As you're no doubt aware, several numbers are being used to describe our long-range facilities plan. I'd like to take a moment to review those numbers with you.
Let's start with $257 million. That figure refers to the cost of the project if it were done today. We know the project will take several years, we estimate five, and we know over that period construction costs will be affected by inflation. Construction inflation has been running about 7 percent over the past several years, so over five years we estimate inflation of about $36 million. Add $257 and $36 million and that's where the figure $293 million comes from.
We're going to borrow money for the project and repay it over a period of 20 years, similar to what people do when they buy a house. When you pay money back, you pay interest. Add interest to the $293 figure over 20 years and you come to $437 million. So $437 million is the total principal and interest payments, again, similar to when you buy a house.
Regardless of which number you look at, the impact on taxpayers remains the same because we included construction inflation and interest when we did that calculation.
On a home assessed at $125,100 (the median assessed value of a home in Duluth), the cost would be between $9 to $12 a month. We've achieved that figure through strategies to offset costs by about $125 million (in 2007 dollars) through operational savings, property sales and use of alternative funding sources, to reduce the impact on taxpayers. Operational savings provide $5.3 million each year over 20 years, at least 60 percent of which would be put back in the project to put us in the $9 to $12 range. The final figure depends on how much of the operational savings associated with the project goes into programs and how much is put back into the project, which will be determined by the school board. The more operational savings we put in over 60 percent, the closer we get to $9 per month.
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There are several reasons why now is a good time to get the project done.
We're in a period of historically low interest rates. Right now interest rates are less than inflation; by borrowing money now we can lock-in the low interest rate for 20 years.
Construction costs continue to increase and, as such, delays in implementing the plan increase the total cost of the project. Construction cost inflation is about $50,000 per day. Moving forward with the plan immediately allows construction to begin in the spring or summer of 2008. Waiting means we lose the ability to begin construction until late 2008, and that construction is impacted by winter and reduces the amount we can get done.
Implementation of the plan will improve the efficiency of the district in terms of how education is delivered. For example, right now teaching specialists often travel from school to school throughout the day because there aren't enough students in each school to support a full-time specialist. We spend our facilities dollars now repairing old schools. Doing a good job of reducing the number of schools we have and bringing the remaining schools up to date will help make better use of the dollars spent on buildings.
The long-range facilities plan will provide new or like-new educational facilities for all students, and parents will know for decades to come where their children will go to school, which provides stability.
This fall we'll begin a community conversation regarding programs for our schools, I look forward to talking with you about that in the near future.
Please continue to share your advice and considerations by e-mailing me at keith.dixon@duluth.k12.mn.us or sending a letter to Keith Dixon, Superintendent, Duluth Public Schools, 215 North 1st Avenue East, Duluth, MN 55802.
