JOHNSON CITY, Tenn. (WJHL) — Construction of a new K-8 school in Jonesborough could leave the Johnson City Schools on the outside looking in when it comes to funding what the city schools describe as nearly $30 million in capital needs.
Millions of dollars won’t be headed the city schools’ way unless City and Washington County officials can craft an “inter-local agreement” to coincide with the construction of a new Jonesborough school. That’s got City Manager Pete Peterson negotiating with Washington County Mayor Joe Grandy to try and reach a solution.
“We feel like it’s very important that the county commission consider the sharing of funds with us at the same time that they consider approval of the Jonesborough proposal,” Peterson said. “I think those two matters from our perspective really need to be dealt with at the same meeting.”
If things go well in city-county negotiations, the city schools could receive at least some portion of the amount they’d traditionally get when the county builds or renovates schools. Traditionally, city school systems receive a proportional share of funds when a county borrows for school capital projects. With 48 percent of all students in Washington County, Johnson City would receive about $9.2 million for every $10 million borrowed, or somewhere around $27-$30 million under current Jonesborough school cost estimates.
Since Jonesborough, not the county, is borrowing the money and the county will lease the building, that revenue-sharing law doesn’t apply, at least according to attorneys for Jonesborough and the county. Not everyone is convinced, though, and if those negotiations are unsuccessful, soured city-county relations, if not a lawsuit, could follow.
The school proposal is on the agenda for Monday’s County Commission meeting. A city-county inter-local agreement isn’t, but a resolution related to one is. That resolution “authorize(s) the County Mayor to investigate, negotiate, and execute with the City of Johnson City and (the city schools) to identify terms that would resolve dispute over the interpretation of the Jonesborough Proposal.”
The same resolution acknowledges the proposal “provoked concerns that the (city schools) would be deprived of financial support” and that the county “has an interest in identifying an appropriation amount that resolves potential dispute over interpretation of the Jonesborough Proposal.”
Peterson said the city “is in 100 percent support” of a new school in Jonesborough. He said his talks with Grandy have been productive, and that the key will lie in how much cash flow the county can shift to an agreement that supports the city.
“I think what we’ve got to look at is probably from two different perspectives,” Peterson said. “What would the city settle for, and what is the Washington County Commission willing to approve.”
Peterson wouldn’t name a dollar figure that would represent a “red line” for the city.
“I think that Mayor Grandy and I are both very hopeful that we can reach a number that perhaps nobody’s going to be entirely happy with what we end up with but we’re going to end up with something that will be acceptable and we can pick up and move forward.”
How could it work?
The latest Jonesborough lease proposal envisions a $34 million project. Rural development projects allow up to 38 year loan periods. School projects are typically funded at 20 years.
Funded over 20 years at 3 percent, $34 million would work out to a $2,262,756 annual principal and interest payment. The county has in the neighborhood of $2.5 million a year available for the project, and the proposed lease also calls for the county to pay Jonesborough $500,000 a year to offset cost of operating the ballfields and other recreational facilities.
Considering all those factors, it would take a 25-year note to get the total cost to just under $2.5 million a year. Extending the term to 35 years would decrease the total outlay — not counting any up-front financing costs — to about $2,070,000 a year. Add in the proposed $500,000 a year “facilities lease” related to Jonesborough’s upkeep of recreational facilities at the school and it’s hard to determine where the county would find funds for an inter-local agreement with the city.
“We’ve got to find what is going to work from a cash flow perspective for Washington County, what’s going to work from a cash flow perspective for the city schools and I think everyone is in agreement at this point that if there’s a way to do this we would certainly like to do it without the need for an additional property tax increase.”
Even half a million a year would only allow the city to bond somewhere north of $8 million over 20 years at 2 percent. That’s nowhere close to the $32 million the standard method would have brought into city coffers.
How we got here
The county funded most of Boones Creek’s cost through cash reserves, bypassing the standard requirement and relying on an earlier state precedent in which McMinn County avoided sharing with the Athens city schools. The county did issue bonds for part of the project and the city netted $8 million.
Unlike the Boones Creek build, Jonesborough town officials’ proposal would still utilize borrowing. But because the county would “lease to own,” atorneys hired by the county have assured Grandy the plan will withstand any legal challenge.
“As far as I and everyone I have spoken with, this is the first time in the state of Tennessee that one local government has offered to borrow money for another local government entity in order to facilitate a construction project,” Peterson said. “While they’re not writing new law they’re certainly making some initial interpretations of existing law because this is the first time this has ever been proposed.”
The city’s needs
Without a city-county deal, Johnson City sits with just around $9 million from a separate city fund (the “PEP Fund”) to address its capital needs. That amount should cover short-term needs to expand capacity at Woodland, South Side and Lake Ridge elementaries. That’s part of a plan to add enough capacity to move fifth grade down to the elementary schools and turn both Indian Trail Intermediate and Liberty Bell Middle schools into 6-8 middle schools.
The other part involves a proposal for a new Towne Acres Elementary, which would also add overall capacity and is estimated at $23 million. Help from the county as part of the Jonesborough project is an important element of the city schools addressing medium-term needs related to enrollment growth.
“This is a path to address medium term issues using PEP money and some proceeds from the county and it really puts us in a position to handle student growth over the next 10 years or so and to keep our enrollment within the capacity designs of the buidings,” Peterson said.
A new normal coming?
Coming on the heels of the Boones Creek project, the Jonesborough proposal has raised concerns at the city. Despite faint rumblings of a possible lawsuit, Peterson said the preference is to work together. Those sentiments are echoed by at least one county commissioner who represents city neighborhoods and whose children attend Johnson City schools.
“This whole idea of funding projects in the city by sort of arbitrarily giving (the city) however much money we need for a county project seems like a pretty blunt tool,” said Jodi Jones. Jones said she supports the Jonesborough school project and believes it’s forcing city and county leaders into a more collaborative approach. That can and should happen, Jones believes, even without any serious discussion of school consolidation.
“I hope that what this project does is serve as a catalyst for more creative thinking about ways to … think as a county (with respect to schools) instead of two systems,” Jones said. “What are the needs broadly, and prioritizing those and understanding their cost specifically.
The county has additional school capital needs as well, Jones said, and both school boards have long-term projections. “In the county, we’ve got two athletic fields at high schools that are falling apart, they’re like Roman ruins, and so how do we make this work?” Jones said.
“I like that way of thinking better, and partnering as city and county better, and then coming up with ways to fund specific projects rather than just throw money at people and systems as though we’re in silos.”
Peterson said he expects Washington County to continue seeking non-traditional funding when it’s possible and wouldn’t be at all surprised to see other counties that include city systems to follow suit.
“I think that the model that has been established and is being proposed at Jonesborough … will probably be picked up by county systems all across the state of Tennessee in an effort to avoid sharing with city school systems and the need for additional revenue to do so,” Peterson said. “I think it’s an issue that’s going to have to be resolved. City school systems like ours can’t go on without some financial help from the county schools.”
“There’s a tremendous number of moving pieces in this negotiation right now. To this point I think it’s been very positive, it’s been very sincere and I think that Mayor Grandy and I are both very hopeful that we can reach a number that perhaps nobody’s going to be entirely happy with what we end up with but we’re going to end up with something that will be acceptable and we can pick up and move forward.
“I think everyone would agree that the last option would be to go to litigation. That’s just going to stop everything for a fairly lengthy period of time perhaps, be very expensive on both parties and the money that would then be going to lawyers could be applied towards education. So the students lose, the taxpayers lose — nobody wins in that deal. So that’s really what’s motivating us — let’s find something that will address our needs as well as do the Jonesborough school.”