Integrated Financing Plan

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The Challenges/Major Obligations the Town Needs to Address

West Elementary School: $114M (Total Cost - $148M) 

  •      Project accepted by Massachusetts School Building Authority (MSBA)
  •      MSBA Reimbursement – Approx. 23% (40% of max. $333 per sq. ft)
  •      Project would replace two existing school buildings and alleviate overcrowding at the other elementary schools

Pension Liability: $165M - $185M 

  •      Required by Massachusetts General Law (MGL) to be funded by 2040
  •      Benefit structure defined by Massachusetts General Law (MGL) 
  •      Presents greatest threat to service levels and bond rating 

Why Consider an Integrated Plan?

1) Leverage opportunity created by low interest rates to reduce pensions costs by approximately the same amount needed to  construct two new schools

  1. Andover’s AAA bond rating allows favorable interest rates on loans
  2. Current interest rate is approximately 2% (as of 4/2/2021) and plan models 3.5% rate in order to be conservative. Specific loan rate can be locked in only after voters approve plan

2) Preserve service levels by alleviating budget pressures created by increasing pensions costs

  1. Town has significant, existing pension debt that we are obligated to pay by 2040
  2.  Payment of this existing obligation becomes increasingly difficult to maintain without cutting town and school services or passing operating overrides (prop 2 ½)

The Plan 

1) Raise revenue for two major expenditures through proposed Debt Exclusions:

  1. $175M to fund Pension Obligation Bond (POB), 18 Year Borrowing Term
  2. $114M to fund WESP building project, 30 Year Borrowing Term 

2) Use revenues from Debt Exclusions to pay down the pension liability and pay for construction of the two new schools

  1. Reduce overall costs paid for pensions by approximately $100M over 18 years
  2. Construct two new schools with a budgeted cost (Town Share) of $114M

3) Increase annual allocation within the operating budget to address long term obligations

  1. This year’s operating budget puts $8.87M toward unfunded liability 
  2. Under the plan, annually the operating budget will put approximately $11M toward unfunded liabilities

4) Create future opportunities

  1. Fund a new building project in future years that will require no incremental increase in the tax bill or reduce the annual tax bill 
  2. Use funds from the operating budget that are no longer needed to pay pension costs to pay the debt on the construction costs of   WESP