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Umbaugh Advises Indianapolis Public Schools on Indiana’s Largest School Construction Program

Project Leader: Colette J. Irwin-Knott

Indianapolis Public Schools embarked on a plan in 2001 to improve its school buildings in what has become the largest school construction program in the state of Indiana. Umbaugh has advised the district throughout the process for a total of $693 million in bond issues.

When IPS commissioned a comprehensive facility study at the beginning of its Capital Improvements Program, some of its then 78 schools were approaching 100 years of age, and it had been more than 20 years since the urban district had been able to pass a major bond issue to support facility improvements. Most of its schools lacked air conditioning, and the spaces did not support a modern education.

After intensive community consensus building, community members agreed to support an $832 million plan to improve every IPS school building over what was planned to be a decade-long program. The program was divided into phases to ease the impact on taxpayers.

Much has changed since 2001 – including the process for approving school construction projects, a nationwide economic downturn, a major statewide property reassessment, a property tax crisis in Marion County and the closing of several IPS schools. As a result, the overall schedule and scope of the Capital Improvements Program have been adjusted, and the third phase will be completed in 2014.

Colette Irwin-Knott of Umbaugh has advised the district on financing, bond issues and adjusting its financial and strategic plans to changing conditions. She also facilitated innovative bond financing packages in 2009 and 2010 using bond programs available under the American Recovery and Reinvestment Act (ARRA) of 2009, commonly known as the federal stimulus program.

“What IPS accomplished with the 2009 and 2010 bond issues had never been done before. It really was quite remarkable,” said Irwin-Knott.

The Phase 3 financing saved IPS taxpayers more than $141 million in bond payments, due to low interest rates, IPS’ strong credit ratings and the unique combination of bond programs.

“Our financial team led by Umbaugh was on the leading edge to take advantage of the stimulus funding programs,” said Dr. Eugene G. White, IPS superintendent. “It is definitely good news for IPS taxpayers.”

The net interest rate on the bonds sold in 2010 was 1.346 percent. “This is the lowest interest rate I’ve seen in my nearly 30 years of working with school bond issues,” said Irwin-Knott.

Umbaugh also assisted IPS with presentations to secure the excellent bond ratings and with refinancing bonds to reduce interest rates. In addition Umbaugh Cash Advisory Services has assisted IPS with the investment of bond proceeds.

Phases 1 and 2 of the Capital Improvements Program saved money for taxpayers as well: interest savings were $67 million in Phase 1 and $1 million a year in Phase 2.

“When Indianapolis Public Schools asked taxpayers to support the initial phases of its Capital Improvements Program we knew there would be no second chances,” said White. “With Umbaugh’s help we have kept our promises to taxpayers about tax rates and budgets. Because of sound financial management and favorable interest rates, each phase of the IPS Capital Improvements Program has been a success.”

“So much of managing a project of this magnitude depends on earning the trust of all of the stakeholders — from individual taxpayers to business leaders, bond rating companies, legislators, the Department of Local Government Finance and even the Governor’s office,” said Debra Kunce of Schmidt Strategies, the program manger for the IPS Capital Improvements Program. “The financial information Umbaugh has supplied for the IPS Capital Improvements Program has been essential. When Umbaugh provides financing and tax rate projections, people know they can rely on those numbers.”

The ultimate result of the IPS Capital Improvements Program is that learning environments are being improved for 25,000 IPS students and their teachers. Although each school’s needs are different, the IPS Capital Improvements Program is providing adequate classrooms, modern media centers, access to technology, air conditioning, comfortable and healthy air circulation, better lighting, functioning restrooms, building safety, playgrounds, lunchrooms and compliance with the Americans with Disabilities Act. The renovations are also saving energy and helping IPS reduce operating costs.

Mishawaka Sewage Works – Finding A Solution That Works Environmentally And Financially

Project Leader: John D. Julien

The City of Mishawaka’s municipally owned sewage works is working to make a nearly 60-year-old wastewater treatment facility meet federal guidelines of the Clean Water Act. Umbaugh analyzed various cost scenarios as the utility negotiated with the U.S. Environmental Protection Agency (EPA), the U.S. Department of Justice and the Indiana Department of Environmental Management (IDEM) to find a workable solution.

Like many Midwestern cities, Mishawaka built a combined sewer overflow system when its original wastewater treatment facility was built in 1952. During a major rain event when the amount of rainfall overwhelms the city’s combined sewers, the excess is released into the St. Joseph River and carries raw sewage along with it. Mishawaka expanded the wastewater treatment facility in the 1990s and invested $40 million in 2005-2008 for another expansion to increase its capacity and to treat greater volumes of wet-weather flow.

“The Clean Water Act has been a law for a while,” said Jim Schrader, general manager. “In the last few years the Act became applicable to communities Mishawaka’s size and we now need to fund these new requirements.”

The St. Joseph River runs between Mishawaka and Michigan and drains into Lake Michigan. Interstate waterways and waterways that influence the Great Lakes are high on the EPA’s priority list for Clean Water Act enforcement.

“We’re not alone in this,” said Schrader. “South Bend and Elkhart have the same situation.”

As the Mishawaka wastewater utility operations worked toward meeting current Clean Water Act standards, they developed various long-term control plan scenarios to reduce the untreated sewage being released into the St. Joseph River.

“Umbaugh helped us make those studies financially relevant by determining what burden would be placed on our commercial and residential ratepayers and comparing that to the median income in our area,” said Schrader. “The Federal government realizes we can’t ask everyone to do everything all at once.”

“Umbaugh’s financial analysis spelled out the costs of bringing our facilities up to various standards and compared them to the financial risk of penalties. It was not a one-dimensional look; it gave us multiple alternatives, including what our rate structure needs to be going forward to pay for the investments or bond repayments. From an accounting perspective, the Umbaugh studies helped us determine the investments we need to make at our facilities.”

When all parties reach agreement, Mishawaka will have a consent decree spelling out the standard it will meet going forward with its combined sewer overflow long-term control plan.

“With the proposed improvements, our intent is to have zero combined sewer overflows in a typical year,” Schrader said. “If we have a sudden downpour with four inches of rain, there will still be some overflow. We can’t build a sewer system for a major catastrophic event that will be affordable for average ratepayers. Our new goal is aggressive, but attainable.”

The solution is not being paid by federal money, although Mishawaka does qualify for low-interest loans if and when those loans are available. The proposed solution could amount to a significant investment of more than $140 million to $160 million over the next 20 years.

“The Clean Water Act has very aggressive expectations,” said Schrader. “When we ask ratepayers for more money, people will not be happy, but hopefully they will recognize it’s the right thing to do. Now is as good a point as any to address what gets remitted back to our waterways. I want to leave my children a better world than I inherited.”

Mishawaka has also used Umbaugh’s services to analyze rates for both its water and electric utilities. Their utility rates must support operating expenses.

Schrader said: “Periodically we need to address how to pay for major projects over 20 years and analyze whether our rates are fairly distributing costs to residential, commercial and industrial customers.

“We want to be prudent in how we approach rate changes. Rate cases are expensive to prepare, and it can take time for them to be approved. We want to follow a philosophy that balances the benefit of keeping rate impacts on our customers manageable with the cost of cost of adjusting rates. So when you request a rate change, you want to get it right and make sure the numbers you use will support your operations going forward.

“The importance of accurate financial data, projectable numbers and solid alternatives is huge. Working with Umbaugh, I have no doubts that the information is accurate and professional.”

Allen County Public Library Renovation and Expansion

Project Leader: Todd A. Samuelson

In response to growth and space needs, the Allen County Library, based in Fort Wayne, Indiana, renovated and expanded its main library and upgraded its branch libraries from 2002 to 2007. Umbaugh assisted with the $84 million bond issue to fund those projects.

When asked how often a project of this magnitude comes along, library director Jeffery R. Krull replied, “Once in my lifetime that’s for sure. You plan renovations of this scale with the idea of planning for the next 25 to 30 years.”

“Umbaugh worked with us on the whole financial analysis and provided good material to discuss with the community. They made a great presentation when we made our report to the library board. Todd Samuelson of Umbaugh reported on how the project could be financed, the cost and how much it would affect taxpayers — really bringing it to that personal level. He also worked with the library board throughout the planning to get our numbers together.”

Renovations to the main library were so extensive that operations moved out of the building from 2004 to 2007. The project included remodeling five branch libraries and building six new branches.

“We had great acceptance from the community right from the beginning. As each branch was opened, the community really welcomed them,” said Krull.

“The critical thing was that we had a really good, solid, well thought out financial plan,” Krull added. “The budget numbers we discussed were reliable. The financial plan provided a really great roadmap, so we didn’t have to backtrack and say ‘oops, we missed that number.’”

Since completion of the library renovations, the Allen County Public Library has continued to work with Umbaugh. They joined with Allen County, the City of Fort Wayne and Fort Wayne Community Schools to commission a detailed study of the property tax cap issue and how it would affect income for each entity.

“The state had made projections about circuit breaker losses, but those projections were at a gross level,” said Krull. “The combined group hired Umbaugh to perform a parcel-by-parcel analysis of real estate assessed values and property tax cap losses. Now we all have very reliable target numbers about what revenue we will have to work with.”

A Financial Road Map for Wayne County, IN

Project Leader: Gerald G. Malone, Paige E. Sansone

“Business as it used to run in the counties can no longer happen,” says Ken Paust, county commissioner in Wayne County, Indiana.

He’s speaking of how local governments in Indiana were affected when property tax caps began taking effect just as a general economic downturn reduced other revenue sources.

“We had an idea of the effect of property tax caps on our county and had done some budget reductions in anticipation,” said Paust.

Then a startling development occurred: “Our auditor and treasurer came to us in early 2010 and said our cash flow was so diminished, we had only enough cash to operate for another month or two. We decided the best firm to give us an impartial look at our entire county finances would be Umbaugh.

“We asked Umbaugh to look at total financial management, the effect of property tax caps, our cash flow, projections for the end of 2010, and what changes we needed to make to have a positive cash flow.”

The resulting plan is providing a financial road map to accomplish Wayne County’s priorities over the next several years. It defines the county’s financial position, forecasts receipts and disbursements, identifies potential funding gaps and recommends funding solutions.

“Wayne County was fortunate to be in a financial position that we had a solution available. We loaned ourselves $4 million from our capital reserve accounts,” said Paust. “We asked Umbaugh to structure our financial plan so we’d have adequate funds to repay the loan and also start the following year with an additional $4 to 4.5 million.”

“Full implementation of new property tax policies, coupled with current economic conditions, is requiring all local governments to look at their financial situation over a much longer period of time,” said Gary Malone of Umbaugh, who worked with Wayne County on its financial study. “It’s no longer adequate to prepare a budget for the next year; you need to look ahead three to five years.”

Although Wayne County’s controlled funds had maintained an average cash reserve of 41% in the past three years, the Umbaugh study showed that those controlled funds cash reserves would fall from the $14.8 million they had been in 2007 to just $3.2 million by 2012 unless the County made sufficient budget adjustments. Cash reserves are considered an indicator of strong financial stability and they fund essential operations and cover temporary cash flow deficits.

Similar analyses were performed for all County funds – from highway and local road and street funds to courthouse, debt service and capital projects funds.

Paust adds: “Without Umbaugh’s assistance, we wouldn’t have known exactly how much to cut out of our budget this year. Having that number is worth its weight in gold. You need to know for sure what the number’s going to be.

“Wayne County has always managed its money very well, but we have to be even better managers of taxpayers’ dollars now because there are fewer dollars to work with. Counties need to stay ahead of this, and Umbaugh can give you financial information to do that.”

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