Gap, covered: Jonesborough to borrow another $10 million from USDA for new school

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JOHNSON CITY, Tenn. (WJHL) – Two 28-year loans at 2.125% each and about $3 million a year cost to Washington County: the Town of Jonesborough and the county have a funding plan for a new K-8 county school that will cost almost $43 million — $10 million more than originally anticipated.

A day after the school’s ceremonial groundbreaking, Washington County budget committee members learned Jonesborough will borrow an additional $10 million from the United States Department of Agriculture (USDA).

That USDA loan and a $32.75 million one covering the original expected construction cost both will be on 28-year terms at 2.125%.

Freddie Malone, a commissioner who sits on the budget committee, outlined the apparent path forward in light of additional costs that Bur-Wil Construction informed the local governments about in September.

Malone said the additional cost will add a little less than $500,000 to the county’s annual outlay for the 147,000-square-foot facility meant to house up to 1,100 students.

“All in from a budgetary standpoint we’re looking at roughly $3 million (a year),” Malone, a budget committee member, said Wednesday.

The annual outlay will cover both USDA loans, a 10-year facility lease with the Town of Jonesborough related to recreational and other usage of the property, and a $500,000 annual payment to Johnson City schools resulting from an interlocal agreement between the county and city.

The interlocal agreement stems from the non-traditional funding mechanism for the Jonesborough school. Had it borrowed funds itself to construct the school, the county would have had to borrow a nearly equivalent amount and give that portion to the city schools to account for the percentage of Washington County residents who attend city schools.

Instead, Washington County will lease the school from Jonesborough and cover the payments in a scheme that allows it to avoid obligated payments to the Johnson City Schools since it isn’t the official borrower. The half million a year covers a portion of what would have come Johnson City’s way if traditional funding had been utilized.

“It’s a rough, rough number but $3 million a year covers all four of those items,” Malone said.

Jonesborough has just finalized the $32.7 million rural development loan through USDA’s Community Facilities Direct Loan and Grant program, which USDA announced Wednesday.

The 30% cost increase for the school “does impact the money available for school projects out in the future,” Malone said, referring to the county’s school capital improvement fund, which will bear the brunt of the added yearly cost.

In a stroke of fortune, though, the county school system learned it can use federal ESSER funding for nearly $6 million of heating and air conditioning upgrades at David Crockett and Daniel Boone high schools. Those had been set to come out of school capital funds.

But Malone said it’s his understanding that rather than redirecting that available money to the increased new school cost, the county school board has decided to proceed with stadium upgrades at the two high schools.

The 28-year-term is the shortest of three amortization options the county was considering, Malone said. The others were 30 and 38 years, but he said the shorter term is the right move fiscally.

“While it is a great (interest) rate and while 38 years would have eased the cash burden, those additional 10 years (would) cost an additional $6 million in interest expense,” Malone said.

Even at the low rate, the county will pay a total of about $56.7 million to cover the costs of both loans, or slightly more than $14 million in total interest. The annual cost is just over $2 million.

The facilities lease with Jonesborough, which is meant to help jump-start a semblance of a parks and recreation program for the county, will roll off after 10 years, bringing the annual outlay down to about $2.5 million after it’s complete.

And for the last three years of the loan the city portion will be off the books as well.

In rough figures, that means the county will pay around $73 million over the entire 28 years, with $12.5 million of that going to the Johnson City schools.

Had it funded the Jonesborough school using the traditional method it would have had to borrow more than $40 million for the city’s share.

To borrow $83 million at the same interest rate and amortization term would cost the county about $110 million, or about $37 million more than the cost a route that was sometimes controversial but has nearly come to fruition.

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