rating, due to the change in debt to surplus ratio and our interest rate on future borrowings. While both changes are only possibilities, I feel that the BOE at the very least should have advised the governing body during their presentation in December.”
Lundy noted, “As far as I know, we were only notified through our professionals (bond counsel and auditor) who are also the BOE’s professionals. I’ve not had any conversation with the BOE or superintendent on the matter.”
Added Lundy, “An FAQ about there being a borrowing margin on the ballot isn’t being fully transparent in my opinion. I also did not see any reference to the borrowing margin until after I posted on Facebook. It’s possible I missed it or it may have been added after the fact.”
She said a Road To Referendum mailer she received last week did not mention the district’s need to exceed its borrowing capacity and borrow a portion of borough bond debt capacity.