Understanding the Consolidation Potential of:

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1 Understanding the Consolidation Potential of: ISD 93 Carlton ISD Wrenshall Joint School Boards Presentation Presented by: Michael Hoheisel January 26, 2015 Robert W. Baird Co. Incorporated is providing this information to you for discussion purposes only in seeking to provide consulting services to ISD 93, Carlton and ISD 100, Wrenshall in regards to consolidation assistance. If an election is held in both Districts authorizing the consolidation of these two Districts, it is anticipated at this time the potential future election does not contemplate or relate to a future issuance of municipal securities. If the election does contemplate a future issuance, Robert W. Baird Co. Incorporated wishes to serve as a financial advisor or municipal advisor to you on the issuance of municipal securities. Baird is a municipal advisor registered with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board ( MSRB ). A financial advisor or municipal advisor is subject to a fiduciary duty, including a duty of care and a duty of loyalty, and is required to act solely in the best interests of the client. See Important Disclosures contained herein.

2 Goal of Presentation This information has been prepared to help community members understand the overall implications of consolidation between the Carlton and Wrenshall School Districts. 2

3 What is Consolidation? Minnesota has state laws allowing two or more school districts to voluntarily consolidate. These statutes (Minnesota Statutes, sections 123A.48 and 123A.485) outline the process used to consolidate the districts, give the districts some choices about how to handle outstanding debt and referendum revenue (operating levy) and provide a relatively small amount of added state funding for two years. 3

4 Financial Incentive Consolidated districts are eligible for state aid for the consolidation transition of $200 per pupil unit (resident) the year of the consolidation and $100 per pupil unit the year after. First year estimate: $195,080 Second year estimate: $ 97,540 Total: $292,620 4

5 Consolidated Enrollment Total Grade 66 Pre-K Total Grade 55 Kindergarten 68 1st 48 2nd 58 3rd 46 4th 55 5th 72 6th 402 Elem. Total 82 7th 60 8th 60 9th 62 10th 63 11th 79 12th 406 HS Total Total Grade 874 Total with Pre-K 808 Total without Pre-K Wrenshall has two sections of grade one at 13 students each and Carlton is similar. The new district would potentially have 3 sections. This scenario will be duplicated over the PK-12 model to achieve similar efficiencies while still maintaining "right sized" classes (i.e. goal of Grades K-2 at 22). 5

6 Carlton Debt OUTSTANDING DEBT - CARLTON $1,780,000 GO Taxable OPEB Bonds, Series 2009A Non-callable Principal Maturity Date Principal Coupon Interest 100% Annual Payment Required 105% Over Levy 2/1/ , % 51, , , /1/ , % 44, , , /1/ , % 37, , , /1/ , % 29, , , /1/ , % 20, , , /1/ , % 10, , , ,150, , ,345, ,412, $545,000 GO Capital Facilities Bonds, Series 2010A Non-callable Principal Maturity Date Principal Coupon Interest 100% Annual Payment Required 105% Over Levy 2/1/ , % 11, , , /1/ , % 10, , , /1/ , % 8, , , /1/ , % 7, , , /1/ , % 5, , , /1/ , % 3, , , /1/ , % 1, , , ,000 48, , ,

7 Wrenshall Debt $3,575,000 GO School Building Refunding Bonds, Series 2009A Callable: 2/1/ callable maturities reflect in gray shade Principal Maturity Date Principal Coupon Interest 100% Annual Payment Required 105% Over Levy 2/1/ , % 82, , , /1/ , % 74, , , /1/ , % 66, , , /1/ , % 57, , , /1/ , % 48, , , /1/ , % 38, , , /1/ , % 25, , , /1/ , % 13, , , ,335, , ,741, ,878, $55,000 GO School Building Bonds, Series 2002A Non-callable OUTSTANDING DEBT - WRENSHALL Principal Maturity Date Principal Coupon Interest 100% Annual Payment Required 105% Over Levy 2/1/ , % 1, , , /1/ , % , , /1/2017 5, % , , ,000 2, , ,

8 Property Tax Impact Consolidation requires the old districts to share tax responsibilities as a new district. The required responsibilities include excess levies as well as debt levies. For example, Carlton has post employment debt (OPEB bond) outstanding. Carlton s operating levy is about 3 times larger than Wrenshall. FY 2015 authority/apu, Carlton #93 1, FY 2015 authority/apu, Wrenshall # Carlton has borrowed for roof repairs. Wrenshall is still paying back their school building referendum bonds. Decisions will need to be made as to whether or not the bond payments will be shared (in part or whole) or if it remains solely the responsibility of the originating District. The goal as it stands right now is to neutralize the tax impact on like properties. 8

9 Historical Property Tax Impact Homestead Residential Property (figures below are prior to any available offsets) Estimated Market Value RMV ISD 93 - CARLTON NTC Annual Total ISD WRENSHALL RMV NTC Annual Total Prelim $50,000 $ $35.79 $ $77.81 $66.43 $ Pay 15 75, , $50,000 $ $33.43 $ $72.86 $65.78 $ Pay 14 75, , $50,000 $ $30.61 $ $58.08 $52.39 $ Pay 13 75, , $50,000 $ $31.76 $ $72.67 $52.13 $ Pay 12 75, ,

10 Goals of Consolidation Long Term Financial and Educational Viability Enhanced Programming Expanded Academic, Fine Arts and Athletic Activities Improved Facilities 10

11 Viability Savings through Consolidation Staffing Changes (i.e. 1 Superintendent, 1 Food Service Director, 1 Transportation Director, 1 Business Manager, 1 Buildings and Ground Director, 6 possible retirements {teaching staff}, right sizing of all staff to meet the needs of the consolidated district) Facilities Changes (i.e. Elimination of energy, maintenance and cleaning costs at Carlton High School) Service Delivery Changes (i.e. Less bus routes will reduce transportation costs in the areas of personnel costs, future bus purchases, reduced fuel, etc ) 11

12 Viability (continued) Allows for sustainable long term financial budget Allows flexibility for program options to be considered Savings through consolidation (estimates range from $1MM to $1.5MM depending on choices and transition period) 12

13 Level Class Sizes Cost Effective Delivery of Programs Increased Programming Educational 13

14 PK-12 Academic Programming Activities Expanded Digital Learning Options PK-12 Academic Science, Technology, Engineering, Arts, and Mathematics PK-12 Fine Arts Middle Level Exploratory PK-12 Athletic Overall Renewed Focus on General Education Leading to Student Achievement 14

15 Larger tax base for improvements and maintenance One or Two Facilities to Maintain Utilize State Grant Incentive Improved Facilities 15

16 Utilize State Grant Incentive MS 123A.443 Subdivision 1. Qualification. Any group of districts or a consolidated district that meets the criteria required under subdivision 2 may apply for an incentive grant for construction of a new facility or for remodeling and improving an existing facility. A grant for new construction must not exceed the lesser of $20,000,000, or 75 percent of the approved construction costs of a cooperative education facility. A grant for remodeling and improving an existing facility must not exceed the lesser of $10,000,000, or 75 percent of the approved remodeling costs. 16

17 Two Sites PK 5 at South Terrace 6-12 at Wrenshall PK-12 Remodel plus some New Wrenshall Campus Facility Options PK-12 All New South Terrace Campus PK-12 Remodel plus some New South Terrace Campus PK-12 All New Wrenshall Campus 17

18 Carlton Site PK-12 18

19 Wrenshall Site PK-12 19

20 Carlton PK-5 and Wrenshall

21 Facility Options to Contemplate OPTIONS PRELIMINARY COST ESTIMATE* GRANT REQUEST BORROWING COST ESTIMATED TAX IMPACT** Single Site All New $40MM - $50MM $20MM $20MM - $30MM $150- $240 Single Site Remodel plus some New $30MM - $40MM $10MM $20MM - $30MM $150- $240 Two Sites - PK - 5 at South Terrace 6-12 at Wrenshall $0 - $16MM $10MM $0MM - $6MM $0- $50 * - Subject to change, estimates are very preliminary in nature and intended to get community members thinking about options, size of grant and associated tax impact of decisions. Additional study and fact finding necessary, administration and school board involvement, etc **Tax Impact above assumes cost of $7.95 per $1MM borrowed over twenty years on $100,000 homestead residential home 21

22 Business Professional of America - Student Project Click on this link to check out the video Neil and Chloe did for their BPA project this year: BPA Project To use above hyperlink right click on BPA Project and choose the open hyperlink option 22

23 Next Steps Public Presentations Thursday, January 29, 2015 at 6 p.m. February Each School Board adopts resolution proposing to continue with consolidation plans February School Boards are asked to extend Baird s contract End of February / Early March Activities Drafting of new consolidated school district map is authorized, completed and placed in plat Meet with Carlton County Auditor and other County Officials to discuss Consolidation Plat submittal to the Commissioner of Education Have joint School Board meeting to review plat, incorporate any changes and receive approval from both School Boards to forward to Carlton County Carlton County Auditor submits Plat to Commissioner of Education 23

24 Baird Important Disclosure Robert W. Baird Co. Incorporated is providing this information to you for discussion purposes only in seeking to provide consulting services to ISD 93, Carlton and ISD 100, Wrenshall in regards to consolidation assistance. If an election for a school facilities bond is contemplated, Robert W. Baird Co. Incorporated ( Baird ) is seeking to serve as a financial advisor or municipal advisor to you on a possible issuance of municipal securities. Baird is a municipal advisor registered with the Securities and Exchange Commission and the Municipal Securities Rulemaking Board ( MSRB ). If Baird is hired as financial advisor in connection with an issuance of municipal securities, Baird will provide municipal advisory services with respect to the issuance of municipal securities, including advice, recommendations and other assistance regarding the structure, timing, terms and other similar matters concerning the particular issuance of municipal securities for which you may be considering. As such, Baird will serve as a fiduciary and act solely in your best interest. Baird s fiduciary duties as your financial advisor will include the duty of care and the duty of loyalty. Under MSRB Rule G-23, if Baird is hired as financial advisor with respect to an issuance of municipal securities, Baird will not be able to serve as underwriter or placement agent for that issuance. Should you want Baird serve in a different capacity, such as underwriter or placement agent, you should notify Baird of such decision immediately and Baird will provide additional disclosures to you which will describe the role of underwriter or placement agent and explain any actual or potential conflicts of interest inherent in that role. The Materials do not include any proposals, recommendations or suggestions that you take or refrain from taking any action with regard to an issuance of municipal securities and are not intended to be and should not be construed as ''advice'' within the meaning of Section 15B of the Securities Exchange Act of 1934 or Rule 15Ba1-1 thereunder. The Materials are intended to provide information of a factual, objective or educational nature, as well as general information about Baird (including its Public Finance unit) and its experience, qualifications and capabilities. Any information or estimates contained in the Materials are based on publicly available data, including information about recent transactions believed to be comparable, and Baird s experience, and are subject to change without notice. Interested parties are advised to contact Baird for more information. If you have any questions or concerns about the above disclosures, please contact Baird Public Finance. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that the Materials do not constitute tax advice and shall not be used for the purpose of (i) avoiding tax penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. 24