City plans to carry 20-year debt with 35-month tenant in school central office
SALISBURY — To avoid needing Rowan County’s blessing, the city and Rowan-Salisbury School System plan to enter into a 35-month lease for the proposed school central office — one day less than a lease term that would require commissioners’ approval.
At the same time, the city plans to borrow $8.37 million over 20 years to finance construction of the building, planned for 329 S. Main St.
If both the lease and loan are approved, that would leave the city with a 20-year debt and a 35-month tenant. The Post previously reported incorrectly that the lease term would be 20 years.
In the city’s draft document, the lease term is described as “one day before the third anniversary of the date” of signing.
“This was a calculated and intentional part of the operating lease,” City Manager Doug Paris said.
If the lease term between the city and schools were three years or longer, state law would require approval from Rowan County commissioners, according to the N.C. Department of State Treasurer. A majority of county commissioners have voted against the downtown location for the central office, and now the city plans to build the facility instead.
The short-term lease allows for the school system “to purchase the property at the end of the 35 months from the city if they wish, and if there is county commission support for it,” Paris said. “If not, then the lease will be renewed.”
That depends. The city can’t require a future board to renew the lease, and the school board would need to renew the lease six times to cover 20 years of debt payments.
“Renewing the lease would be a formality,” Paris said.
Mayor Paul Woodson acknowledged the city is taking a risk, although he said he’s not concerned.
The school system will spend between $1 million and $2 million moving out of the current administrative offices, Woodson said. In three years, it probably will cost $10 million to construct a building like the proposed central office, he said.
“If we get the school system in a brand-new, high-tech, state-of-the-art building, would a school board literally go in there and say we are moving to the bus garage?” Woodson said. “I can’t imagine they would do that.”
If the school board does have a change of membership and a change of heart, the city would have no problem leasing the three-story, 62,000-square-foot office building, Woodson said. The city has a waiting list for the Plaza, another downtown office and apartment building owned by Salisbury, he said.
The proposed central office building already has sparked development on South Main Street, including renewed interest in the vacant Empire Hotel, Woodson said, and demand for office space in the area will increase as the economy improves.
“This City Council, we’re fighters and we’ll do whatever’s necessary to make it work,” Woodson said. “If they pull out three years from now, we will have a fine building to rent.”
Although the difference in the terms of the lease and loan were not spelled out, Councilman Brian Miller acknowledged the risk of taking on long-term debt with a short-term tenant during a public hearing Tuesday night, when central office supporters packed the City Council chamber.
A new majority on the school board may “decide to do something different,” Miller said.
“I still think it’s still the right thing to do,” he said, adding the project risks are “far less” than the rewards of economic development for the city.
Miller advised people who support the central office to keep the project in mind in the voting booth. School board and county commission elections will be held in 2014.
“If we want progress to happen here, we need to vote the right people in that will make progress happen,” he said.
The Department of State Treasurer’s office received information that the proposed lease would run for three or more years, requiring the county’s approval, a spokesman said.
“It is the Department of State Treasurer’s understanding that the intent is to enter into a long-term lease of the facilities, otherwise the city would not be able to recover its costs of financing over the term of its debt,” Press Secretary Schorr Johnson said.
Paris said that information was wrong and questioned its source, since the city won’t apply to the Local Government Commission until Aug. 5.
Johnson did not reply to the Post’s request for the source of the information provided to department.
“The state and local government division is open to reviewing the most recent version of the lease and providing guidance to the parties involved,” Johnson said.
Paris said city and school system staff are still working out the final details of the proposed lease and will present the latest draft to City Council soon, but it has “always been an operational lease of less than three years.”
Several city documents, including the legal ad published in the Salisbury Post for Tuesday’s public hearing, refer to “lease purchase” financing.
Paris said the reference was to the form of financing the city will use — also known as certificates of participation — not to the agreement with the school system.
Gene Miller, assistant superintendent of operations for Rowan-Salisbury Schools, said the school system will sign a lease with the city but is not entering into a lease-purchase agreement.
“We are not buying that building or taking ownership of that building,” Miller said.
The city’s estimated financing interest rate range for the debt is 2.5 percent to 3.75 percent. Estimated debt payments range from $560,000 to $620,000 a year.
The city’s upcoming timeline for the project:
• July 25, staff to receive construction bids
• July 30, council to adopt a resolution of findings of fact for financing and award financing bid during a called meeting
• Aug. 5, staff to submit application for financing to the state LGC
• Sept. 3, LGC to approve debt financing and council to approve construction bids
• Sept. 20, close financing and start construction
• October 2014, complete construction and the school system takes possession.
In other business
Also on Tuesday, City Council:
• Heard that N.C. Department of Transportation put up signs at the intersection of Klumac Road and Jake Alexander Boulevard to help businesses.
Some businesses on Klumac Road told the Post recently they were suffering because customers didn’t realize most of Klumac is still open, even though the railroad crossing is permanently closed.
Interim City Engineer Wendy Brindle said DOT added large signs that read “local business open” and “road closed one mile ahead.”
Local DOT staff asked their supervisors to approve the non-standard signs, Brindle said, and businesses said the signs are helping.
• Amended the city’s sign ordinance to match new state laws regarding political signs to avoid confusion about when and where people running for office can post signs. The signs also can be larger, up to six feet square.
• Rezoned 2910 S. Main St., owned by Connolly Julian Properties LLC, from corridor mixed-use to highway business as part of an expansion plan for Lazy 5 Animal Hospital.
• Approved a resolution supporting the “yarn-forward” rule in the Trans-Pacific Partnership Free Trade Agreement.
• Recessed until 10 a.m. July 30, when council members will consider adopting a resolution of findings of fact for financing the school central office, as well as consider awarding a financing bid.
Contact reporter Emily Ford at 704-797-4264.